FCPA – Regulating Morality

Or

Another Corporate Tax?

Although the U.S. Foreign Corrupt Practices Act (FCPA) is approaching its 35th anniversary, the statute has only recently moved onto center stage as a top federal law enforcement priority. The main drivers behind this vigorous new prosecution activity are widespread; and not only include media exposure, a heightened international enforcement with many points of vulnerability exposed by an increasingly global, outsourced business environment, but may also include the U.S. government finding new sources of revenue.

The result: More FCPA prosecutions in the past five years than during all years combined since the law was enacted in 1977, including a jump in recent years from a total of two in 2003 to 12 in 2005 to 38 in 2007 to over 150 cases in investigations currently.

Violating the FCPA can result in huge civil and criminal fines, civil suits, and global embarrassment. SEC Chairman Mary L. Schapiro warned corporations around the world that “any company that seeks to put greed ahead of the law by making illegal payments to win business should beware that law enforcement agencies are working vigorously across borders to detect and punish such illicit conduct.” Their work has paid off, both in the number of prosecutions and strength of penalties have dramatically risen. The SEC and DOJ are waging the war against corrupt business practices with big weapons and jaw-dropping fines: Siemens AG forked over $800 million for civil and criminal fines; Halliburton and Kellogg Brown & Root (KBR) disgorged $177 million to the SEC; KBR delivered another $402 million to the DOJ; and Novo Nordisk A/S coughed up $19 million for fines. The list goes on, and the message is consistent: “FCPA violations have been and will continue to be dealt with severely by the SEC and other law enforcement agencies.”

It’s as if the government is trying to send signals not to deal with countries that practice “immoral” behavior. One could say that our politicians and businessmen don’t necessarily practice the most “moral behavior” however; we do have a set of regulations imposed by politicians that we theoretically can vote out of office. Other parts of the world are not so lucky.

These “immoral behaviors” are often areas where in the past, companies looked the other way and shrugged it off as a cost of doing business. The signal is clear from the US (and UK) government. Do not do business with these practices and prove that you are not, or we’ll impose a fine if you don’t and not able to prove it.

2011 Enforcement Statistics

 The following table and graph track the number of FCPA enforcement actions initiated by DOJ and the SEC during the past eight years. 

With teams of DOJ prosecutors tied up for more than 50 courtroom days in the bi-coastal FCPA trials of eight defendants during the first half of 2011, it is little wonder that enforcement actions have been initiated during the past six months at a slower pace than the regulators had set in recent years.  Few predict, however, that the surge of FCPA enforcement activity is now subsiding.

The law prohibits U.S. companies from paying, or offering to pay, foreign-government officials or employees of state-owned companies to gain a business advantage. It covers nonmonetary gifts or offers in addition to cash payments, and is worded broadly enough that it can cover things like meals, travel expenses , tickets to events, just about anything that the government may deem as “inappropriate”.

The problem comes from the fact that business in these parts of the world are conducted by “trusted employees”, who know “how to operate” in these parts of the world. They are not necessary fastidious at record keeping and that is a major problem because the onus is usually on the company to prove that they did the necessary due diligence.

Now we heard much about the GOP trying to get some of the new regulations rescinded because they pose undue hardships on business. Do not expect the FCPA to be high on anyone’s list for a number of reasons. First, the regulation is decades old and the current administration is simply enforcing the regulation. Second, enforcing these regulations brings in billions of dollars when budgets are tight. Lastly, the American people do not look kindly on giving (perceived) dictators bribes especially when they think it may take away American jobs.

Only time will tell what the real impact of enforcing the FCPA will bring to the economy. Sure short term, it means additional revenue to the government. Unfortunately, it does make it more costly and harder to do business in other parts of the world. But the real question is: Will it bring jobs back to America or actually hurt our ability to compete internationally?

 

Contact Visage Solutions today to see how we can assist you with this and other compliance matters.

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About Visage Solutions – www.VisageSolutions.com

Visage Solutions is a consulting company operating in the areas of regulatory compliance, risk assessment, information security, risk management and compliance processes. Utilizing our proprietary SingleVue™ and OpsAudit™ methodologies, the company focuses on assisting business entities in mitigating operational risk. Visage has provided solutions to a client base ranging from private, entrepreneurial companies to large multinationals. Our team is comprised of experienced executives, managers and consultants who can assist clients with the development, implementation and execution of their risk management and compliance strategy.