What To Do When You're Smacked With An FCPA Violation

These four dreaded words have begun evoking fear in the hearts and wallets of business executives across the US and around the world – Foreign Corrupt Practices Act.

Activity in the area has increased dramatically in recent years but the SEC and the Department of Justice (DoJ) are expected to take an even more aggressive stance in 2011.

Among the top 10 cases of all time, the FCPA Blog reports that 8 out of 10 major cases occurred within the last year involved non-US companies and this serves as a clear indication of the effectiveness of the Act and its increasingly global reach.

‘Paris-based Alcatel-Lucent is the latest addition at number seven, knocking Shell’s November 2010 Panalpina-related enforcement action off the list,’ says Dick Cassin, author and owner of the blog. ‘Six months ago, the top-10 list included four older cases – all involving US companies – that have now dropped off.’

The increasingly aggressive stance of federal regulators, coupled with additional funding that will support even greater scrutiny, is driving concern among many US companies that they may inadvertently fall foul of the Act.

According to John W. Brooks, senior international counsel at Luce Forward, a full-service law firm, if a company conducts business overseas, the chances of the FCPA catching up to an illicit payment is almost guaranteed.

In Brooks’ three part series, Getting caught with your FCPA pants down – What to do when the phone rings, he presents two scenarios that can help companies test and prepare a plan incase the DoJ decides to call.

Brooks writes that if a company’s ombudsman is notified that a violation has taken place and there’s no rigid corporate compliance program in place, the following should be taken into consideration:

Self-assessment: It is important to study the various sides of the issue. Start by asking what happened and who else knows? Has, or should, the alleged violation (AV) be raised with your board? What type of ‘reputational damage’ can be incurred? What are the odds of an unhappy employee or whistleblower turning the company in? Keeping those questions in mind and having a strategic plan in place can mitigate future FCPA risks.

External examination: In the second scenario, what if the government tracks you down and discovers your violation? ‘If you have a qualifying’ compliance program up and running, you may be able to hold down the penalties,’ says Brooks. ‘If you don’t, you may as well just go quietly.’

If that’s the case the lawyer advises that a company should measure how robust and effective its program is. ‘Did a senior officer of your company have secret knowledge of the violation? If the UK Bribery Act is involved, do you believe your program meets the UK standard of ‘Adequate Procedures?’

Flexibility: Sharing similar views is Thomas Fox, attorney and author of the FCPA Compliance and Ethics Blog, who claims that a superior business model must be adaptable so it can sustain its effectiveness over time. Additionally, a good compliance policy/program should be able to adapt despite the ever-changing regulatory landscape.

International compliance: ‘The key to this component is an annual assessment of your company’s FCPA compliance program to determine if there are any areas which may need to be modified,’ Fox explains. ‘A couple of clear examples of this are facilitation payments and UK subsidiaries or company employees subject to the UK Bribery Act.’ He further mentions that many companies tend to ban facilitation payments in the compliance policy and requires the same from those involved in business with them.

According to Fox, in the event a company is in fact subject to the UK Bribery Act, it needs to keep in mind the different treatment given to facilitation – treated more strictly in the UK – and private commercial transaction which are more clearly defined in the US statute. ‘Companies need to be aware of both developments and enhance their compliance program to meet these evolving standards,’ Fox says.

Whistleblowers: Brooks notes that whistleblowers come in two categories: the bounty hunter and the ‘shake-down artist,’ that the latter being motivated by self-interest. For this matter, the response to the two types of whistleblowers should be approached differently.

As far as the bounty hunter goes, the motivation is provided by the new rules allowing for compensation from the SEC, which can run from 10 per cent to 30 per cent of fines or settlements over the amount of $1 million collected from the alleged company.

The potential payouts can be significant considering fines run to the hundreds of millions and only likely to increase. Of concern for corporate executives, the courts are, in some cases, handing out personal jail terms, which also appear to be increases in severity.

There is not much a company can do once the damage is done but it is important to note that not all whilstleblower allegations will result in fines or government investigations. Brooks assures that if the allegations brought by a whistleblower do not fit the criteria according to the Dodd-Frank Act, then they can be easily remediated if it can be shown that there is a rigid compliance program in effect and the company has the tools to detect and mange issues.

For now, both FCPA experts recommend that companies stay updated and continue to enhance compliance programs in an effort to dodge any fines that maybe coming its way.

‘The DoJ announced a new era of aggressive FCPA enforcement and warned that you should not wait for [it] to ‘come knocking,” Brooks says. ‘Prudent executives will probably find that reason enough to have or create a program that meets the government’s recommended standards.’ 

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