Here are some ways to protect yourself.
This year, many US companies have been on a bumpy rollercoaster ride with the DoJ and SEC when it comes to the four dreaded words: ‘Foreign Corrupt Practices Act’ (FCPA).
With increasing international trade and attractive cross-border deals, the FCPA has leapt from a seldom enforced, broadly written statute to one of the highest law enforcement priorities today.
‘Companies should know what the FCPA prohibits, what it requires and what are their responsibilities under the law,’ warns Richard Cassin, a lawyer and creator of the FCPA Blog, a site that provides practical information about the FCPA and compliance. ‘The basic prohibitions in the antibribery provisions are that no one subject to the FCPA should corruptly give or promise to give anything of value to a foreign official, directly or indirectly, to obtain or retain business or gain an unfair advantage.’
Unfortunately, not every company understands the scope or the scale of the FCPA. Last week, California-based Lindsey Manufacturing, makers of electrical transmission towers, got a taste of the act when the company’s president, its CFO, and a Mexican sales agent were convicted by a federal jury in Los Angeles for bribing Mexican officials at a state-owned operation, Comisión Federal de Electricidad, through its sales agents during the period 2002-2009.
How did it end? It wasn’t pretty.
After a five-week trial the jury handed down guilty verdicts and the company’s high-powered execs now face a maximum penalty of five years in prison and a fine of at least $250,000 on the FCPA conspiracy charge, together with a further $100,000 for each of five additional FCPA counts.
‘In most cases, the alleged foreign bribery is a team effort, a lot of people are involved. The evidence trail they leave behind is easy for prosecutors and juries to follow,’ Cassin notes. ‘Phony contracts and dummy invoices, hot money bouncing between banks, cancelled checks, shell companies, two sets of books – it's all there, like breadcrumbs on the ground.’
Lindsey Manufacturing is certainly not alone. This year has seen a string of corporations facing FCPA heat, including Innospec, a global chemical manufacturer, which recently agreed to pay more than $229,000 in penalties to settle charges after the company’s CEO was found bribing Iraqi and Indonesian officials to win contracts for the company’s specialty chemicals.
Then there was Maxwell Tech, where the SEC alleged that one of the firm’s subsidiaries bribed Chinese government officials in an effort to secure sales of its products. The technology company is now set to fork out $14 million in a bribery settlement.
So with such cases in mind, my message is plain: if you do business abroad, watch out. – A breach of the act could cost a lot; it might even destroy your business.
‘In a case last year involving a privately-held company that violated the FCPA, the DoJ required it to end operations and be dissolved,’ Cassin recounts. ‘[And] the worst that can happen (if a company is smacked with an FCPA violation) is that it will be liquidated.’
On the upside, Cassin, who was a senior partner in a major international law firm and managing partner of its Asia practice, helps clients comply with the FCPA and regularly assists companies facing compliance issues. He says it’s not too late to start dodging an FCPA probe. Below is some valuable guidance from the FCPA expert which should help with sniffing out problems.
(i) Train employees: Effectively identifying potential red flags is crucial. Cassin says unusual payment patterns or lack of transparency in expenses should trigger compliance concerns. ‘A refusal by the foreign joint venture partner or representative to provide certification that it will not take any action in furtherance of an unlawful offer, promise or payment to a foreign public official would cause the US firm to be in violation of the FCPA.’ So employees must be vigilant and start monitoring all payments made to foreign officials.
(ii) Due diligence: This precautionary process may seem cumbersome, but it serves to confirm all material facts involved in a transaction. ‘The best way to protect against an FCPA violation is to avoid it,’ says Cassin. ‘Knowing exactly who the company is dealing with overseas is essential.’
(iii) Document all business decisions: Companies should be keeping an aggregated record of all sales and expenses. If you are not doing this, especially in respect of overseas business, it’s hard to be sure of what’s going on. According to Cassin, in any doubtful situation the best argument is evidence. ‘It is always better to have more evidence of how the decision was made. If a company can later show that it was aware of a red flag, investigated it completely, provided sound expert advice and then made an informed decision to go forward this can be your best defense,’ he advises.
(iv) Be consistent: ‘Compliance is never an event, it’s a process,’ says Cassin. ‘An effective compliance program should become part of a company’s DNA.’ When a company upholds stringent standards in conducting its business, with procedures in place and evidence of regular routine checks, it’s easy to face up to an FCPA investigation.
The last thing you want is for the company to be slapped with stiff penalties. Cassin expects more crackdowns by the SEC as the year progresses. ‘In the past few years, enforcement of the FCPA has increased tenfold,’ he reports. ‘No one is immune from compliance problems, so companies and their executives have only one good choice – be ready for the FCPA.’
