Avoiding corrupt practices abroad
When doing business internationally, compliance with the Foreign Corrupt Practices Act is essential
Maybe your company has just decided to take the leap into the international marketplace. Maybe you’ve been there for quite some time. No matter how long you’ve done business abroad, the type of business you’re in or the size of your business, there’s one inevitability you’ll have to contend with: At some point, you’ll have to deal with foreign officials. These interactions present unique risks under the Foreign Corrupt Practices Act (FCPA) that cautious companies should plan ahead for.
The FCPA’s premise is simple: A U.S. company or individual may not give anything of value to a foreign official to obtain or retain business, or otherwise to gain an improper competitive advantage. The act further requires public companies to maintain adequate systems of internal accounting controls, and to fairly and accurately reflect their transactions on their books and records.
Enacted in the late 1970s, the FCPA has only become a major focus of the U.S. Department of Justice and the Securities and Exchange Commission over the last decade or so, following the creation of the FBI’s International Corruption Unit in 2008 and, more recently, the creation of specialized international corruption squads in 2015. That increased focus is reflected in the numbers. Together, DOJ and SEC have filed more FCPA enforcement actions over the last two years than in the first 20 years of the law’s existence.
Violations of the FCPA, even those occurring entirely outside this country, can have severe consequences, including civil and criminal liability for both a company and its employees. The penalties involved have also skyrocketed, with multiple enforcement actions over the last two years resulting in penalties in the billions of dollars.
DOJ’s so-called “Yates Memo,” moreover puts individual officers and employees firmly in DOJ’s crosshairs, so that culpable individuals face lengthy prison sentences even when their companies voluntarily resolve enforcement actions.
A company also may suffer reputational harm when news of FCPA violations becomes public. Other businesses — particularly those with government ties — may cease doing business with that company in order to avoid any appearance of guilt by association.
These consequences frequently result from management’s failure to learn what was happening at lower levels of the company. Bribes often evade detection by being disguised as legitimate business expenses. But ignorance is no excuse. Senior managers must be aware of what their foreign agents and vendors are really up to. Willful blindness can mean a felony conviction for the company and tens of millions of dollars in fines.
Proactive companies can avoid these consequences. A fundamental first step is establishing a comprehensive anticorruption compliance program. There is, however, no “one-size-fits-all” program. Any compliance policy must be tailored to fit an individual company’s idiosyncrasies.
There are nonetheless some hallmarks of all effective compliance programs:
• Anticorruption and travel and expense policies that communicate clear standards and are consistently enforced
• Designation of a compliance officer who oversees the company’s implementation of anticorruption policies
• Regular training on company policies, particularly for employees who interact with foreign officials
• A hotline or other mechanism for employees to report concerns confidentially
• Regular audits of the books and records
• A system of properly vetting all vendors and agents for compliance with anticorruption laws
A comprehensive compliance program is only the first step in avoiding FCPA liability. How a company behaves when suspicious behavior comes to light is also important.
When potential FCPA problems are uncovered, a company should engage outside counsel with FCPA experience immediately to conduct a thorough investigation. If illegal conduct is confirmed, the company should take decisive corrective action, which may include terminating employees or vendors who employ illegal means.
The company must also decide whether to report the violation to the government, which carries advantages and disadvantages. Reporting a violation will likely trigger a government investigation, resulting in further expense.
It also means that the violation eventually will be disclosed publicly, potentially leading to the previously mentioned reputational harm. On the other hand, DOJ is less likely to prosecute companies that voluntarily self-disclose violations and fully cooperate with the ensuing investigations.
There are great opportunities waiting in the international marketplace. Yet entering that market carries risk, as there is no reason to believe that the government’s recent interest in the FCPA will waver.
Attorney Mark Tyler Knights is a Manchester-based member of Nixon Peabody’s Government Investigations & White Collar Defense practice group.