Foreign Firms Must Create a U.S. Compliance Strategy for American Subsidiaries to Avoid Legal, Financial Trouble
NEW YORK, June 9, 2011 /PRNewswire/ — Setting the scope of authority, paying critical attention to the systemic differences between legal systems and understanding the nuances of doing business in the United States are vital elements of a compliance strategy for international companies operating or acquiring American subsidiaries, advises veteran attorney Stephen I. Siller.
“The cost of compliance slipups can be high indeed,” Siller writes in a column, “How To Keep Your U.S. Subsidiary Out of Legal Trouble,” published in late May on web magazine Corporate Compliance Insights. “This is true whether the parent is a tech start-up from Asia or a 100-year-old multinational from Europe, South America, Australia or Africa. In rare cases, in fact, a subsidiary’s missteps can bring financial ruin to the parent.”
Whether publicly traded or privately owned, international companies need to be sure their U.S.-based subsidiaries comply with the internal corporate governance structures of the United States as well as those of the home country, notes Siller, a New York-based shareholder in LeClairRyan and a member of the national law firm’s corporate services and international transaction practices.
“Subsidiaries operating in the United States, for example, become subject to the quite broad U.S. laws dealing with bribery, bans on dealing with prohibited organizations and countries, and more,” he writes. “Both parent companies and their U.S.-based subsidiaries need to be as sensitive to these differences as possible. They can ill afford to operate based on unquestioned assumptions – for example, ‘we have always done it this way; surely, it’s the same in the states.’”
In particular, Siller believes that the compliance strategy should begin by establishing the scope of authority for the U.S. subsidiary–in other words, what officers and directors can and cannot do without approval from the parent. “In the run-up to the 2008 financial collapse, for example, some parent companies basically gave their U.S. subsidiaries blank checks for things like capital expenditures, or unwittingly allowed subsidiaries to double-down on risk by doing sketchy deals involving the likes of derivatives, swaps, currency hedges and foreign-exchange contracts,” he writes. “If the parent company is in a commodities-based business, it should place unambiguous limits on hedges.”
Understanding the differences between the principles-based legal system of Europe or South America, and the rules-based, common law-derived system that prevails in the United States, is critical, Siller asserts. Those differences can play a hand in anything from business or employment contracts, to the roles of directors.
Finally, he advises that decision-makers at the parent and its subsidiaries truly understand the nuances of doing business in the United States. “For example, whenever a multinational wishes to make an investment in a foreign country, it might consider whether the U.S. government offers any benefit (such as political risk insurance) to making that investment through the U.S.-based subsidiary,” Siller writes. “One of the best ways to avoid high-risk mistakes is to rely on an American participant who understands the foreign company’s culture, values, legal system and way of doing business and–equally important–is empowered to help the parent and the subsidiaries understand U.S. business and legal norms.”
To read the full article, visit: http://www.corporatecomplianceinsights.com/2011/how-to-keep-your-u-s-subsidiary-out-of-legal-trouble/
Founded in 1988, LeClairRyan provides business counsel and client representation in corporate law and high-stakes litigation. With offices in California, Connecticut, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C., the firm has approximately 335 attorneys representing a wide variety of clients throughout the nation. For more information about LeClairRyan, visit www.leclairryan.com.