Forensics Journal - Stevenson University 2015 | Page 38
STEVENSON UNIVERSITY
Recent Trends of Enforcement and
Compliance with the Foreign Corrupt
Practices Act
William Olsen
Recent enforcement action by the Securities Exchange Commission
(SEC) and Department of Justice (DOJ) against Hewlett Packard
(HP) sent a clear message to United States (US) corporations and
other companies traded on the US markets. Hewlett Packard recently
agreed to pay $108 million in fines and penalties to the SEC and
DOJ to resolve a wide range of Foreign Corrupt Practices violations
throughout its worldwide network (King, 2014). HP was fined for
paying “commissions” to obtain software contracts around the world.
The company has agreed to embark on extensive improvement of
their internal controls and also enhance their Corporate Governance
program “to include strong, visible and explicit support for antibribery and corruption laws and regulations” (Alfaro, 2013).
The UK Bribery Act equated all facilitation and influence
payments to bribery. Finally, the UK Bribery Act dealt with the
problem of defining a foreign official by making it illegal to bribe
anyone regardless of government affiliation. Several countries such
as Russia, Canada and Brazil have enacted or updated their antibribery regulations to parallel the guidelines presented in the UK
Bribery Act. The key to the effectiveness remains enforcement.
In November 2012 the US Department of Justice and the Securities
Exchange Commission released “A Resource Guide to the Foreign
Corrupt Practices Act.” The guide book introduced several hallmarks
of an effective compliance program (U.S. Department of Justice A
Resource Guide). The Resource Guide provided companies with
the tools to demonstrate a proactive approach to deter bribery
and corruption. Companies in compliance may receive some
consideration during the fines and penalty stage.
The Foreign Corrupt Practices Act (FCPA) was enacted in 1977
but aggressive enforcement did not occur until around 2005 when
there were twelve enforcement actions. 2008 was a record year for
enforcement actions with forty-two cases (Krakoff, 2009). Although
the number has declined since then it still remains a very aggressive
environment. The purpose of the FCPA was to prevent the bribery of
foreign government officials when negotiating overseas contracts. The
FCPA imposes heavy fines and penalties for both organizations and
individuals. The two major provisions address: 1) bribery violations
and 2) improper books and records and/or having inadequate internal
controls. Methods of enforcement and interpretation of the law
in the US have continued to evolve.
The hallmarks include:
•
Establish a code of conduct that specifically addresses
the risk of bribery and corruption.
• the tone by designating a Chief Compliance Officer
Set
to oversee all anti-bribery and corruption activities.
•
Training all employees to be thoroughly prepared to
address bribery and corruption risk.
•
Perform risk assessments of potential bribery and corruption
pitfalls by geography and industry.
•
Review anti-corruption program annually to assess the
effectiveness of policies procedures and controls.
•
Perform audits and monitor foreign business operations
to assure compliance with the code of conduct.
•
Ensure proper legal contractual terms exist within agreements
with third parties that address compliance with anti-bribery
and corruption laws and regulations.
•
Investigate and respond appropriately to all allegations of
bribery and corruption.
•
Take proper disciplinary action for violations of anti-bribery
and corruption laws and regulations.
•
Perform adequate due diligence that addresses the risk of
bribery and corruption of all third parties prior to entering
into a business relationship.
The FCPA created questions of definition and interpretation,
i.e., Who is a “foreign official?” What is the difference between
a “facilitation” payment and a bribe? Who is considered a third
party? How does the government define adequate internal controls
to detect and deter bribery and corruption?
The enactment of the United Kingdom (UK) Bribery Act in July
2010 was the first attempt at an anti-bribery law to address some
of these issues. The UK Bribery Act introduced the concept of
adequate procedures, that if followed could allow affirmative defense
for an organization if investigated for bribery. The UK Bribery Act
recommended several internal controls for combating bribery and
offered the incentive of a more favorable result for those who could
document compliance. These include:
•
•
•
•
•
•
Established anti-bribery procedures
Top level commitment to prevent bribery
Periodic and documented risk assessments
Proportionate due diligence
Communication of bribery prevention policies and procedures
Monitoring of anti-bribery procedures (Ministry of Justice, 2011).
The SEC and DOJ entered into the first ever Non-Prosecution
Agreement (NPA) for Foreign Corrupt Practices violations on April
22, 2013 with Ralph Lauren Corporation (RLC). This decision has
been seen as a harbinger from the DOJ and SEC with regard to future
enforcement actions. The NPA highlighted the “extensive remedial
measurements and cooperation efforts” that the RLC demonstrated
during the course of the investigation. The corporation paid only
$882,000 in fines because they were able to “demonstrate a strong
tone from the top and a robust anti-corruption program” (U.S. DOJ
Ralph Lauren Corporation, 2013).
The concept of an affirmative defense for adequate procedures creates
quite a contrast to FCPA which only offers affirmative defense for
payments of bona fide expenses or small gifts within the legal limits
of the foreign countries involved.
36