The Foreign Corrupt Practices Act: not just a US company concern

March 2013 | LEGAL & REGULATORY | FRAUD & CORRUPTION

Financier Worldwide Magazine

Over the past five years the Securities and Exchange Commission and the US Department of Justice (DOJ) have ramped up their enforcement of the Foreign Corrupt Practices Act (FCPA) of 1977. From 2008 through to 2010 the DOJ prosecuted more FCPA cases than in the previous 20 years combined. Companies found to be in violation of the FCPA can incur huge costs, with more than US$3.9bn paid in settlements to date.

The number of non-US companies targeted by the country’s enforcement authorities has also increased. In fact, nine out of the top 10 companies that have reached the largest settlements have been foreign-owned – including Daimler, makers of Mercedes-Benz vehicles; Siemens, the German engineering corporation; and Alcatel-Lucent, the French telecommunications company. These high-profile cases involving foreign companies have opened the eyes of their foreign brethren who might not have fully understood the extent of the US’s jurisdictional reach until now.

Levelling the playing field

The FCPA was enacted over 30 years ago to prohibit American businesses from bribing foreign officials. Since then, however, the definition of ‘American’ has expanded significantly to include foreign companies listed on US stock exchanges, as well as those that sell securities or do business in the US.

Many see the recent uptick in cases involving foreign companies as an attempt to level the playing field for US businesses that have had to compete for overseas opportunities with companies that engage in bribery. This industry-wide approach to FCPA investigations has also made it easier for the DOJ because companies under investigation can get credit for providing information about their competitors.

The DOJ is committed to finding and prosecuting FCPA violations, but recent examples show that it is willing to offer meaningful credits to companies that disclose misconduct voluntarily or cooperate with its investigations. Sincere, proactive commitment to strong anti-corruption policies will be looked upon favourably and can make a difference to the severity of an enforcement action. Several deferred prosecution agreements have been entered into in this way. Their resolution indicates that there are options available to companies that are serious about cooperating with the authorities and preventing further infringements.

Standing firm

Critics of the FCPA say it is “bad for business” and are calling for its amendment, but the DOJ has made it clear that it has no intention of watering it down. Instead, it is determined to make the transnational business climate more transparent and fair for everyone and will vigorously continue its pursuit of foreign bribery.

Its participation in the Organisation for Economic Co-operation and Development review process has fostered closer relationships with other members of the Working Group on Bribery, which has yielded results. According to outgoing Assistant Attorney General Lanny Breuer, the DOJ increasingly intends to rely on the cooperation of its foreign partners, such as the UK’s Serious Fraud Office, in its transnational approach to combating foreign bribery.

Robust anti-corruption policies are your best defence

Both US and non-US companies would do well to follow the examples set by recent enforcement actions and demonstrate that they have taken the necessary steps to prevent corruption and bribery taking place in their organisations. The following is a sample of FCPA best practices:

Set a strong tone at the top. Companies should show that they take anti-corruption seriously and set a strong tone at the top. A member of the senior management team should take responsibility for FCPA compliance and be accountable for the program. This person should have the authority to report matters directly to the board of directors or the appropriate committee of the board.

Implement robust anti-corruption policies. Companies should have robust anti-corruption policies that are supported by senior management. They should: (i) clearly articulate corporate policy against FCPA violations including anti-bribery, books and records, and internal control provisions, as well as other applicable counterparts; (ii) train the board, senior management, employees and third-parties on such policies; (iii) audit and monitor compliance with these policies; (iv) ensure that everyone, including third-parties, can access policies and keep them up to date with the changing business landscape; (v) address non-compliance with policies swiftly and report violations if necessary; and (vi) make sure that policies include a clear whistleblower process and encourage internal reporting of corruption.

Identify local expertise. As well as the FCPA, companies should be aware of the local anti-corruption laws that apply in those places where they conduct business. Identifying local expertise in each location ahead of an issue arising is key to being prepared.

Conduct third-party due diligence. The majority of FCPA violations are the result of wrongdoing by a third-party vendor acting on behalf of the company. Companies should know their vendors and ensure that their use and any payments made to them are for valid business reasons. Reviewing the anti-corruption policies of a third-party and training them on your own policies is good practice.

Establish internal controls over company expenditure and assets. Companies should keep books and records that accurately document all transactions to help prevent and detect corrupt payments. Strong controls make it easier to monitor and account for gifts, meals, entertainment, and travel for government officials.

Develop guidelines for travel and entertainment (T&E) expenses. Companies must have strict guidelines on T&E expenditures and monitor and approve them closely. These T&E policies should be customised for all countries in which the company conducts business and also apply to third-parties working on behalf of the company.

Include FCPA terms in international contracts. Contracts should specifically mention the FCPA and require partners to confirm that they are fully conversant with the law and will comply with it. Contracts should include a provision that if a third-party is in violation of the FCPA then their services will be terminated. It should also stipulate that the third-party will be expected to cooperate with any FCPA investigation, regardless of the termination provision.

Be prepared

The ability to demonstrate that your company is proactive in its anti-corruption efforts is only half of the preparedness equation. The human element of business always exists and, therefore, even companies with robust anti-corruption policies may not be able to prevent a rogue employee or vendor from violating the FCPA or similar anti-corruption laws. In the event of a complaint, allegation or violation, a company should have procedures in place to investigate the complaint.

How a company acts within the first few weeks of being made aware of a possible issue is crucial to controlling the damage and potential cost. The company should already know who to notify within its organisation, who will communicate with the authorities and, if necessary, who will translate local law and assist with an internal investigation. It should know whether its internal auditors can handle the investigation and, if not, be able to identify a firm with the relevant expertise to help.

Given the recent passage of similar anti-corruption laws in countries around the world, enforcement efforts will only increase. Your company can reduce its exposure to the possibility of non-compliance by making sure it has a robust anti-corruption program in place and staying on top of its corruption prevention and detection strategies.

George Gallinger is a principal at CohnReznick LLP, a Nexia International member firm. He can be contacted on +1 (973) 871 4060 or by email: george.gallinger@cohnreznick.com.

George Gallinger

CohnReznick LLP