The only law of its kind until 1997, the FCPA now has counterparts in approximately 38 countries, according to Bonime-Blanc. This foreign attention to potential anti-fraud violations is significantly inflating the fines and settlement fees imposed on companies facing charges—they’re now being forced to ante up to enforcement agencies in more than one country—and is fueling the DOJ’s increased pursuit of FCPA violators.
“As more countries have these kinds of laws, you’ll have more collaboration among government prosecutors from different countries,” says Bonime-Blanc. “That means that a company or an executive doing business abroad runs the risk of violating several different laws and having to contend with several different sets of prosecutors.”
To avoid nightmare scenarios like these, Bonime-Blanc says, companies that do business with foreign countries are training everyone from their executives and middle-managers to employees who are “on the front lines of getting or running a company’s business.”
“It’s important to make sure the tone from the top and from the middle is flowing through to the employees on the ground,” adds Rupert de Ruig, a managing director in the Risk & Compliance division of Dow Jones & Co.
This kind of communication and training is essential, experts say, because what constitutes a bribe to a government official to isn’t always clear, especially in a foreign country.
“For example, in a place like China—where many companies or enterprises that are typically privately owned in other countries are owned by the government—people who might otherwise be considered private employees, such as the administrators or the purchasing agents in a hospital, are government officials as far as the Justice Department is concerned,” explains Howard W. Goldstein, a litigation partner resident in Fried Frank’s New York office.
Charitable contributions are also a tricky matter. Bonime-Blanc uses the example of a company building a hospital wing in a small, foreign town in the name of philanthropy.
“If that hospital wing is owned directly or indirectly by government officials who are giving you the license to operate or to build your business, that could be construed as a bribe,” she warns.
Companies considering mergers or acquisitions should be scrupulous about performing due diligence, adds KPMG’s Schwartz. “You don’t want to buy FCPA exposure,” he warns.
That’s advice eLandia International could have benefitted from back in 2007. After acquiring Latin Node, Inc., a company that provided wholesale telecommunications services over the Internet, e-Landia learned Latin Node had paid approximately $2.2 million in bribes to public officials and officials of state-owned telecommunications companies in Yemen and Honduras.
The acquiring company self-reported the violation to the Department of Justice, paid a $2 million fine and fired Latin Node’s management team. eLandia also wrote off $20 million of its $26 million investment as a direct result of the discovery of the FCPA violation, costs associated with the company’s resulting internal investigation and its cancellation of various contracts and business lines.
Background checks of the third-party agents with whom a company does business are also important, Fried Frank’s Goldstein emphasizes. Nevertheless, company directors and executives have yet to embrace that aspect of compliance.
Only 71 percent of the 182 executives that responded to Dow Jones’s recent State of Anti-Corruption Compliance Survey said they regularly perform due diligence on third-party agents. Even fewer reported performing due diligence on customers (69%), sales agents (68%), and suppliers (57%).
“[T]his appears to be an area of great exposure for many firms,” says de Ruig.
Performing adequate due diligence can save companies money, de Ruig points out, but the hefty price FCPA violators are paying is more often having the opposite effect: It’s preventing companies from taking advantage of opportunities overseas.
Fearing noncompliance, 40 percent of companies responding to the Dow Jones survey reported they avoid emerging markets. According to de Ruig, they’re fearful of doing business in the BRIC regions—Brazil, Russia, India and China—as well as other markets that offer advantages such as low labor costs or good opportunities to sell products and services.
Moreover, 51 percent of the survey’s respondents delayed business plans and 14 percent abandoned them completely because of legal questions arising from unclear anti-corruption regulations.
“They’re looking at these markets and saying, ‘you know what, it’s probably too dangerous for us to employ a sales agent in the region or to set up our own businesses there because bribery would be necessary for us to move this business, and we can’t bribe because of the regulations that exist,’” de Ruig says.
Companies can markedly cut down on the number of overseas opportunities anti-fraud-compliance costs them by looking for potential gaps in their compliance policies performing adequate due diligence on the parties with whom they do business, and understanding foreign countries’ anti-fraud laws. And there are plenty of consulting firms prepared to help executives perform all of those tasks.
But even if a company’s executives have performed all the processes detailed in a comprehensive anti-corruption policy, red-lighting the deal may still be their best bet, says KPMG’s Schwartz.
“Sometimes the decision not to move ahead is a very rational one,” he says.
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