American businesses operating in countries outside of the United States must be versed in the implications of foreign bribery. Even when they are in territories where it seems impossible to finalize business transactions without bribes, they must stay mindful of how the fines and penalties may affect them back home.
The Foreign Corrupt Practices Act (FCPA) makes it illegal for company representatives to accept money or anything of value for business favors or to falsify or keep inaccurate books. While the total amount for bribery violations since 1977 is $4.6B, the total for all violations has currently exceeded $10.4B.
Understanding the Law
The focus for the FCPA is preventing unfair advantages and their cover-up. There is not any minimal requirement that constitutes a violation, and intent may often drive the charge. The law assumes intent if a bribe even takes place.
For accounting violations, the Securities and Exchange Commission (SEC) only needs to review a business’ books and find an overwhelming presence of evidence to prosecute. What businesses need to understand is that if a case gets as far as prosecution, they should be prepared to pay penalties and fines and to be taken into custody. The law positions the government to never lose an FCPA case.
Best Strategies for Avoiding Violations
The best defense against FCPA violations is to stay compliant. Granted, if a corporation has representatives conducting its business outside of the United States, it is virtually impossible to monitor every move the company agents make.
By sending someone to speak and conduct business on its behalf, a company is giving explicit trust to an individual to represent the company in all matters. Unless there is an FCPA whistleblower to report all suspicious activity, there is no way to safeguard against the possibility of corruption. Even if there is a whistleblower, there is not a guarantee that the whistleblower is not also corrupt.
One of the common reasons that companies may fall into the trap of being vulnerable is the global mindset that everyone takes bribes. There are some countries, for example, where the overriding perception of doing business is that it cannot be done without a bribe. Mexico, Russia, China, and India are four countries that have this reputation.
Because this is the perception, corporate agents tend to relax their regard of the rules and get comfortable doing things on foreign soil that would be frowned upon back home. Even the most upstanding, law-abiding US citizens start to believe that this is the norm and that no one will ever discover a kickback or unrecorded transaction.
Although there have been many cases the SEC has had to try, there are some that stand out. In July 2017, Halliburton paid $29.2M after it received oilfield services contracts for payments made to a company in Angola. One of the company’s vice presidents was fined $75K in individual penalties.
In September 2016, Glaxo-SmithKline received a $20M penalty after it admitted to pay-to-play schemes that helped boost its profits in China.
The violation at Anheuser-Busch InBev involved a whistleblower. Not only did the company try to hush the person who eventually revealed the violations to the SEC, but they also used third-party sales agents to pay off government representatives in India. The fine for these violations was $6M.
As the Avon Products case proved, companies operating in foreign countries are also responsible for the actions of their subsidiaries. The SEC found that the beauty giant did not put proper checks and balances in place to discover that the subsidiary was making payments and giving gifts to Chinese government officials. This was not only a violation case, but also a criminal one. Avon ultimately paid $135M to settle all the charges in December 2014.
In order for companies to stay on top of corruption, they must have a system in place to make discoveries of foreign bribery and corruption easy and corrective action swift. It is important for companies to continuously and consistently ask the right questions, perform the right assessments, and hold the right people accountable for any discrepancies or shortfalls. As many have discovered millions of dollars after the fact, the lifeblood and reputations of their companies depend on always having knowledge of violations.
The government does not accept the excuse that company leaders did not know about bribery occurrences or had no knowledge of false accounting records. Fighting against an FCPA charge is always an uphill battle because, as the government has asserted, it always wins.