I welcome you to a new series entitled Compliance Man Goes Global podcast of Compliance Report-International Edition. I am joined by Tim Khasanov-Batirov, a compliance practitioner who focuses on compliance in high risk markets for 17 years. In each podcast, we will take two typical concepts or more-probably misconceptions from in-house compliance perspective of conventional wisdom. We check out if these concepts work in emerging jurisdictions. For each podcast, we divide roles with one of us advocating the particular concept identifying pros; the other will provide arguments finding cons. Tim will conclude each concept with some practical solutions for in-house compliance practitioners for high-risk emerging markets.

Today we explore the following two concepts:

Corporate Concept #1. We have detailed policies in the HQ. We deployed those policies at our subs located in emerging markets. We will be just fine.  

Corporate Concept #2. If there is a compliance person located at high risk market we could significantly mitigate our corporate compliance risks.

Tim Khasanov-Batirov: Here are my pros:

Argument #1.

Obviously, it is vital to have a clearly articulated “rules of the game” in written form. Specifically it is important in civil law countries where the “black letter” form of document is a formal standard. Therefore, in many CIS countries for instance absence of particular formal requirement to employee in the corporate policy (presuming that local law is silent on the same) simply means that such corporate requirement or employee’s duty just does not exist;

Argument #2.

You can train personnel on specific policy. You can refer to a specific policy or its particular provision when you talk to senior management. You can impose discipline for violation of the policy. There is no way to implement a compliance program at a high-risk market referring all the time to “spirit”, “reputation” or “integrity”. It is just won’t work there;

Argument #3.

When you have a policy, you have a universal standard, which is common for both the HQ and operational unit anywhere in the world. In corporate reality there is no way to employee located anywhere in the world just to ignore written corporate policy.

Argument #4.

Finally, it is a regulatory requirement per the DOJ and the SEC guidance. It looks that I am about to win, Thomas.

Thomas:  Not that quick, Tim. Let’s refer to some pitfalls which will make you to re-think about corporate policy-making. Here are cons:

Argument #1.

The corporate anticorruption policy, which is fine in the US, for example might not be necessarily fully or partially enforceable or formally legal as per local laws in the foreign country.

Argument #2.

If you have an ambiguous or complicated legal language in the policy that will not work both in the US and overseas.

Argument #3.

Regulators expect companies to avoid “paper compliance”. Therefore, the written policy should really work. Simply having a policy as such is not a cure.             

Tim: Agreed, Tom. So, what will be our recommendations?

Thomas: We recommend the following simple approach: No doubt, policymaking is an important element of the corporate compliance program. To make corporate policy work globally be sure that its language is clear, and that is the policy is tailored per specific country (for instance in terms of formal adoption which may vary from jurisdiction to jurisdiction). I believe Compliance man referred to tailoring element in Episode 4. In addition, please ensure that your senior managers in the HQ and country management located at high-risk markets know “rules of the game”.

Tim: Sounds practical and handy, Tom. Looks, it’s time for a second round. We will examine a following statement: “If there is a compliance person located at high risk market we could significantly mitigate our corporate compliance risks”. Tom, will you support this philosophy?

Thomas: Yes, and I have the following arguments as pros:

Argument #1.

It is obvious that having a person in charge of compliance at high-risk market allows to promptly identify, tackle and escalate risk to attention of management and compliance team at the HQ. Only this mere fact gives me a feeling that I will win this round.

Argument #2.

Local compliance officer is a best person for corporate compliance team to approach on national business environment and applicable integrity laws of the particular jurisdiction. This helps a lot to manage compliance risks.

Argument #3.

Implementation of the corporate compliance program in a distance seems to be a non-efficient approach. Therefore, you need a person located in each particular jurisdiction. In addition, a compliance person on the ground will be able to manage myriads of local matters, which arise from routine business activity in the particular country.

Do you have any cons on this obvious concept, Tim?

Tim: Yes, Tom. Moreover, I have more than one argument here. Cons:

Argument #1.

Practice shows that you do not necessarily get the lawyer. Or experienced lawyer. Or lawyer who feels comfortable to explore matters which go beyond traditional legal area as anticorruption clauses in the contract and drafting in-house policies. In such circumstances, having a person in each country does not bring any added value to your compliance efforts.

Argument #2.

A couple of words on organizational hierarchy. To start with, according to laws of many countries being an employee of locally incorporated entity national compliance officer reports to country head, no matter what global corporate matrix prescribes. This would mean that dependency on local management remains in any case. I am sorry if we destroy illusions of compliance community at corporate HQ.

Argument #3.

It is about budgeting. Emerging markets pose the highest risk from enforcement prospective. Due to financial restraints or any other corporate reasons, we have seen that in many cases corporations have been looking for compliance personnel asking just a minimum: a couple of years of professional experience and legal diploma. Would you rely on such team members at high-risk markets’ reality?

Thomas: Agreed. What we would recommend from practical side, Tim?

Tim: It looks that when we talk about compliance personnel allocation at high-risk markets a number of factors have to be taken in consideration. Firstly, a risk based approach. Obviously, you want to have a compliance person at jurisdiction, which pose a high risk. Secondly, it should be an experienced person who will have authority and powers to effectively manage risks in particular jurisdiction. Thirdly, it might be lawyer or expert in other occupation area as long as he or she is tackling requirements of 10 Hallmarks of the Effective Compliance Program rather than dealing solely with familiar to this person area as law or accounting.

Thomas: Fair enough, Tim. It looks to be a practical tip. Tom Fox and Tim Khasanov-Batirov were here for you.   Join us for the next episode of Compliance Man Go Global episode of FCPA Compliance Report International Edition.  Let’s bust more corporate compliance myths with us.