Create a free account to continue

FCPA Reaches New Levels

By Kelly McCabe, News Editor, Manufacturing.netFor its ability to tarnish reputations, the Foreign Corrupt Practices Act is an essential piece of legislation for manufacturers and businesses to be knowledgeable of.

The Foreign Corrupt Practices Act — which prohibits paying bribes to foreign government officials for the purpose of securing business — is “one of the most important laws to be attentive to,” according to Homer Moyer, founder of Miller & Chevalier’s international practice.
The act also requires all companies under Securities and Exchange Commission jurisdiction to maintain a system of internal control providing reasonable assurance that transactions are executed only with the knowledge and authorization of management.
Because manufacturers are in the sales business, FCPA issues can arise and affect profits, so it’s especially important for them to be familiar with the legislation, Moyer said. FCPA issues can weigh heavily on a company’s reputation, and some companies have been shut out of markets because of it.
FCPA violations “can be a huge distraction and aversion of energy from the business of running a company,” Moyer said. The penalties that violating companies and officials face are plentiful.
Government-imposed fines can be substantial, possibly in the tens of millions of dollars. The company’s profits also may be discouraged, and they may have to give up all profits and earnings from the violating project.
Employees and officers could face jail time — the longest sentence served was 60 months.
Image is on the line for a violating entity. Public relations could take a beating, and the stock price could drop.
In addition to assessed fines, a company likely would spend more money on legal and accounting fees and on the hiring of an independent compliance monitor — typically under contract for three-year terms.
As well as in the United States, companies run the risk of being prosecuted in the country they’re dealing with.
If a company chooses not to look at FCPA issues during acquisition and issues are discovered, officials will treat the company more harshly, according to an article by Miller & Chevalier’s Mark J. Rochon and James G. Tillen.
“The level of enforcement has gone up dramatically, and the stakes can be quite high,” Moyer said.
FCPA rules don’t apply to just cash bribes. Lavish gifts, entertainment, hosting, travel expenses, sweetheart deals with government officials and other business deals — anything that can transfer value to a foreign government official — all fall under the act.
The piece of legislation grew out of the Watergate scandal of the 1970’s. During government investigations, officials learned many U.S. companies were keeping off-book accounts and making payments to foreign governments to get business.
That discovery led to an SEC amnesty program that allowed companies to disclose any questionable payments they’d been involved in. More than 400 confessed, leading to the enactment of the FCPA in 1977.
Countries with laws like the FCPA now number more than 100, a figure that has been increasing rapidly in the past couple years. It’s an increasingly important law these days, because official corruption tends to be worse in developing countries, Moyer said.
And while some countries are just “warming up to the idea,” other nations have harsh rules, according to Moyer.
In a prime example, Zheng Xiaoyu, former director of China’s food and drug safety program, was executed July 10 on charges of taking more than 6 million yen (more than US$51,000) in bribes and dereliction of duty. According to the Kyodo news service, he was sentenced for taking bribes from pharmaceutical firms in return for approving new drugs.
The case ''revealed several problems, and I think we need to reflect on what lessons we can draw,'' Yan Jiangying said in a July 10 Kyodo news story.
Companies are expected to have an FCPA compliance program, which Moyer says is the easiest way to avoid issues with the law. Because the programs are designed to reduce the risk of a violation, having a program in place can affect how authorities treat you if an issue arises, Moyer said.
An effective compliance program ultimately will yield the company’s intended results: education, detection and deterrence, according to the U.S. Department of State Web site.
A clear statement of company policy on illegal payments, and adherence to that policy in all levels of the company, is essential for a company to avoid FCPA flare-ups, Moyer said. Policy statements and compliance programs need to have practical guidelines in order to succeed.
To put in place a successful compliance program, it is essential for all management and senior management to buy into and support the program.
Company personnel training and clear communication play important roles in the success of the program, Moyer said. A company hot line for FCPA-related questions and concerns is a simple but effective way to keep the lines of communication open.
Moyer added that some steps can confirm a company’s seriousness in dealing with and preventing FCPA issues: would a company walk away from a big deal if it presents an FCPA risk? Is the company serious about hiring a third-party compliance official? Does the company discipline employees in violation?
If a company proves successful in those areas, and maintains that success, FCPA issues could easily be dealt with or avoided.
Practicing due diligence, along with providing incentives for company employees who comply, is of utmost importance in preventing FCPA issues.
Homer Moyer has represented dozens of clients in FCPA matters and investigations, chaired more than 15 conferences on the FCPA, and served on the SEC-approved Independent Compliance Consultant in one of the largest FCPA cases to date.