For FCPA Compliance, Tone At The Top Key, Lack of Policies A Difficulty
The number of FCPA enforcement actions brought in recent years has declined. The SEC, for example, reports that in fiscal 2013 it brought 8 cases, compared to 10 in 2012 and 15 in 2011. Nevertheless, those who might be tempted to believe that anti-corruption enforcement is not a priority should review recent actions. In the last twelve months DOJ and SEC enforcement officials have added three new members to the list of the FCPA Top Ten – a compilation of companies who paid the largest amounts to resolve corruption charges maintained by the FCPA blog. Those companies are: Total S.A. now number 4 with a payment of $398 million; Alcoa Inc., number 5 with a payment of $384 million; and Weatherford International, number 10, with a payment of $152 million.
Enforcement officials also insist that FCPA enforcement is a priority, a fact reflected in a recent anti-corruption survey conducted by AlixParterns which notes that the SEC and DOJ are working with international authorities to identify possible FCPA violations. Likewise, the U.K.’s Serious Fraud Office reaffirmed its commitment to enforcement of the UK Bribery Act and provided new guidance on self-reporting. Brazil has announced that it will revise its anti-corruption statutes to align them with the FCPA. And, the SEC acknowledged that it received 149 tips through its whistleblower program last year and expects that the initiative will produce more enforcement cases in 2014. AlixPartners Annual Global Anti-Corruption Survey/Survey of General Counsel and Compliance Officers, available here.
The Survey suggests that FCPA enforcement is having an impact on corporate behavior. Approximately 30% of those who responded stated that they ceased doing business with certain partners because of concerns related to corruption. Another 15% of the responding companies acknowledged that they abandoned an acquisition transaction because of possible corruption at the target.
Respondents identified the following areas as posing the most significant risk of corruption:
- Africa: 56%
- Russia: 53%
- Middle East: 49%
- Mexico: 48%
- Central/South America: 48%
- Southeast Asia: 46%
- China: 43%
- Brazil: 41%
- India: 38%
Enforcement is also impacting the steps taken by firms to mitigate risk, according to the Survey. About 97% stated that their company distributed anti-corruption policies in writing to members of the board of directors. Another 75% reported that their policies had been updated within the last year while 73% stated that the involvement of the audit committee and directors had been effective in reducing risk. Other key practices deemed effective in reducing risk included internal audits, employee training, greater oversight of books and records or internal controls and hotlines through which tips of possible bribery were received.
Training of employees was cited by 88% of U.S. companies responding as being effective. Similarly, 76% of the U.S. companies who participated in the survey cited increased scrutiny of books and records or internal controls as effective in mitigating risk.
While many FCPA violations involve foreign subsidiaries, third parties such as agents, or both, one third of those responding to the survey indicated that their firm had not expanded the scope of their reviews of those subsidiaries. Likewise, less than half of the responding firms indicated that they regularly conduct due diligence on their agents or that they continually perform such reviews of prospective employment candidates.
Despite increased enforcement, almost half of those responding in the survey indicated that a continuing challenge in this area is the fact that compliance is viewed as a lower priority than operating results. Similarly, 41% of respondents cited the absence of a dedicated anti-corruption policy as presenting a continuing challenge. Other challenges regarding corruption risk included: inadequate resources, cited by 65%; variations of policies and procedures on a country by country basis, cited by 65%; inadequate training, 56%; and a lack of available financial resources, 55%.
Finally, there appears to be a significant gap in the perceptions regarding corruption risk among firms in different parts of the world. For example, 40% of U.S. firms noted that they are exposed to significant corruption risk. In contrast, only 20% of firms in Europe, the Middle East, and Africa stated that their industry was exposed to significant corruption risk. This perception carries over to the procedures employed. Thus, for example, among firms in Europe, the Middle East and Africa only 29% stated that they continually perform reviews of potential employees. In contract 63% of U.S. companies conduct such procedures.