Exam 5: Political and Legal Environment

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The Panama Papers revealed over 40 years of offshore accounts and shell companies of individuals in tax havens such as the British Virgin Islands, Seychelles, and Panama. Documents show how money was hidden or moved by at least 33 people and companies blacklisted by the U.S. for doing business with rogue states, terrorists, or drug lords. Current and former world leaders, celebrities, and global business executives also own many of these accounts and companies.
Offshore accounts and shell companies can be used legitimately when two firms need to set up a cross-border joint venture and need to incorporate on neutral turf. Citizens may also need to place their savings in a more secure location if they are in unstable countries facing political or economic crises. Politicians creating tax havens and offshore accounts are perceived as practicing forms of corruption, reducing the amount of public cash that can be used for the public good. Many of these shell companies are created for tax avoidance and money laundering.

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Government Instability
Multinational companies must deal with government instability in developing or even emerging countries. If there is a coup or transfer of power from one party to another, MNCs must take this into account and plan accordingly to mitigate risk and ensure operations remain fluid.
Regulations
Governmental regulations and limits on businesses may be a hindrance to companies. MNCs may need to adjust their business practices or exit the market altogether to avoid any negative externalities that may arise. Furthermore, many MNCs need to utilize leverage through lobbyists or other political advocates to ensure their needs are being considered and met.
Legal Environment
Different business practices may result in ethical dilemmas that skew the line of legality. MNCs may need to engage in acts within the host country that are illegal or discouraged in the home country. For example, a company may need to pay government officials to keep their business afloat. This makes it very important for MNCs to construct and implement clear guidelines on how to conduct business within these countries and ensure compliance with local, federal, and international standards.