Board members are putting front and center a law they had relegated to the periphery of their radar screens: the Foreign Corrupt Practices Act. These days, compliance with the law is essential to fending off the feds, but it’s also often unintentionally stymieing companies’ initiatives in foreign markets.
Enacted in 1977, the FCPA prohibits a company’s employees and agents from offering something of value to a foreign government official in exchange for obtaining or retaining business.
“You can’t give gifts, you can’t entertain, even if it’s a small amount,” says Andrea Bonime-Blanc, the general counsel and chief compliance officer at Daylight Forensics, a risk-management consulting firm.
The boards of U.S.-based multinational companies have been stepping up their FCPA-compliance oversight efforts for a couple of years now, likely motivated by the fate suffered by the German engineering conglomerate Siemens in 2008: The company agreed to pay $1.6 billion to the U.S. Securities and Exchange Commission, the U.S. Department of Justice, and foreign governments to settle charges related to bribing foreign officials.
FCPA-compliance oversight has been dominating even more director time recently, however, as the number of FCPA-related investigations initiated by the SEC and the DOJ rises and more and more companies adopt their own FCPA-like laws, according to Bonime-Blanc.
“A lot of boards are starting to ask questions about this,” she says. “They’re demanding reports from their general counsels’ offices and their chief compliance officers to find out what their companies are doing to abide by the FCPA.”
“It’s important to make sure the tone from the top and from the middle is flowing through to the employees on the ground.” – Rupert de Ruig, Dow Jones & Co.
Bonime-Blanc reports that, several years ago, the directors of a company she describes as being particularly “enlightened” went as far as having an outside consulting firm audit the company’s FCPA compliance program and report back to the board. And the company wasn’t even facing any FCPA compliance problems.
“That’s something I see becoming much more common,” she says.
In recent years, the energy-oil field services sector and the health care- pharmaceutical industry have dominated the anti-corruption compliance landscape, reports Michael Schwartz, a principal at KPMG LLP who works in the firm’s FCPA-compliance advisory group. That’s because employees in both industries are likely to interact with foreign government officials.
“In foreign countries, healthcare is frequently government-run,” he explains.
But boards’ requests for help with internal anti-corruption compliance efforts are now coming from companies in almost every industry, according to Schwartz.
“Telecommunications companies, airlines, technology companies, you name it,” he says.
Boards’ increased focus on FCPA compliance efforts is well founded. These days, companies that do business in or with foreign countries are more likely than ever to be the subject of U.S. enforcement agencies’ scrutiny.
As of Feb. 2, there were an unprecedented 140 open FCPA-related investigations. That’s compared to 100 investigations open at the end of 2008, a year the Gibson, Dunn & Crutcher law firm described in one of its client alerts as “monster” in terms of FCPA enforcement.
Moreover, the price that companies risk paying for FCPA violations is enormous. In early February, the British-based defense contractor BAE Systems agreed to fork over almost $500 million to the U.S. Department of Justice and the U.K. Serious Fraud Office. The settlement will put an end to allegations that BAE bribed foreign officials to obtain lucrative contracts and conspired to make false statements to the government.
BAE was subject to the anti-fraud laws of more than one country. So was Siemens. Only $800 million of the infamous $1.6 billion that company doled out to settle bribery changes went toward fines imposed by the U.S. Securities and Exchange Commission and the U.S. Department of Justice. Penalties levied by the German government helped to boost the figure $1.6 billion.
Companies that do business with foreign entities almost anywhere now face similar risks.
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