Doing Business In Italy - Step Up Your FCPA Compliance Now

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Ed. Note-I met last week with Craig Bloom, a colleague who practices law in Houston. Craig, who is fluent in Italian, was telling me about some of the compliance issues that have been percolating in Italy and in Italian companies. I asked him if he would write a piece on his thoughts, which he graciously agreed to do…

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Former Italian Prime Minister Silvio Berlusconi is no stranger to scandal and controversial statements, but lately his words and actions seem to be providing cause for concern outside of the European Union.

Last week, the Wall Street Journal, in addition to Italian media outlets, reported that the Chief Executive of one of Italy’s largest conglomerates, Finmeccanica, SpA, Giuseppe Orsi, was arrested under allegations of bribery in Finmeccanica’s sale of twelve helicopters to the Indian Government in 2010. As a result, the Indian Government has suspended the sale pending an investigation into these allegations. It is important to note here that according to the Wall Street Journal, the Italian Government owns just over 30% of Finmeccanica. Now, Italian investigators are looking into the company’s dealings in Latin America, Asia, and other EU countries.

But Berlusconi added even more fuel to the fire last week, while speaking to an Italian news channel, by stating his belief that bribes are a necessary part of doing business. Quoting the Italian newspaper Corriere Della Sera, in an article entitled, “Paying Bribes Abroad A Matter of Necessity”, he said “We can no longer compete abroad. We’ve been shooting ourselves in the foot. No one will do business any more with ENI, or ENEL, or Finmeccanica. Bribery exists. It’s pointless to ignore reality. Paying a bribe abroad is a matter of necessity.” But the former Prime Minister, who is running for reelection, did not stop with those remarks above. “Bribery is something that exists and you can’t ignore situations of necessity if you are going to negotiate with third-world countries or certain regimes.” Certainly, had these comments made by an American presidential candidate, they would be refuted in the strongest of terms by officials, if for no other reason than to distance themselves from the comments. Not so in Italy. Said the current Prime Minister Mario Monti, “It is a fact that bribes are often part and parcel of business, particularly in some countries, but that they should be looked on as necessary and unavoidable is something I reject.” It should be noted that Prime Minister Monti went on to blame Berlusconi for failing to pass an anti-bribery law during his tenure.

ENI’s Problems

According to its website, ENI, Italy’s largest petrochemical provider, currently conducts business in several American locations, including Houston, Fort Worth, and Anchorage, in addition to off-shore operations in the Gulf of Mexico. The Italian Government is a 30% shareholder in the company That ENI does business in the United States and is required to file reports with the SEC every year makes it subject to the jurisdiction of the FCPA.

There have been several investigations performed in response to allegations of bribery payments by ENI subsidiaries, specifically in Algeria. These investigations and allegations obviously make ENI a large target for Justice Department or SEC investigations, not only in the United States. Though it is outside the scope of this blog, companies doing business with ENI potentially leave themselves open to UK regulatory actions under the UK Bribery Act.

Effective Compliance in Light of These Developments

What does this mean for the compliance professional in the US or UK? The short answer is likely obvious — companies need to be extra diligent in their dealings in Italy and with Italian third parties, but this short answer ignores several nuances outlined in the hallmarks of an effective compliance program stated in the recently releases DOJ/SEC FCPA Guidance .

The Guidance places emphasis on risk management. Ostensibly, a corporate compliance professional should be more concerned about actionable FCPA violations in a country such as Somalia (dead last in the 2012 corruption index) than about violations in Denmark, New Zealand, or Finland (all tied for first). As a reference point, Italy’s place on the Transparency International Corruption Index last year was #74, #69 in 2011, and #67 in 2010. While that variance may be attributable to factors outside of Italy’s control, its overall score has been about average over the past three years. 42 in 2012, 39 in 2011, 39 in 2010. Transparency International’s report states that two-thirds of the over 170 countries on the list have a score of 50 or less, and this obviously includes Italy. According to Transparency International, these indices are determined based on perception. “Capturing perceptions of corruption of those in a position to offer assessments of public sector corruption is the most reliable method of comparing relative corruption levels across countries.” The recent statements made by both Mr. Berlusconi and Prime Minister Monti could not have been accounted for in these corruption indices. If, however, the true metric for measuring corruption truly is public perception, then these public statements cannot help but cast doubt on Italy’s true position on this list, and subsequently the perception of corruption. Imagine former President George W. Bush or former Prime Minister Gordon Brown making similar public statements with regards to the inevitability and persistence of bribery in developing nations… So regardless of specific formula or calculus, it would behoove any US or UK company doing business in Italy or with Italian companies to analyze bribery and corruption risks in light of these recent public statements.

Obviously this problem extends to third party representatives who perform services in Italy. While the Guidance cautions against a one-size-fits all policy, a willingness to step up due diligence in light of recent events involving Italy would also be good corporate governance. This can take many forms, but may include the necessity to scrutinize whether an Italian intermediary is truly necessary to accomplish the multinational organization’s goals. Additionally, the company might want to double their efforts to audit the Italian third parties, potentially performing more frequent audits or requesting more highly detailed reports. Finally, if the DOJ/SEC are aware that efforts have been increased to combat these prohibited practices, they are more likely to be lenient on the company.

A compliance practitioner should keep abreast of changes or other information which may indicate a greater risk of bribery and corruption. When the former Prime Minister of a country you are doing business in or with says that bribery is just a requirement of doing business this puts you on actual notice that something may well be amiss. The time is now for you to assess your risks, perform more or additional due diligence, monitor and audit your third parties in that country and then train any high risk parties. The same would be true for any joint venture relationships that you might be in with companies from said country. Do not wait, do it now as you have been warned….

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If you need assistance regarding any Italian FCPA issues, I suggest that you contact Craig Bloom. He can be reached at craig.a.bloom@gmail.com.

Topics:  Bribery, Compliance, Corporate Governance, Corruption, DOJ, Due Diligence, ENI, EU, FCPA, FCPA Guidance, Oil & Gas, Risk Management, SEC, UK Bribery Act

Published In: General Business Updates, Criminal Law Updates, Energy & Utilities Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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