Fraud Files: As FCPA Enforcement Grows, Let the Briber Beware
The government has been stepping up FCPA enforcement actions: More than three times as many FCPA cases were brought in 2009 than were filed in 2005. The Securities and Exchange Commission has created a dedicated FCPA unit, and added attorneys and supervisors accordingly.
It's fairly straightforward to say that bribing foreign officials to seal deals is strictly prohibited, but the application of the law to everyday business abroad isn't necessarily as simple as it sounds. Companies must carefully analyze how they are doing business in foreign countries and ensure that nothing resembling a bribe is allowed to happen.
In that vein, companies are spending lots of money on FCPA compliance, not only to monitor their own activities overseas, but also to ensure that they have good internal controls that allow them to maintain accurate accounting records.
Meanwhile, some big companies have been making headlines with their settlements of FCPA investigations and massive monetary penalties. Among them:
- This week, General Electric agreed to pay $23.4 million to settle charges related to $3.6 million in kickbacks paid to Iraqi government agencies to win contracts for GE (GE) subsidiaries to supply medical equipment and water purification equipment.
- Diebold (DBD) announced to the public that it had identified potential FCPA violations at a Russian subsidiary, and voluntarily reported them to the SEC and the Department of Justice. These problems were separate from the ones that led to last month's $25 million settlement with the SEC over charges that Diebold engaged in fraudulent accounting.
- Earlier this year, Daimler AG agreed to pay a $93.6 million fine plus $91.4 million to the SEC to settle FCPA charges. Daimler (DDAIF) admitted to making hundreds of inappropriate payments to government officials in at least 22 countries in order to sell hundreds of millions of dollars of vehicles.
Why does our government even care if companies are engaging in bribery and corrupt activities outside the U.S.? In 1977, when the FCPA became law, the goal was to bring integrity back to business by stopping the bribery of foreign officials. In keeping with that tradition, the recent increase in FCPA enforcement actions could be because of a suspected increase in corrupt activities related to more global businesses.
But some now are suggesting that our government is so keen on pursuing allegations of bribery overseas because it is so lucrative. Companies are generally responsible for doing their own investigations and reporting the results to the government. Those investigations are done on the company's dime, and if malfeasance is found, the government gets to impose large monetary sanctions. This means little investment is required on the part of the government to net it huge returns via fines and disgorgements of earnings.
Companies can't afford to ignore this issue, from either a financial or public relations perspective. So, how can they avoid the many landmines surrounding FCPA compliance? The first step is to accept that the law is tricky and recognize that the government is on the warpath. If executives don't want FCPA issues to keep them awake at night, they must be willing to focus time, efforts, and money on compliance.
Compliance programs to educate employees about the FCPA are important -- and not just when they succeed in preventing wrongdoing: Having such a program can help a company get a reduced penalty if it's found to be in violation of the FCPA. Companies must also proactively search for violations of FCPA, and the use of independent legal counsel to conduct investigations can mitigate penalties as well.
At this point, it would be foolish to hope that the federal government will back off on FCPA enforcement actions; in fact, they are likely to escalate further. The Dodd-Frank Wall Street Reform and Consumer Protection Act creates a whistle-blower program offering 10% to 30% of fines collected in order to encourage people to report FCPA violations.