Cuba 4-Managing the RelationshipToday, I continue my exploration of doing business in Cuba from the Foreign Corrupt Practices Act (FCPA) perspective. Yesterday, I made clear that anyone you do business with in Cuba is going to be a foreign official under the FCPA and it will apply to every interaction in which you engage in Cuba. Today I want to work through some of the implications of this and how you might protect your company going forward.

One of the interactions we had on the trip was with four Cuban lawyers. The initial thing that was apparent was their age, from 25-30. Much, much younger than most American firms would put in front of prospective clients or even allow to represent the firm in events. They were all very knowledgeable and enthusiastic about practicing law going forward.

There are three law firms in Cuba that are authorized to do work for foreigners and are owned by the Cuban government. This has several important implications for any foreign entity doing business in Cuba. From the FCPA perspective this means all interactions will be covered by the FCPA. From the attorney/client perspective, it could also be problematic. We did pose this question to each attorney present and they all said they had never been pressured to cede any information which you and I might consider confidential to the government but as the client, you need to understand who the ultimate owner of each law firm is in all of your dealings with any Cuban lawyers.

You will need some form of counsel or advisor to navigate the Cuban laws regarding investments by foreigners. Whether you utilize Cuban lawyers or some other group or entity, such as the Chamber of Commerce, a professor with expertise in the area or another advisor, you will have the same FCPA issue. All of these persons work for entities that are owned by the Cuban government.

Typically in the life cycle of third party management, you would perform background due diligence to determine if any of the owners or beneficial owners are politically exposed persons (PEPs). However, in Cuba, any person or entity of repute that you would consider as a trusted advisor already is an employee of the government; either as a government minister or some type of advisor, such as the lawyers we met with during our trip.

On the one hand, it does make things much clearer if the government does own the entity you select as an advisor. There is no question that the FCPA is involved but more importantly, there is no question that any of the monies generated by the law firm or other entity will be going to line the pockets of a government minister who has discretionary decision making authority over your business opportunity in Cuba. The profits generated by the law firm or other entity will be paid to the Cuban government.

However, due diligence is only one step in a five-step process to manage third parties under the FCPA. The first step is still a business justification. Here it may be somewhat easier as there are so few knowledgeable counselors available to your company to consult with on business opportunities in Cuba. Once again there are only three law firms approved to do legal work in Cuba for foreign entities. Step two in the process is the questionnaire, which is done to obtain basic information on who the owner and beneficial owner of your third party is, see if the person or entity is generally aware of the FCPA and anti-corruption compliance, see if they have received any type of training, have they been involved in any compliance related incidents and, finally, they agree to release any claims of privacy around such information requests.

While it may be apparent from the tenor of this blog post what the answers to most, if not all, of these areas of inquiry will be; I think there is an added purpose to this FCPA questionnaire. It is another step in the communication to the third party of your company’s expectations around FCPA compliance and a zero tolerance for bribery and corruption. Moreover, given the level of sophistication by Cubans around international anti-corruption legislation, the questionnaire process will most probably require detailed and lengthy explanations but you will have the opportunity for some serious education in not only what the FCPA requires but your company’s expectations.

The next iteration in the five-step process is the contract. The FCPA Guidance specifies some minimum compliance terms and conditions which should be included in any contract with a third party consultant. These compliance terms and conditions include audit rights; training requirements around the FCPA and other anti-corruption laws; representations that the consultant will abide by the FCPA and other anti-corruption laws; and ensuring that payments requested by consultant have the proper supporting documentation before they are approved for payment. I would also add that you should include language which makes a FCPA incident a material breach of contract; full cooperation by the consultant with any FCPA investigation and possibly an indemnity for FCPA violation.

All of these compliance terms and conditions are going to be new to any consultant you retain in Cuba, law firm or other. You will need to explain why they are required and how they may be invoked. Many persons and entities outside the US, when they are first confronted with these compliance contract requirements, are insulted, mistakenly thinking you are saying they will engage in bribery and corruption. This can be a delicate educational process but one which you will have to patiently explain.

All of this leads to the final step in the five-step process but one that I have come to believe may well be the most important step; managing the relationship after the contract is signed. I think it is self-evident that you will need to put on your own FCPA compliance training, as there will be no local assets of experts you can retain. While all of the lawyers we met with spoke very good English, my suggestion would be to put on the training in Spanish for more complete understanding by the participants. This means a translator or Spanish speaking FCPA expert (here think of FCPAmericas blog founder Matt Ellis) will be needed.

Finally, you need to consider the payment terms. The FCPA Guidance says that you should look at “how those payment terms compare to typical terms in that industry and country, as well as the timing of the third party’s introduction to the business.” The FCPA Guidance also specifies, “Moreover, companies may want to confirm and document that the third party is actually performing the work for which it is being paid and that its compensation is commensurate with the work being provided.” This may be hard because there is no historical data for you to compare other than the standard hourly rates charged by the three Cuban law firms for general corporate work.

The FCPA Guidance makes clear that compensating a third party for commercial services rendered is acceptable and well within the parameters of the FCPA. What companies will have to do is to document all of the steps I have laid out. The Fox Mantra of Document, Document, and Document will play out as strongly for any company doing business as anywhere in the world; perhaps even more so. Due to the very unique nature of the Cuban economy the pressure maybe greater for step five, aka managing the relationship after the contract is signed. Finally, you will have to communicate and educate your Cuban business partners on your obligations under the FCPA and the obligations they will find themselves under when they do business with an American or other foreign company subject to the FCPA.


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© Thomas R. Fox, 2016