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Doing Business In Latin America: Does Your Local Supplier Have Best Practices In Place So That Your Company Can Avoid Liability Under The FCPA?

I read an interesting article the other day, and wanted to discuss the importance of electronic invoicing in Latin America when considering the Foreign Corrupt Practices Act.  I think all too often we get focused on the technology and forget the business implications that these e-invoicing mandates can have on our global operations.  Here is a short excerpt from the article – the link is below:

Last Updated: August 8 2013

Article by Alejandro E. Moreno

Sheppard Mullin Richter & Hampton

To Access the Entire Article – Click Here


“Imagine yourself the CEO of a successful multinational company. In the past few years, you have overseen ACME’s expansion into Latin America – a market whose demographic profile holds the promise of mouthwatering profits for your company, particularly with the upcoming holiday season. As they say, la vida es buena!


In planning for the Latin America expansion, you knew about the rules and prohibitions of the Foreign Corrupt Practices Act (“FCPA”) and implemented measures to ensure your employees do not run afoul of the law. However, you may not have known that the company can incur FCPA liability for payments made by third parties, such as such as suppliers, logistics providers, and sales agents, with whom your company works. In fact, a company can be held liable if it knows or should know that a third-party intends to make a corrupt payment on behalf of or for the benefit of the company. Because a company can be responsible for conduct of which it should have known, a conscious disregard or deliberate ignorance of the facts will not establish a defense.


To protect your company from third party liability, it is essential to perform due diligence on potential business partners. This is not to say that you cannot consider the recommendations of local employees in selecting business partners. Relying on those recommendations alone, however, could expose the company to FCPA liability…”


So how does this relate to electronic invoicing in Latin America?

  • Many multinationals have spent the past 5 years centralizing their ERP system onto global instances in order to get better visibility. However, many companies still run electronic invoicing locally.  We have talked about the support and change management risks but there are also business risks. If you spent millions to consolidate your financial systems, why not get involved to ensure you have the ability to obtain visibility. This is why I recommend that corporate become involved – with globalization, there will always be local requirements that drive global outcomes.  In the end, the global ERP is still the system of record.
  • The government is monitoring all of your supplier’s invoices –to you, to other customers, to their suppliers, etc…In Latin America including Brazil, Argentina and Mexico – the database to track spend is comprehensive. If the governments have this ability, why would you give it up as well?

Make sure you understand the accounting provisions of FCPA: FCPamericas is a great resource to educate yourself – also here some real life examples and excerpts from this resource.

“ACCOUNTING PROVISIONS. The accounting provisions require U.S. and foreign companies registered on any U.S. securities exchange to make and keep books and records in reasonable detail to accurately and fairly reflect transactions and disbursements of the company’s assets and to devise and maintain a system of internal accounting controls that ensures transactions are executed in accordance with management’s authorization. The FCPA Guidance offers helpful insight into the accounting provisions, discussed here.

Off-the-Books Accounting: Maintenance of secondary books to hide bribe payments. This is the basis of some of the alleged wrongdoing in the Wal-Mart de Mexico investigation.

Mischaracterization of Bribes in Books and Records: Bribes concealed as legitimate payments, such as commissions, royalties, consulting fees, sales and marketing expenses, miscellaneous expenses, or petty cash withdrawals. A violation might involve misreporting large bribe payments or widespread inaccurate recording of smaller payments made as part of a systemic pattern of bribery. Such mischaracterizations were rife in the Biomet case involving Brazil and Argentina. For example, bribes to Brazilian doctors were recorded wrongly as “commissions.”

Absence of Supporting Documentation: Payments made for illegitimate reasons lacking legitimate supporting documentation to confirm the payment’s actual recipient and purpose. For example, in the Nature’s Sunshine case, the company made undocumented cash payments to Brazilian customs brokers, some of which were passed along to customs officials, to gain entry of unregistered products into Brazil. While the company booked the cash payments as “importation advances,” it failed to maintain any receipts or other documents supporting this characterization. In general, when employees use cash to make business payments, it is particularly important to maintain supporting documentation.”

I wanted to bring FCPA up as just another example of why it is importantfor the corporate HQ to get involved in electronic invoicing decisions around the world.  Today, there is no such thing as a local decision – all decisions can affect the global business.

In later articles, we will talk more about the business issues associated with electronic invoicing in Latin America. Most executives don’t realize that you can’t ship if you can’t perform these processes, if done poorly they can extend your Days Sales Outstanding and ability to collect from customers, and they definitely affect your local taxes and deductions.

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