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Language evolves in unique ways. One day, a word gets no use at all. The next, everyone is using it. Recently, this has happened with the word “‘kleptocracy.” Once a rarely used way to describe a corrupt government, the FBI now uses it as a platform to recover billions of dollars in fines from the people who have erred on the wrong side of the Foreign Corrupt Practices Act (FCPA).

It isn’t important if you can use the word in a sentence, but it is important to recognize a kleptocracy when you see it. Being able to spot the first signs of a kleptocracy will keep you from becoming tangled up with investigations into possible FCPA violations. Train your employees to maintain their ethics in countries where the atmosphere might be one of corruption. Above all, assess risk regularly to ensure that they will continue to uphold these ethical standards.

How to Recognize and Avoid Kleptocracy Entanglement

One of the largest kleptocracy cases in history spanned several continents and involved billions of dollars in misappropriated funds. It all started with a fund designed to improve a struggling country. The Malaysian government set aside several billion dollars to spur economic development. Unfortunately, that’s not what the funds were used for.

Instead, they were diverted into shell companies set up through the U.S., Switzerland, Luxembourg, and Singapore. The money was used to purchase luxury cars, homes and even, ironically, to fund the film The Wolf Of Wall Street. An FBI organization known as the Kleptocracy Asset Recovery Initiative is still investigating the case, but it has noted that the scope is far reaching.

Kleptocracies are global networks that use professionals and businesses in foreign countries to launder money they want to put into their own pockets. While kleptocracies are caused by corrupt rulers, the thing that keeps them going are the professionals who make them look legitimate. Companies need to start at home to curb the threat these present. The key to that is recognizing one when you see it. Some common characteristics include:

  • Kleptocracies usually start in autocratic or nepotistic countries – It’s easier for kleptocracies to form when there’s no oversight for the person in charge of the country. While in the U.S. you can impeach a president, in many countries there’s absolutely no recourse for the actions of the ruler.
  • They are more common in developing countries – Most often, kleptocracies exist where rulers and governmental structures are changing. Many countries that the U.S. does business with are developing nations. Some of the biggest include India, Peru, and China.
  • Government officials have undisclosed business interests – In the U.S., it’s more common for our politicians to not have jobs outside of being politicians. In other countries, it might be more common for officials to be business owners. While that might be acceptable, the official using their office to push their business is not.

Any country, and any company, is vulnerable to becoming part of a kleptocracy if they don’t take the appropriate steps to prevent this. It’s not possible in most cases to entirely cease business in regions where this is prevalent. It is possible, however, to prevent that entanglement by being proactive.

Managing Risk with Employee Awareness

Business is global these days, and riskier. Chances are, you already have employees, or even offices, in places like China and India. Managing the threat of kleptocracies begins with how you manage your employees. Steps to take include:

  • Start regular training on the FCPA and Anti-Money Laundering Acts – To protect employees, they need the right information. Regular training on the company’s policies to avoid misdealing is needed and it needs to be repeated as laws change and employees change positions.
  • Set up a reporting system for employees – This reporting system can be a place where employees can report possible corruption and violations of the FCPA. Employees should know who to contact and what to do if or when a foreign official asks them to do something unethical.
  • Maintain financial transparency – The best way to avoid misuse of funds claims is knowing where all your funds are going. Have transparent bookkeeping and require employees to submit receipts for expenses.
  • Get employees to certify their compliance with the FCPA – Employees should sign a statement yearly that states they understand their duties under the FCPA. They should also undergo an annual risk assessment. This can be conducted via Remote Risk Assessment (RRA). RRA is a tool that allows you to interview employees via telephone and assess their knowledge of the FCPA along with their overall risk level.
  • When in doubt, ask the DOJ – The Department of Justice is the final word on what’s acceptable under the FCPA and what’s not. When you think there might be an FCPA issue, you can request their opinion and get back an answer within 30 days.

While it’s not always possible to avoid dealing with a kleptocracy, it is possible to limit your exposure. Make sure your employees act ethically in at-risk countries and you can prevent violating the FCPA. Using the tools at your disposal will help you identify areas where you might be exposed to risk and fix them.

One of these tools, RRA, is available from Clearspeed. Our RRA system uses brief, automated telephone interviews to assess employee risk level. As the employee answers questions, our proprietary technology analyzes and evaluates characteristics of the human voice to determine risk. This allows you to get real, accurate results to best protect your company. For more information on our advanced risk assessment solutions, contact us today.