Of all the risks multinational companies face when building in markets overseas, by far the most costly (yet ironically, one of the most controllable) stems from violations of the Foreign Corrupt Practices Act (FCPA), whether bribery, fraudulent books and records, or lax or improper internal control systems.
An understandable reaction may be to quickly dismiss the issue; assuming that it’s something only small, non-publicly traded or quasi-legitimate businesses are involved in. The reality is far more alarming.
With over 150 FCPA investigations by the U.S. Department of Justice (DOJ) in the past couple of years alone – largely bribery allegations – a majority of accused companies have been highly recognizable, publicly traded, blue chip brands or their subsidiaries.
The High Cost of Crossing the Line
Notable Recent FCPA Enforcement Cases
- A well-known U.S. cosmetics and beauty products company was charged with failing to put proper controls in place to prevent illegal payments. The company agreed to a $135 million settlement.
- A leading aluminum products company was charged for bribes made by subsidiary companies to government officials. They were fined and required to pay $384 million.
- A huge international oil and gas company, cited for numerous fraudulent practices was instructed to set up a $440 million settlement fund.
Source: U.S. Securities and Exchange Commission (SEC) http://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml
None of the settlement amounts listed here include the enormous litigation fees expended to fight the allegations. What’s more, the consequences for these types of offenses can be far worse, including prison terms for top company officials, along with incalculable damage done to the corporate brand reputation and loss of public trust.
Where the Law Lays Blame
The Foreign Corrupt Practices Act (FCPA), enacted in 1977... can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.http://www.sec.gov/spotlight/fcpa.shtml
Many corporate executives also may not be aware that FCPA regulations expose them to legal responsibility or liability for the performance and actions of those they hire.
“I continue to believe that prosecuting individuals – and levying substantial criminal fines against corporations – are the best ways to capture the attention of the business community.”Lanny Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice (Nov. 16, 2010)
Therefore, greater vetting of third-party vendors, consultants, agents, contractors and joint partners is a must in solving this pervasive problem. Another critical initiative is more effective and extensive global project management and control systems, coupled with in-depth knowledge of particular market dangers, coercions and warning signs.