Global Anti-Bribery Compliance: Foreign Subsidiaries and Affiliates

Foreign subsidiaries of companies subject to the FCPA, the UK Bribery Act, or other anti-bribery legal regimes are typically not subject to their anti-bribery provisions.  For example, in theory a foreign subsidiary of a U.S. company is not subject to the anti-bribery provisions of the FCPA.  This seemingly illogical result is premised on concepts of comity.  However, It should not give companies comfort in terms of extending their internal controls and compliance programs to their foreign subsidiaries or affiliates.

Other provisions, such as the FCPA’s accounting and record-keeping provisions or the Companies Acts in the United Kingdom, may expose a parent company to liability for the actions of its foreign subsidiary.  Moreover, actions on the part of the foreign subsidiary in terms of interacting with the parent company may expose the foreign subsidiary or affiliate to territorial jurisdiction in the country of the parent.  With there being so many ways of communicating across borders, the likelihood of territorial jurisdiction being established is great.

Even more likely is the prospect of a parent company being held vicariously liable for the actions on the part of its foreign subsidiary. In effect, the actions on the part of the foreign subsidiary may be construed as being undertaken on behalf of the parent company.  A parent company cannot simply look the other way when it becomes aware of actions on the part of its foreign subsidiary that may constitute a violation if undertaken directly by the parent. Otherwise, it may be held vicariously liable for actions of the foreign subsidiary or affiliate.

As a practical matter, what may be perceived as a loophole in anti-bribery legal regimes should be disregarded.  The assumption should be that a foreign subsidiary may taken actions that could implicate the parent company.  Common sense therefore dictates that compliance policies and procedures must be implemented throughout a company’s subsidiaries and affiliates.  Such an approach is far more prudent and realistic than taking a more casual approach on a misplaced assumption that a particular law may not apply to the foreign subsidiary.

A company with only a minority interest in a foreign affiliate may have a limited ability to impose adequate compliance measures.  To avoid being held vicariously liable for improper activities on the part of a non-controlled affiliate, a company should take all reasonable steps within its power to cause the affiliate to establish, implement, and actively enforce effective compliance programs. Whatever leverage or influence is available should be fully exercised.  In other words, it must take steps to demonstrate that there was no knowing acquiescence to prohibited conduct.

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