Risk Management - Blog 5/5: Legal & Compliance Risk

For the last time, let's start by reminding ourselves of the five key risk categories that companies must consider when designing a framework to manage risk for business across borders.

What is Legal & Compliance Risk?

Legal and compliance risks refer to the potential for breaching laws, regulations, or ethical standards, leading to penalties, fines, or reputational damage. Operating internationally means dealing with multiple legal systems and regulatory regimes. This includes risks such as changing laws, weak rule of law in certain countries, contract enforcement issues, intellectual property (IP) theft, and exposure to corruption or bribery. Compliance risk specifically covers adherence to laws (like anti-bribery statutes, data protection rules, labor laws, and trade sanctions) and internal policies designed to follow those laws.

High-Profile Enforcement Examples

Under the U.S. Foreign Corrupt Practices Act (FCPA), bribery of foreign officials carries steep penalties. Wal-Mart’s Mexican unit lost nearly $10 billion in market value when reports surfaced of millions in alleged bribes to speed store openings, ultimately spending hundreds of millions on legal costs to settle the probe​. This scandal drove multinationals to bolster compliance programs and monitor third-party intermediaries more closely.

Data privacy violations also carry heavy consequences. The EU’s General Data Protection Regulation (GDPR), in force since May 2018, allows fines up to 4 percent of global turnover. British Airways was initially threatened with a £183 million penalty after the 2018 breach of customer data; though reduced to £20 million in October 2020, it remains the largest GDPR fine to date​. Brazil’s LGPD, effective August 2020, permits sanctions up to 2 percent of a company’s local revenue per violation​. China’s Personal Information Protection Law (PIPL), effective November 2021, mandates local data storage and rigorous security reviews—some Western apps withdrew rather than comply with its requirements​.

Intellectual Property (IP) Vulnerabilities

IP theft and enforcement challenges can undermine market position and R&D investments. In Latin America, the U.S. Trade Representative elevated Mexico to its Priority Watch List in 2024, citing persistent counterfeiting and weak pharmaceutical patent protection​.

Employment and Labor Law Complexities

Labor regulations vary widely, and non-compliance can halt operations. In France, a court ruling found Amazon failed to protect warehouse workers during COVID-19, forcing a 35-day shutdown for safety improvements​.

Regional Legal & Compliance Risk Comparison

Region	Key Legal Risks	Enforcement Strength	Notable Focus Areas	Mitigation Emphasis
United States	Bribery (FCPA), class-action suits, antitrust, data privacy	Robust (FCPA fines; SEC, DOJ, FTC activity)	Finance, healthcare, tech regulations	Global compliance frameworks; hedging
China	Selective enforcement, and data localization	Moderate-to-strong (targeted crackdowns)	Data security, IP concerns	Arbitration, local counsel; data strategy
Latin America	Bureaucracy, corruption, and contract enforcement delays	Variable (country-specific; slow courts)	Resource nationalism, labor unrest	Anti-corruption programs; arbitration

Source: Reuters reporting on FCPA enforcement and USTR Special 301 Watch List entries​.

Strategic Mitigation Measures

1. Robust Compliance Programs

   Establish clear, globally consistent policies with tailored local addenda. A dedicated compliance department should lead risk identification, prevention, and monitoring activities, ensuring alignment with external laws and internal standards​.

2. Local Legal Expertise

   Engage reputable counsel in each jurisdiction to interpret nuanced regulations, provide early warning of changes, and support due diligence before market entry.

3. Contractual Safeguards

   Build in strong non-disclosure, IP protection, and dispute resolution clauses—often opting for ICC or other neutral arbitration forums where local courts lack predictability.

4. Regulatory Surveillance

   Monitor rule-making through industry associations and regulatory bulletins. Early adaptation is crucial in fast-evolving sectors like technology and life sciences, where non-compliance fines can be severe.

5. Ethical Engagement and Reputation Management

   Demonstrate integrity through transparent operations and CSR initiatives. A strong ethical reputation can temper regulatory scrutiny and foster goodwill with authorities and communities.

   
   

International legal landscapes are ever-shifting—staying compliant requires foresight, agility, and a commitment to integrity. Proactive investment in compliance infrastructure and local expertise averts punitive actions and positions companies to seize new opportunities with confidence. As regulatory bodies worldwide—from the FCA’s scrutiny of Amigo Loans to China’s PIPL—continue to tighten the reins, firms that treat compliance as a strategic asset will lead the pack​.

Further Reading

• Foreign Corrupt Practices Act: https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act

• General Data Protection Regulation (GDPR): https://gdpr.eu/

• Brazil’s LGPD: https://iapp.org/resources/article/brazilian-data-protection-law-lgpd-english-translation/

• USTR Special 301 Report: https://ustr.gov/sites/default/files/2025_Special_301_Report.pdf

• WTO Dispute Settlement: https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm