William C. Athanas
Recent Foreign Corrupt Practices Act (FCPA) enforcement actions against Renault, Daimler and Fiat demonstrate the dangers that those in the automotive industry face under the statute, which prohibits the payment of bribes to foreign officials. FCPA risks take different forms depending on the nature, scope and location of a company's international activity. They can arise both when companies seek to sell their products or services directly to foreign governments and state-owned entities and in the form of bribe payments in return for favorable contracting decisions. Such activity triggered the Renault, Daimler and Fiat matters, where the companies admitted to paying bribes to secure contracts to provide vehicles to various foreign countries
FCPA risks can also take other, less obvious forms, such as when companies face shakedowns from customs inspectors and tax assessors during efforts to import or export raw materials or finished products. Additionally, risks can surface when companies operate manufacturing facilities in foreign countries, which requires frequent interaction with hosts of foreign officials ranging from maintaining utility service to paying local taxes and securing police protection. The risks can also arise when foreign subsidiaries violate the statute; in these circumstances, the domestic parent may be deemed to have either encouraged, assisted or willfully turned a blind eye to the conduct. In sum, FCPA risk can occur any time a company's activities -- or those of its joint venture partners, agents, intermediaries or subsidiaries -- intersect with foreign officials.
Those companies which engage in discrete and limited international business endeavors typically find tempering FCPA risks a manageable task. Some may only sell to consumers or privately held entities (and thus avoid the heightened threats that accompany direct solicitation of foreign officials), others may shun the use of agents and consultants operating overseas (thereby minimizing the additional challenge of attempting to train and monitor those outside the company), and still others may have only negligible international connections (and thus avoid the challenges inherent in attempting to monitor activity in various locales operating under different cultural business norms). In those instances, identifying solitary FCPA threats allows the company to devote all compliance efforts to a narrow range of activity.
Most companies operating in the automotive industry, however, struggle to focus their compliance resources because of the breadth and depth of their international connections. Given the circumstances, those companies typically encounter FCPA risks that are varied in nature and large in number. Mitigating those risks can prove challenging because FCPA compliance requires a concerted plan which identifies, calibrates and prioritizes potential threats and then installs, monitors and constantly fine-tunes robust compliance measures.
Overview of the Statute
The FCPA consists of two components, commonly referred to as the "anti-bribery" and "accounting" provisions. The anti-bribery provisions speak in prohibitive terms, forbidding anyone -- including American companies of all sizes, U.S. citizens and permanent residents -- from corruptly offering, promising or giving anything of value, directly or indirectly, to a foreign official for the purpose of obtaining or retaining business anywhere in the world.
The accounting provisions create affirmative obligations requiring certain companies, including publicly traded companies, to maintain "books, records and accounts which, in reasonable detail, accurately and fairly reflect the [companies'] transactions." Those companies must also devise and maintain internal controls designed to provide reasonable assurances that financial transactions are executed in accordance with generally accepted accounting standards. Recognizing that corrupt activity flourishes when concealed, the accounting provisions seek to negatively reinforce compliance with the anti-bribery prohibitions by mandating transparency -- bribes must be recorded as a "bribes" in the books and records -- under threat of separate and additional penalties.
Identifying and Confronting FCPA Threats
As a practical matter, the company's FCPA risks define the scope of the duty to prevent violations. Companies in the automotive industry which operate in a wide rage of international forums must work to determine their FCPA exposure and formulate a coherent strategy to address it.
The companies must first identify potential areas of risk. This requires cataloguing the various instances where the activities of the company create opportunities for interactions with foreign government officials, in all shapes and forms. Once identified, the company can rank the areas of greatest risk. This is achieved by analyzing two key metrics: the number of times the contacts will occur and the potential amount of money involved during those dealings.
After those risks are identified and calibrated, companies should perform a deeper dive into those scenarios with the greatest threats to ascertain which individuals will be involved, both internally and externally. These are the people to whom the vast majority of compliance resources should be dedicated rather than simply spreading a thin level of limited resources across the entire scope of the company's activities. While the company should certainly install company-wide measures like creating a FCPA-specific compliance manual, disseminating broadly a message prohibiting bribery in any form, and encouraging employees to report perceived violations, maximizing limited compliance resources requires determining where time and money are best used. In short, the company must install a system that reflects a genuine desire to prevent FCPA violations. Anything less will leave the company exposed to massive fines and penalties when violations do occur.
The FCPA creates a spectrum of risk for those companies doing business internationally. The greater and more diversified the international activity, the greater the risk of running afoul of the statute. The nature of the automotive industry subjects those companies to heightened risk, thereby saddling them greater obligations to prevent, detect and remedy violations. Those companies that confront these risks and undertake authentic efforts to fulfill these expectations will find that FCPA compliance can be successfully managed in a cost-effective fashion.
William C. Athanas is Of Counsel to Waller Lansden Dortch & Davis, LLP, and practices in the firm's Birmingham, Ala., office. Prior to joining that firm, he served as a federal prosecutor and was responsible for investigations under the FCPA and other criminal statutes in jurisdictions throughout the country. He heads the firm's FCPA practice group, which counsels clients in all facets of FCPA compliance, including compliance program counseling, internal reviews and responding to government investigations. Mark Bell is an associate in the firm's Nashville office and a member of the FCPA practice group.