Key issues to consider while doing business in emerging markets: How to be compliant?
Emerging markets harbor appealing business opportunities for investors especially from developed countries due to their ever-growing nature. In the World Bank’s Doing Business 2020 Report, Turkey, as an emerging market, ranks 33 out of 190 economies and jumps up 10 places by scoring 76.8 overall, in terms of ease of doing business. Turkey has comprehensive laws and regulations regarding corruption and bribery and also ratified The Council of Europe Criminal Law Convention on Corruption of January 27, 1999, the Council of Europe Civil Law Convention on Corruption November 4, 1999, Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, the United Nations Convention against Corruption etc. Yet, the nature of the conduct keeps the battle going. Thus, combatting corruption and bribery continues to be a necessity, and some risks continue to be pitfalls for companies. The complexity of combatting corruption and bribery may arise from (i) existing corruption culture; (ii) a weak framework to avoid corruption; (iii) different perceptions on corruption; (iv) absence of the political will to fight; and/or (v) lack of transparency. Therefore, investors should pay particular attention to compliance culture in the jurisdiction and not just in the company itself, to protect the company. In order to do that, the rule of law in the jurisdiction, application of the laws, independence of the judiciary, and society’s trust in the system should be evaluated.
In addition to local applicable laws, international companies that have a US nexus, should vary in enforcement in other jurisdictions. US Department of Justice (“DOJ”) is relentless in pursuing these matters in general. In 2018, a total of US$2.89bn was sanctioned by the DOJ to resolve cases regarding the Foreign Corrupt Practices Act (“FCPA”). A Brazilian oil and gas company paid a record US$1.78bn to the DOJ, Securities and Exchange Commission (“SEC”) and Ministerio Publico Federal in Brazil. In addition to monetary fines of companies, the DOJ took action against more than 30 individuals for their contribution to corrupt behavior. Turkish companies appeared in several cases of DOJ and SEC. In 2010, a company agreed to pay US$185m combined to DOJ and SEC for its Turkish subsidiary’s illicit payments to third parties. A multinational conglomerate company agreed to pay US$1,6bn in 2008 for payments made by its subsidiaries in kickbacks.
In this realm, where corruption is a high risk factor in emerging markets, anti-corruption and bribery enforcement crosses borders (i.e. (i) issuers and their officers, directors, employees, agents and shareholders (ii) domestic concerns and their officers, directors, employees, agents and shareholders and (iii) certain persons and entities other than issuers and domestic concerns acting while in the territory of the US, it is extremely important to avoid corruption schemes that could result in DOJ and SEC imposing substantial sanctions on companies and individuals. In order to avoid prosecution and the inevitable reputational loss, companies should have an effective compliance program. Investors that consider investing in Turkey or international companies doing business in Turkey should apply the following measures in order to minimize the multijurisdictional risks.