Companies must avoid sending mixed messages about their commitment to anti-corruption policies

Ernst & Young’s 2013 Europe, Middle East, India and Africa fraud survey reveals that 57% of all respondents believe bribery and corruption are widespread in their country – and the figure for respondents from rapid-growth countries, including India, Nigeria, and Russia, is even higher, averaging at 67%.

These numbers pose a managerial challenge, as the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are taking an increasingly tough enforcement approach to violations of the Foreign Corrupt Practices Act (FCPA) – by both US and non-US companies alike.

One concern when the FCPA was enacted in 1977 was that US companies operating in places where corruption is common would find themselves at a competitive disadvantage compared with non-US companies. The DOJ and the SEC have therefore deliberately pursued FCPA enforcement actions against non-US parties.

In fact, nine of the top 10 FCPA actions have involved non-US headquartered companies, says Danish Hamid, a partner in Cooley LLP’s Washington DC office. “Notwithstanding this expansive application, several non-US companies continue to operate beyond the reach of the FCPA,” Hamid says, and these competitors continue to pose challenges to US companies committed to anti-corruption compliance.

Unfair competition? 

“Multinational corporations want to compete throughout the world, but may be shut out of markets if they are unwilling to pay bribes,” says Gregory Nowell, oil industry expert and associate professor of international relations at SUNY-Albany. “This leaves the field wide open to companies from countries which lack anti-corruption frameworks.”

“Employees are being told to produce strong sales results while being mindful of their anti-corruption obligations,” says Hamid. “This is the correct message, but from an employee’s perspective, drawing this balance can be challenging because he or she may be competing with other companies outside the jurisdiction of rigorously enforced anti-bribery laws like the FCPA.”

About 40 countries have ratified or acceded to the Organisation for Economic Co-operation and Development’s anti-bribery convention – China is notably not a signatory. Chinese companies have a reputation for making improper payments, especially in Africa, while competing with US companies on large infrastructure and energy projects.

The US government gives short shrift to the “everybody’s doing it” defence. Instead, senior management is expected to communicate clearly a zero-tolerance position on FCPA violations. “Setting the tone from the top is a significant feature of an effective compliance programme for both the DOJ and the SEC,” Hamid says.

One size doesn’t fit all

In November 2012, these agencies released detailed guidance on the FCPA, including the key features of an effective compliance programme. The clear message is that “a one size fits all approach to compliance is not acceptable”, says Hamid, since each company has a different FCPA risk profile. Companies must tailor their compliance programmes to fit their particular size, circumstances, and risks.

Getting compliance correct is crucial. An effective programme helps nip some problems in the bud, but it is difficult to eliminate violations altogether. Nevertheless, if a potential FCPA violation does occur, the adequacy of a company’s compliance programme is a consideration in whether the US government will pursue an FCPA enforcement action, and may be a mitigating factor in determining penalties. Strong compliance programmes also help protect companies from violations by rogue employees.

“Senior management needs to convey a clear message that bribery will not be tolerated,” says Hamid. “Unless and until we see that as a high priority at the board and CEO level, employees may perceive that they’re receiving a mixed or an empty message on anti-corruption compliance.”

Anti corruption  bribery  compliance  Ethics  Jerri-Lynn Scofield 

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