Blog Article

FCPA: Record Penalties for International Businesses

Monday 10 March 2014

The Foreign Corrupt Practices Act (FCPA) is a United States federal law known primarily for its two main provisions - prohibiting the payment of bribes to foreign officials to assist in obtaining or retaining business, and requiring companies to maintain accurate books and records.

If you would like to find out more information about the measures your company can take to reduce FCPA and fraud exposure, please note that IASeminars offers the following important events:

Where are the headquarters of the companies that paid eight of the ten largest FCPA fines in history? If you guessed China, Africa or Russia, you would be incorrect as it is in fact Europe which carries this improbable distinction.

Ranging from USD $800 million paid in 2008 by Siemens (Germany), to payments last year of $398 million by Total S.A. (France) and $152.6 million by Weatherford International (Switzerland), European-headquartered companies have discovered that FCPA non-compliance can be very expensive. Furthermore, additional fines may be assessed for violating export controls, disregarding tax laws and making false statements, not to mention the cost of settling any civil litigation with shareholders. Other penalties can also be burdensome, since several recent FCPA settlements called for the company to engage an independent compliance monitor for periods of 18 months or more who is generally required to make periodic compliance assessments and report conclusions to the Justice Department and the SEC. Recent settlements also required the business to carry out enhanced anti-corruption self-monitoring for an additional period of time.

The filing of FCPA criminal charges against the business and/or its top executives is also a chilling but real prospect. Although company defendants are typically given deferred or non-prosecution agreements that avoid a criminal conviction if complied with, individuals are not always so fortunate. For example:

  • In 2011, the former President and former Executive Vice President of one company were sentenced to prison terms of 15 years and seven years respectively, for having carried out a four-year scheme to bribe officials at state-owned Telecommunications D'Haiti S.A.M. (Haiti Teleco). These were amongst the longest prison sentences ever imposed for an FCPA violation. The Justice Department was also successful in prosecuting a former Director at Haiti Teleco, securing a nine-year prison sentence for his role in taking bribes paid through two shell companies.
  • In 2012, the former CEO of another company was sentenced to 2½ years in prison for a scheme to bribe Nigerian officials in exchange for winning $6 billion in natural gas contracts. A UK lawyer also was sentenced to 21 months in prison for assisting in carrying out the scheme. He acted as a middleman in routing payments through accounts in Switzerland and Monaco, and - in one instance that sounds like a plot for a James Bond film -arranged for $1 million in cash in $100 bills to be placed in a pilot's briefcase and delivered to a politician's hotel room.

Many international companies have found out to their surprise that a company may be subject to the FCPA even if it (1) is not listed on a U.S. exchange, and (2) has U.S. subsidiaries that are not publicly traded.

These and other companies have learned through experience that the FCPA (like the UK Bribery Act), has a very long "extra-territorial" reach - an important cautionary note for international businesses.

The lack of effective internal controls plays a central role in many FCPA cases, and often impacts the scale of any financial penalties assessed. Subsidiary managers, for example, may fund bribes by creating false invoices, by executing fake consulting contracts, or by paying unearned rebates or discounts. In other instances, subsidiaries might set up joint ventures with shell companies or businesses established by government officials and their family members, using these vehicles to funnel payments to government officials. In some of these situations, the parent company "turns a blind eye" to these facts.

Similarly, the provision of all-expense paid junkets to government officials and their families may involve falsification of expense reimbursement requests and approval of expenses far exceeding the costs of ordinary business entertainment. The largest FCPA penalties are usually associated with a parent company that failed to identify or act on such matters, which a reasonable internal anti-corruption program should have flagged for further investigation.

Given these huge risks of fines, reputational damage and even prison for committing (or permitting) FCPA violations, what is a company - and its executives - to do? The answer includes the following:

  • Design, implement, and monitor advanced anti-bribery controls at the parent company and subsidiary level, especially for those subsidiaries operating in countries with a higher risk of official corruption.
  • Conduct enhanced due diligence of international consultants, agents and joint venture partners, including rigorous and periodic contract reviews.
  • Use analytics and monitoring to identify transactions which are outside the ordinary course of business.
  • Use internal audit personnel to proactively conduct FCPA / UK Bribery Act reviews and audits.
  • Provide employees with strong anti-fraud training which emphasizes the company's commitment to ethical conduct by all officers and employees.

If you would like to find out more information about the IASeminars courses in this area, please contact us.

About the Author

Related Articles

Cup Hands...

Cadbury's former Chairman, Sir Adrian Cadbury passed away in September. One thing that he left b...

Read More >

What FIFA Means to Exposing Public Sector Corruption

How will the FIFA investigations impact future corruption investigations involving senior and middle...

Read More >

Mitigating Risks of Procurement Fraud

Procurement fraud is one of the most pervasive types of fraud which occurs in the public sector. Fac...

Read More >

Cleaning up Fraud & Corruption in Nigeria

Fraud and corruption in Nigeria is known to be an obstacle to growth as Africa’s newly-declared lar...

Read More >

Bank of America Pays $20 Million for MD&A Disclosure Failures

In August 2014, the Securities and Exchange Commission announced a settlement with Bank of America o...

Read More >

Forensic Accounting Using Data Mining Techniques to Enhance Fraud Detection

Data mining is an analysis process used by forensic accountants and internal auditors to examine dat...

Read More >

Stay Updated with IASeminars

Join 20,000+ other professionals on our global mailing list.