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What You Need to Know About Protecting Your Company from FCPA Violations

Business is a progressively global venture. With ever increasing investment abroad, establishment of international locations, sourcing and manufacturing from worldwide resources, and the purchasing of international entities, companies face a growing complexity in foreign business dealings and corporate financial accounting challenges. Sales by foreign affiliates of U.S. companies in 2013 were over $7 trillion dollars, according to the latest available study.

Along with this, has been a growth in Federal Corruptions Practice Act (FCPA) violations. These violations cost companies staggering amounts of money, as well as a loss of reputation. Executives from these companies faced criminal charges, resulting in high fines and even imprisonment. A record high $2.48 billion dollars was paid to resolve FCPA cases  in 2016. This is a far cry from the comparatively small $133 million paid by 11 companies in 2015, the $1.56 million paid by 10 companies in 2014, or the$731.1 million paid by 12 companies  in 2013. This year it looks like this number may climb even higher.

Bad Business

Last month, August 2017, according to the Wall Street Journal, Uber is under preliminary investigation by the U.S. Justice Department regarding FCPA violations banning the use of bribes to foreign officials to obtain or keep business. “Under former Chief Executive Travis Kalanick, the eight-year-old company spread rapidly to more than 70 countries around the world in part by giving regional teams authority to adapt to local markets and expand as quickly as possible, sometimes flouting local laws. In South Korea and France, for example, it was found to violate transportation laws,” according to the WSJ.

The countries the FCPA violations purportedly occurred in were not named by the WSJ.  Uber reportedly had violated transportation laws in France and South Korea, leading to actions against the company within those nations. The WSJ further reported that a local manager in Singapore “bought more than 1,000 defective cars last year and rented them out to drivers, only fixing the safety defect after one of the cars caught on fire.”

The DOJ has separately launched a criminal investigation into “Greyball” practices by Uber, where a manager had allegedly developed special software to identify law enforcement and other government officials to avoid giving them rides.

These DOJ findings might cause an industry sweep of similar companies.

The SEC and DOJ are currently looking into alleged bribes paid in California by Chinese oil company, Sinopec connected with a $4 billion Nigerian payment dispute.

2017 – Other SEC FCPA Enforcement Actions

From the U.S. Securities and Exchange Commission website:

  • Halliburton– Paid $29.2 million and a former vice president paid a $75,000 penalty to settle charges related to payments made to a local company in Angola in the course of winning lucrative oilfield services contracts. (7/27/17)
  • Michael L. Cohen – The former Och-Ziff executives were charged with being the driving forces behind a far-reaching bribery scheme that paid tens of millions of dollars in bribes to high-level government officials in Africa. (1/26/17)  NOTE: Och-Ziff and other executives settled charges in 2016.
  • Orthofix – The Texas-based medical device company agreed to pay more than $6 million to settle charges that its subsidiary in Brazil used high discounts and improper payments to induce doctors under government employment to use Orthofix products. (1/18/17)
  • SQM– Chilean-based chemical and mining company Sociedad Quimica y Minera de Chile S.A. agreed to pay more than $30 million to resolve parallel civil and criminal cases finding that it violated the FCPA by making improper payments to Chilean political figures and others. (1/13/17)
  • Biomet– The Warsaw, Ind.-based medical device manufacturer agreed to pay more than $30 million to resolve SEC and Justice Department investigations into the company’s anti-bribery violations in Brazil and Mexico. (1/12/17)
  • Cadbury Limited and Mondelez  International– The global snacking business agreed to pay a $13 million penalty for FCPA violations occurring after Mondelez (then Kraft Foods Inc.) acquired Cadbury and its subsidiaries, including one in India that proceeded to make illicit payments to obtain government licenses and approvals for a chocolate factory in Baddi (1/6/17).

What This All Means for You

Reading about the wrongdoings of other companies may be of interest in a general sense, but not all FCP violations are intentional. Executives are not absolved of responsibility if, unbeknownst to them, someone within their organization at home or abroad is involved in a business acquisition or partnership in violation of the FCPA.

This means that protecting yourself and your company is of critical importance to safeguarding yourself and your business.

Cautionary Statistics

  • 80% M&A deals fail within 2 years
  • Average FCPA fines 2015: $88m
  • Global Supply Chains: (Bribes paid through 3rd Party intermediaries in 90% of FCPA cases)
  • 35% Global Supply Chains have bribery/corruption issues
  • 20% Executives have serious background issues
  • Reputational damage costs = $millions

Best Practices

Early on, companies should make plans to implement a strong compliance program, exercise regular executive and board due diligence, and perform company-wide due diligence prior to onboarding or promoting executives, onboarding 3rd party vendors, and during M&A transactions. The best practice is preventative care and ongoing transparency in addition to creating a built-in and on-going program FCPA program within their organization and an external partnership with a third party global security and risk management firm.

Companies need to focus on their core business; therefore it is important to enlist the expertise of an external and unbiased company whose business focus is to perform deep level due diligence investigations at both the individual and company level with global-spanning resources.

The following investigative practices should be adopted company-wide in all countries of operation:

  • Know the types of risks likely in your industry
  • Rank risks according to your business
  • Identify transaction risks for your company & industry
  • Understand the type of risks prevalent in the target high risk market
  • Have a strategy to recognize and prevent likely issues
  • Communicate this to your domestic & in-country teams
  • Require routine financial audits
  • Conduct effective due diligence
  • Reassess annually & monitor for continuous changes

Performing preliminary due diligence through assessing basic financial data and monitoring AML/KYC global watchlists represents only the first step in a due diligence program.  Financial assessments typically yield less than 1% of the issues that are needed to inform an effective compliance program.  For example financial assessments typically reveal little information about privately held companies globally, leaving large data gaps.  Next, global watchlists mostly reveal information relevant to anti-moneylaundering, anti-terrorist funding and people or businesses that are already on radar for related issues.  However, this does not address developing issues or those that may be hidden or not yet detected and yield less than 5% of the issues of concern related to bribery and corruption.

Deep media searches and deep internet investigations will reveal 30% more bribery and corruption-related issues than financial and watchlists combined.  The resulting data will enable improved strategic assessment to reduce risk exposures and mitigate identified concerns.

You can only mitigate risks that are identified.

Know your Customers. Know your Business Partners. Know your Employees.

                                                Protect your Company.


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