Fraud Files: FCPA Enforcement Will Continue to Be Costly ... and Unpredictable

One major worry for American companies doing business overseas is the Foreign Corrupt Practices Act (FCPA), a 1977 federal law that prohibits the bribing of foreign officials. Those familiar with this regulation know it has many pitfalls, and even the most careful companies can run afoul of the law due to the actions of their employees.

FCPA enforcement isn't new, but in recent years, such corporate misbehavior is receiving more attention and increased enforcement, which is making executives nervous. Violations can mean both civil and criminal penalties for companies and their executives, and the monetary costs can be huge. Beyond the price of defending itself against a government investigation, a company with FCPA violations will pay penalties and incur ongoing costs for remediation and monitoring of activities.

It's not a stretch to suggest that the federal government may have increased its vigilance on the corporate bribery front lately due to the possibility of bringing in billions of dollars through FCPA enforcement. Or perhaps the Obama administration is just more interested in ensuring good, clean business operations by U.S. companies. Either way, Lanny Breuer, assistant attorney general for the Criminal Division of the Justice Department, has declared publicly that FCPA enforcement is a priority.

In a recent speech, Breuer said: "One year later, I'm proud to say that our FCPA enforcement is stronger than it's ever been – and getting stronger. To give you just one metric, in the past year, we've imposed the most criminal penalties in FCPA-related cases in any single 12-month period – ever. Well over $1 billion." In 2009 and 2010 alone, the Department of Justice charged more than 50 individuals with FCPA violations and collected almost $2 billion.

Recent Settlements Make the FCPA a Bit More Predictable

The government is encouraging violators of the law to self-report, saying that cooperation by defendants earns them lighter sanctions, and the DOJ is going out of its way to prove that self-reporting is rewarded. However, it has been hard to find clear-cut evidence that cooperation with the government actually results in a measurable positive impact on the violators.

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A big worry for businesses regarding the FCPA is its unpredictability: Many contend that enforcement is inconsistent. Butler University business law professor Mike Koehler (known as the "FCPA Professor") recently published an article titled The Facade of FCPA Enforcement. He says that while this law is very important in terms of what can happen to companies, because the outcomes are unpredictable and the legal theories used in the enforcement process are inconsistent, companies often end up at the mercy of the government with no way to determine what the outcome may be.

Simply put, Koehler says, FCPA enforcement isn't transparent because so much of it has developed based on privately-negotiated agreements between the government and the violators. As a result, companies are uncertain about whether their compliance efforts are sufficient, and tend to overspend in order to mitigate the unknown risk.

The government's recent settlements with Panalpina and six other companies for FCPA violations took a step in the right direction toward transparency. Each settlement included documents detailing best practices for corporate compliance programs. Finally, the government is giving American companies a better idea of what it's looking for in terms of internal corporate controls and procedures related to FCPA compliance.

Beyond those best practices guidelines, about the only thing that companies can count on in the FCPA realm is that enforcement will continue to be a focus for the Justice Department. Whether that's because the Obama administration desires more ethical business dealings on the part of American corporations, or because the government is in need of the cash it can bring in by penalizing the offenders hardly matters: The DOJ is watching -- carefully.

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