The Foreign Corrupt Practices Act: Ignore it at your peril

Screen Shot 2016-05-06 at 10.27.14 AMSpecial offer – this year only! Voluntarily disclose to the U.S. Department of Justice (DOJ) your company’s violation of the Foreign Corrupt Practices Act (FCPA), and you’ll be eligible for a 50 percent reduction in fines.

If your company is based in the United States and does business in other countries, your management and advisors – especially public relations counsel – should be familiar with the FCPA. Enacted by Congress in 1977, the FCPA makes it illegal for U.S. companies to bribe government officials in other countries to obtain or retain business.

The FCPA has become a basic consideration for U.S. companies . Any professionals who are responsible for the reputations of U.S.-based firms – whether in public relations, legal compliance or other departments – must know and understand the FCPA

Screen Shot 2016-05-06 at 10.30.30 AMOn April 5, the DOJ’s Fraud Section announced an FCPA enforcement pilot program. Under the program if a company voluntarily discloses to the DOJ a violation of the FCPA under to certain conditions (for example, “within a reasonably prompt time after becoming aware of the offense”) it will be eligible for a 50 percent reduction off fines. In addition, the DOJ would consider declining prosecution of the company.

The program runs until the current administration ends on Jan. 20, 2017.

If the law has been in place for so many years, however, why was the program announced now? Last week, an item in Forbes noted that the government has long been trying to incentivize companies to self-report illegal activity by dangling the carrot of reduced punishment.

It’s also important, however,  to understand the action from two perspectives:

  • The recent history of the FCPA, and
  • The context of the DOJ’s action in light of election year politics.

A change in emphasis

Although the FCPA is ingrained in the U.S. legal system, in 2015 enforcement of the act dropped to its lowest level since 2006. Last year the DOJ resolved only two corporate FCPA cases and collected $24.2 million in fines – a small fraction of the seven corporate FCPA cases and $1.25 billion collected in 2014.

Screen Shot 2016-05-06 at 10.31.31 AMThe DOJ appears to be changing the emphasis of FCPA enforcement. When it announced the pilot program, the DOJ also said it is adding 10 more prosecutors to its FCPA unit – a 50 percent increase in its attorney staff. In addition, the FBI has established three new squads of special agents devoted to FCPA investigations and prosecutions.

A Justice Department spokesperson said the DOJ is adjusting its focus from smaller cases – more suitable for self-reporting – to “bigger, higher impact cases, including those against culpable individuals, both in the U.S. and abroad, [which] take longer to investigate and absorb significant resources.”

Election year politics?

Screen Shot 2016-05-06 at 10.34.15 AM
Donald Trump

The timing of the announcement, however, also has led some to speculate that the pilot program is a “carrot” offered to companies to settle such cases before the administration changes next January. Adding more uncertainty are reported statements by GOP Presidential candidate Donald Trump that the FCPA is a “horrible law” that puts U.S. businesses at a “huge disadvantage.”

Could the FCPA be repealed or, at the least, not enforced? If companies learn of possible violations of the law among their employees, should they wait and see what happens after a new administration assumes power in January 2017?

Whether you’re an executive of a U.S. company that does business internationally, or an advisor to such executives, the answer is definitely “no.” A blogger on the topic, the “FCPA Professor,” noted that Trump’s comments may actually have been confused about the law.

Accepted around the world and across the aisle

Counseling a “wait and see” approach, however, would not only be reckless but would verge on malpractice, for three compelling reasons:

The FCPA has stood the test of time due, attracting bipartisan support. It has not been subject to the whims of politics. In fact, enforcement of the law has been vigorous under Republican administrations.

The FCPA is not unique to the United States. The 34 nations in the Organization of Economic Co-Operation and Development (OECD) have agreed to a Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, strengthening the convention in 2009 with measures to reinforce efforts to prevent, detect and investigate foreign bribery.

The convention came under the spotlight in early April, when the “Panama Papers” revealed how funds have been hidden “offshore” from tax and law enforcement authorities. The OECD Secretary General said that Panama is the last major holdout to the convention.

Multinational companies have praised the convention. A February Wall Street Journal article included supportive comments from executives. The chief compliance director for General Electric Co. said the increased international cooperation among law enforcement is good for a company like GE, which operates in 165 countries. “We want to be on a common standard” for compliance that all our employees can adhere to,” he said.

The chief ethics and compliance officer at Bechtel Corp., said most companies have the same goal as the governments—to weed out corruption. “We don’t want a situation where there is an uneven playing field,” she said. “The more active other countries are, the better it is for all of us.”

Most important: Reputation is the primary concern, not merely the cost of fines. Even if the FCPA were removed, companies doing business internationally still must earn and maintain the trust of their stakeholders. Resorting to bribery or other corruption would reflect on the very character of a company, and jeopardize its reputation.

Whether in following the international convention, maintaining a culture of compliance or, if necessary, voluntary reporting violations under the new pilot program: companies would be well advised to follow both the letter and spirit of the FCPA. To do anything different would jeopardize their long-term competitiveness – and perhaps their survival.




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