The payment of bribes and use of intermediaries to win deals may be common business practices in many developing nations, but these practices are outside of United States and international laws governing overseas business practices.
While the U.S. Foreign Corrupt Practices Act (FCPA) has been on the books since 1977, the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have strengthened their enforcement of the FCPA to levels never seen before, investigated hundreds of companies and opened 16 official actions in 2007. And the increase is significant. There were only three actions as recently as 2004.
Regulators are sending a message, that no company is too small to be noticed, or too powerful to be sued.
An FCPA (Plus E.U. and U.N. Anti-Corruption Regulation) Primer
Under the FCPA, US companies and their officers, directors, employees and agents are restricted from giving money or anything of value to “foreign officials” for the purpose of obtaining or retaining business. There are a number of provisions and exceptions to this, including such things as “facilitating” payments and marketing expenses. But any public corporation that issues debt or equity in the United States is mandated to maintain internal accounting controls that accurately reflect foreign transactions.
The FCPA is a federal law in the US Code, and therefore, prosecution takes place in federal courts. The DOJ and SEC are jointly responsible for its enforcement. The Fraud Section of The Criminal Division of the DOJ is responsible for all criminal and some civil cases. In civil cases involving issuers, the Division of Enforcement of the SEC has jurisdiction. Criminal penalties for businesses can reach US$2 million, and individuals can be fined, subject to prison sentences and barred from conducting business.
In 1996, the European Commission issued a similar directive to criminalize corruption by European companies operating within the European community, as well as outside of its borders. In 1997, The Organization for the Economic Co-Operation and Development (OECD), which includes 30 member nations in Europe, North America and Asia, signed a convention which criminalized bribery by domestic companies operating abroad. The result has been a more level playing field for companies competing for contracts in the international market.
International standards for transparent and ethical business practices were established by the 1996 Resolution 51/191 of The United Nations. Entitled, The UN Declaration Against Corruption and Bribery in International Commercial Transactions, this document lists and defines corrupt practices and contains pledges by member nations to criminalize the bribery of foreign public officials. Building on this, the 1999 UN Business and Develop Resolution 52/205 called upon member nations to undertake proactive efforts against corruption and bribery. These resolutions have established international standards that businesses and governments can look to, to ensure above board practices.
Prevention & Curative Costs
The costs of FCPA compliance are significant. However, companies have realized that it is far less costly to regulate themselves, than to be investigated by the DOJ and SEC. It is also far better for CEOs to self-regulate than be arrested for non compliance. In 2007 alone:
- Siemens spent US$347 million in expenses relating to what may be described as a “curative” FCPA investigation.
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- The heads of the Los Angeles-based Film Festival Management were arrested for violating the FCPA.
Investigations by regulators have become more punishing, and their targets have become more obscure.
I-OnAsia’s FCPA Compliance Services
I-OnAsia specializes in the conduct of due diligence investigations that determine whether business partners have a history of regulatory compliance and sound overall reputations.
I-OnAsia also operates Asia’s only true ethics hotline, which allows individuals to anonymously report suspected wrongdoing. The tracking and investigation of these allegations allows for a possible early and swift intervention.
I-OnAsia maintains a strategic relationship with The Red Flag Group, which also can assist clients write internal compliance policies and procedures, and implement a series of preventative controls.
I-OnAsia has experience delivering FCPA training programs in China and other Asian countries. These programs can ensure that employees understand the purpose and scope of the FCPA, use proper record keeping practices, and follow corporate compliance policies and procedures.
Furthermore, I-OnAsia employee screening programs allow employers to verify educational and professional qualifications, civil and criminal litigation records, drug and alcohol problems and links to criminal activity. This assures employers that their new staff hire will be a team asset, rather than a liability.
Other FCPA-Related Investigations Services
I-OnAsia is frequently asked to support FCPA-related investigations through the conduct of inquiries into the background or activities of individuals and enterprises. Our strengths are in the Asian and EMEA countries where corruption is prevalent.
I-OnAsia also supports audits of suspicious activities. Areas of concern are fully investigated. Where wrongdoing is found, I-OnAsia provides regulatory reporting support.
I-OnAsia investigations employ a wide range of techniques, such as forensic accounting, computer forensics, surveillance and undercover operations. These activities are supported through the use of specialized software, data mining processes and statistical analysis of program activities. The results of investigations are presented in an extensive report, along with recommendations for improved operating procedures. In the event of legal action, companies will be able to provide regulators with this documentation to demonstrate that adequate measures were taken to prevent wrongdoing. Investigations are also employed in conjunction with FCPA actions, in order to aid disclosure and cooperation with regulators.
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