THE IMPACT OF FCPA ENFORCEMENT

Enforcement officials have declared this to be the “New Era” of FCPA enforcement. Few would challenge that assertion. In recent years more cases garnering larger settlements have been brought than at any time in the history of the Act. There is an increasing focus on individuals and more cases are going to trial. Despite recent set backs in actions such as the highly publicized Africa Sting cases, investigations are continue and more cases are being brought.

A key point of the New Era is to create a ubiquitous presence in the market place to foster compliance. The results of a recent survey by Kroll Advisory Solutions, compiled in a report titled “FCPA Benchmarking Report 2012,” (here) suggest that enforcement officials are succeeding. Kroll surveyed 139 senior corporate compliance executives at companies with revenues ranging from $100 million to over $10 billion. Beginning with the basic statistics the Report notes that the number of FCPA enforcement actions increased 85% from 2009 to 2010. In total, companies paid a record $1.8 billion in financial penalties to the DOJ and the SEC in 2010.

Overall the report concludes that “despite significant investment in anti-bribery compliance, the majority of large-company corporate compliance officers are concerned about their exposure to bribery risk and many are falling short on best practices with respect to third party screening, facilitating payments and political donations. It also finds that executives in the pharmaceutical industry expressed more concern about the impacts of global anti-bribery enforcement than their counterparts surveyed in the financial, energy, technology, and telecommunications sectors.”

Other key points in the Report include:

• 95% of those who responded believe their companies’ exposure to bribery risk has increased or held steady over the last two to three years;

• 85% believe their exposure to bribery risk will increase or stay the same in the future;

• 53% have increased the budget for anti-bribery compliance in the last year while 45% have not;

• The most frequently cited challenges to anti-bribery compliance “include the inability to anticipate regulators’ next moves” followed by ensuring that employee training is taken seriously and used when a risk situation is presented;

• 42% of those who responded to the survey stated that robust compliance policies and procedures provide a competitive advantage with benefits that include enhancing their reputation with customers, enabling better service for clients, improved relations with vendors, positive employee morale and freeing up management time to focus on the business;

• The reasons prospective partners in deals fail on anti-bribery compliance include unusual payment structures, the use of agents, third parties or consultants, high risk countries and prior bribery history;

• 81% of those who responded stated that they require the other party in an M&A deal to complete a due diligence questionnaire or similar document to vet their level of anti-bribery compliance;

• 78% noted that in an M&A deal they review existing contracts and third party relationships to minimize noncompliance;

• 65% stated that in an M&A deal they review their target companies’ third parties for potential corruption;

• Although 71% of those responding noted that they use a questionnaire to screen third party compliance, most said that the process was not automated;

• While the FCPA permits facilitation payments, 60% said they do not allow them while another 36% stated that they can be used under certain circumstances;

• Virtually all companies noted that they have a policy for gifts and entertainment for employees but only 75% have one for vendors, agents and third parties;

While the survey confirms the fact that the message of the New Era is being taken seriously although it is clear that additional transparency from enforcement officials would aid compliance, 22% indicated little concern about anti-bribery compliance. These companies typically “do not have procedures for conducting anti-bribery-related training. Often they do not require third parties to certify adherence to their own code of ethics. They tend not to screen targets of their third parties’ acquisitions . . . despite the fact that they are all multinationals with significant foreign operations,” according to the Report.

Apparently, these entities are not aware of the increasing ability of enforcement officials to conduct industry wide investigation, the growing legion of whistleblowers reporting under Dodd-Frank or that their business partners may become whistleblowers to win cooperation credit. While it may not be necessary to have “best practices” or state of the art bells and whistles as part of the compliance program, the increasing presence in the market place of FCPA enforcement officials virtually requires the prudent corporate official to implement a reasonable, comprehensive, driven from the top compliance program to avoid the significant consequences of non-compliance.

Program: Webcast by Thomas O. Gorman: How Corporate Officials Can Get A Good Night’s Sleep Despite Current SEC Enforcement Trends, presented by Celesq and West Legal Ed, June 14, 2012 from 12 -1:00 p.m. EST. For further information please click here.