A Warning as Wall Street Moves Into Emerging Markets

Extracted 30SEP2011 from http://dealbook.nytimes.com/category/special-topics/special-section-fall-2011/

Wall Street’s headlong rush into emerging markets could collide with the government’s push to fight corruption overseas.

The Justice Department and the Securities and Exchange Commission have been increasing their enforcement of the Foreign Corrupt Practices Act in an effort to police bribery by American companies in other countries. Since 2008, the government has brought more than 150 cases under the law, dwarfing the total number filed in the previous 30 years the law was in place...

Under the corrupt practices law, companies are prohibited from providing bribes or other benefits to a foreign official to “obtain or retain” business in a country. It does not matter if the payments are considered routine and expected by local authorities, or if overseas competitors are paying bribes to gain business...

With the heightened focus on the law, companies that discover problems are expected to conduct intensive internal inquiries to determine the scope of possible overseas bribes and to report them to the government. To show they are complying, companies will sometimes spend more on the investigation than any fines or civil penalties.

Wall Street may be especially vulnerable to overseas corruption questions as it moves into emerging markets. Financial firms, all of which offer essentially the same services, have to woo potential clients, usually relying on personal connections rather than products to land investment banking deals...

In emerging markets, financial firms must regularly interact with foreign governments. But they must be vigilant, using rigorous controls and warning systems to comply with the law.