Legal and Ethical Considerations

Legal and Ethical Considerations

Formulae is looking into setting up operations and extending our business to both Guatemala and Mexico. Now, the success of these expansion projects is going to be built upon many factors, and among them legal and ethical conduct will be of the utmost importance. Both Guatemala, and Mexico have in common many culturally based legal and ethical rules. However they also have differences, and of course they not only separate each other, but also the fact that we are coming from a completely American perspective in our approach as it exists today will make the integration of local laws, and regulations a vital part of our operations in those regions and help us to better equip our people with guidelines for doing business without risking lawsuits for improper conduct. Such lawsuits would reflect badly on our organization throughout the world and could lead to individual incarcerations abroad. The old adage “don’t do anything that you wouldn’t be proud to tell your mother about” is a good one to keep in mind, but it simply won’t be enough to guide you when dealing with foreign legal and cultural differences.

The ethical side of this does not just end with the legal considerations. Mexico and Guatemala have very different ways of conducting business and day to day affairs in general. Observing the cultural norms for doing business as much as possible will make for a more attractive and comfortable environment for locally hired employees. Things like work hours, pay dates, holidays, etc should be tailored to that which is locally customary or interlaced with the currently used policies regarding those areas. It would be unrealistic and rude even to just go into these markets and try to run things as though we were still in our home country.

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Corruption in its many forms is a legal problem which is so well recognized that it has created a business environment in many countries that necessitated the creation and institution of the Foreign Corrupt Practices Act. The FCPA can impose penalties upon United States businesses who are engaging in prohibited activities. Many places in the world regularly employ bribes to facilitate business transactions. Much of Central America is known for this and thus doing business in both Mexico and Guatemala makes it necessary for us to become familiar with its provisions and assure that we are not in violation.

The Foreign Corrupt Practices Act is broken down into three basic sections as follows (Stimmel, Stimmel & Smith, P.C., 2004):

– The worldwide business activities of U.S. corporations must be free from paying bribes directly to foreign officials. Also, they may not offer or promise to pay, or authorize a bribe. This includes presenting of any gifts of value to foreign officials to secure or retain business or obtain an immoral accommodation. The FCPA explicitly prohibits offering business opportunities, extravagant recreation, excessive activities to promote business and covering or reimbursing expenses of officials. Charitable, political, or similar contributions are also prohibited.

According to the FCPA a foreign official can be any government employee. Also included are the officers, directors, and employees of government-owned companies. Persons not considered public servants locally may be considered an official by the DOJ as well. Gifts or payments may not be made to employees of companies in which the government has any ownership.

In addition to the aforementioned, the giving of gifts to a candidates for government office, officials of a political party, or the political party itself in order to obtain or retain business or to obtain an immoral accommodation. Both the Justice Department and the SEC have applied the FCPA to cover payments or gifts to members of the family of a government or party official, as well as charitable contributions.

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– Books and records provisions, which apply to U.S. or foreign-based companies whose stock is publicly-traded in the United States, require that all companies in a controlled group or which are related entities which form part of the corporate group, maintain accurate accounting records coupled with an organizational methodology for internal controls over the company’s assets.

– One provision of the FCPA that allows U.S. companies, U.S. citizens, and residents of the United States to be held liable for improper payments made by non-employee third parties, even payments of which they may be unaware can be a major source of risk. For example, if a U.S. company were to hire a local consultant in another country, and that person or partner were to make an improper payment or contribute part of his compensation with a government official of that country, the U.S. company that entered into the relationship with the agent could be held accountable for the actions of the hired consultant. Similarly, if a partner acted as an agent for the U.S. company, took any action to advance payment while in the United States, the FCPA would petition the partner, in addition to addressing of the U.S. company.

Penalties for violating the FCPA can include imprisonment and fines. The base fine of $2,000,000.00 may be imposed for every violation. Individuals may be fined $100,000.00 per violation and imprisonment for up to five years. Employers are not allowed to pay the fines due for their employee. Violations may be cause for barring one from business actions with the Federal government, and securities. Ineligibility to receive export licenses may also result.

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In order to simplify matters a Foreign Corrupt Practices Act Opinion Procedure allowing for U.S. companies or nationals to request a statement of current Justice Department enforcement intentions under the antibribery provisions of the FCPA regarding proposed business conduct (Foreign Corrupt Practices Act Antibribery Provisions, 2010). Actions for which the Department of Justice has issued an opinion confirming conformity to current policy will be entitled to a presumption, in any subsequent enforcement action. Copies are released of previous opinions can be found on the Department of Justice’s FCPA web site.

To restate from above, observing local laws and being ethically sensitive we can keep ourselves and the company from costly legal troubles. Also, it is indeed only good manners to do so and will help buoy our position in the international community. More markets will be open to doing business with us and allowing us to do business in their backyard. Always be mindful of the FCPA and know that it can and will be enforced as it has been in the past on occasions when payments to officials of public international organizations such as the United Nations and the World Bank were made in violation. These cases can and should be researched for reference as well.

Last, I would like to stress the importance of appointing a subject matter expert or experts preferably from the legal and or HR department who can educate all employees and in so doing keep the risks of inadvertent violations to a minimum.


Foreign Corrupt Practices Act Antibribery Provisions. (2010). Retrieved February 23, 2010, from UNited States Department of Justice:

Stimmel, Stimmel & Smith, P.C. (2004). The Federal Corrupt Practices Act: The Basics. Retrieved February 23, 2010, from Law Offices of Stimmel, Stimmel & Smith A Professional Corporation:

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