International Business Law Advisor Insights on International Litigation & Transactions

Individual Liability for Foreign Subsidiary Misconduct. The Logical Next Step.

Posted in Business Transactions, Corporate Governance, international business, International Investments, international law, International Litigation, international manufacturing
 international attorney, international business, foreign subsidiaryYesterday’s post centered on how important it is for U.S. companies to keep tabs on their foreign subsidiaries. Well, the Conglomerate blog has an excellent post on the increase of foreign subsidiaries that have entered guilty pleas with the U.S. government for misconduct that took place after the financial crisis.

What’s interesting about the rise in foreign subsidiaries being targeted is why they’re being targeted.

As the Conglomerate puts it “because some guilty pleas are company killers, [the U.S.] is getting [guilty pleas] from foreign subsidiaries. “

The reasoning for the increase is as follows:

  • This is a total adaption of the government’s foreign corruption enforcement strategy, which has invovlved obtaining guilty pleas from foreign subs for a while now.  And that just shows how big a deal foreign corruption cases are right now.  They are literally setting the template for the regulation of the rest of Wall Street wrongdoing.
  • Company guilty pleas are strange things.  They  either mean nothing – corporate persons don’t feel bad for being convicted, can’t be put in jail, and absent alternative consequences, would you rather your closely held corporation paid a fine, or stood up in court and said “I did it”?  Or they mean far too much – an auditor like Arthur Andersen could literally no longer audit after it was convicted of a crime.
  • Which is why I think truly serious prosecution is all about individual responsibility.  This middle ground isn’t quite the get tough attitude that insistence on pleas from natural, rather than corporate, persons would be.
If I were a corporate executive charged with the oversight of a foreign corporation, I’d be seriously concerned with the stepped-up focus on foreign corruption.
The recent increase in the amount of guilty pleas being entered against the foreign subsidiaries of U.S. companies will only do so much to deter overseas misconduct.
 The next logical next step is individual liability.
If this isn’t reason enough why U.S. companies should not neglect their foreign subsidiaries, I don’t know what is.