ALM Properties, Inc.
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Antibribery Compliance in the Gulf States
I travel frequently for business. Consequently, I spend a lot of time on planes with others who travel a lot for business. On a recent flight to Dubai, I found myself next to a self-proclaimed savvy businessman who worked on deals around the world, and had the airline miles and local anecdotes (and generalizations) to prove it.
A diverse work force presents a unique training challenge
The labor force in the Gulf is dominated by non-nationals. Indeed, expatriates comprise about 80 percent of the workforce in Saudi Arabia and as much as 90 percent of the workforce in the UAE. Compliance officers working in the region note that many of these expats—particularly those from the West—approach business dealings in the Gulf States with a “when-in-Rome” attitude. That is, like the businessman I met on the plane, they allow their misconceptions of local customs to trump both law and policy. In addition to holding flawed assumptions about how business in this region is conducted, many expats mistakenly conclude that they can escape the reach of their home-state enforcement authorities simply by keeping misconduct in-country.
The greatest obstacle may be perception
This is a reminder for compliance officers that a strong compliance program, more than just dealing with the law, company policies, or training programs, is about dealing with perceptions. Many who are from the region note that, while it’s true that the provision of gifts is customary in this part of the world, friendship and hospitality in business relations are tempered by moderation, mutual respect, and honor. Corruption of public officials is welcomed in the Gulf States no more than it is any other part of the world. And now more than ever, in the wake of the Arab uprisings in 2011, the Gulf States are working to strengthen their anticorruption laws and practices, with the strong support of leading Gulf-based companies.
Continuing reluctance to report wrongdoing
That’s not to say there aren’t challenges unique to the Gulf countries that need to be taken into account when implementing antibribery compliance programs. Gulf countries do not, for example, typically offer robust legal protections to whistleblowers. This makes it difficult to encourage local employees and agents to report law and code violations, solicit advice in difficult situations, report red flags, and utilize company hotlines. Compliance teams can counter this problem by emphasizing—and re-emphasizing—a credible no-retaliation policy and by helping employees to understand that the bad actors put their local colleagues, and not simply a distant headquarters, at risk.
State ownership and royal families remain a compliance challenge
There’s also the very real challenge posed by the extensive state ownership of industry in the region, which is compounded by a system of governance that is dominated by extended royal families. It also can be difficult to identify and understand which individuals or families hold interests in which companies. Even here, however, it has become easier to get information once thought unattainable. Local businesses understand that due diligence is standard operating procedure for multinationals, and so are increasingly willing to identify beneficial ownerships and provide information about ties to the government for key employees, owners, and directors. In fact, many Gulf-based companies are proactively investing in due diligence reports and certifications to share with their business partners. This belies the commonly held misperception that there is strong resistance to due diligence efforts in the Gulf States.
Mandatory local agents can present problems at all stages of a deal
Gulf countries typically require foreign companies to use nationals as exclusive agents (either de facto or de jure) in business deals—even, at times, when doing business in “free zones” such as Dubai’s Internet City and Media City. While having a mandatory local agent as part of a successful bid is not a per se problem, it is a situation that companies should anticipate and handle with particular care. Companies should be aware, for example, that the notion of mandatory agents may not arise in the tender process, but may later come out at the final stage of the bid procedure when the company has already made a significant investment in the project. Even if the agent’s role is largely ceremonial, the company should carefully document and support all commissions paid to the agent, and should ensure that the agent has reviewed and agreed to the company’s compliance requirements.
Sophisticated compliance community, despite the exotic setting of the Gulf
Doing business in the Gulf certainly presents some distinct challenges for compliance officers, but the businessperson who mistakenly believes that the best (or only) way to do business in the region is by handing out exorbitant gifts is dealing in fiction, not fact. Rather than blending in, bending the rules and paying bribes will make that person stick out as an easy target. Wise companies operating in the region are developing personal relationships and honoring local customs without sacrificing their commitment to their home laws and corporate policies.