Andrea Bonime-Blanc looks at what 2010 holds for enforcement of the 1977 US Foreign Corrupt Practices Act
Andrea Bonime-Blanc looks at what 2010 holds for enforcement of the 1977 US Foreign Corrupt Practices Act
The United States Department of Justice (US DOJ) under the Obama Administration has ratcheted up Foreign Corrupt Practices Act (FCPA) enforcement even beyond what the Bush Administration started in recent years.
The US DOJ, especially through its Criminal Division Chief, Lanny Breuer, has been vociferous about what it intends to do next on FCPA enforcement.
The United States Securities and Exchange Commission (US SEC), long responsible for investigating and enforcing the “books and records” or accounting provisions of the FCPA, has become a centre of activity as well after years of being less proactive on this topic.
This column examines the US FCPA enforcement trends currently underway (which are likely to continue and potentially intensify) to provide companies – specifically chief ethics and compliance/business integrity officers and executive C suite members – with guidelines on how to cope with, and measure up to, the heightened scrutiny and requirements. (continues below)
Trends
The most important enforcement trend is that the US Government – through both the DOJ and SEC -- has substantially improved the quantity and quality of its resources and activities devoted to combating corruption.
This trend is reflected in the scope and number of prosecutions/investigations underway – 140 by last count – which is dramatically above the number of cases investigated or prosecuted in each of the thirty-three years of the FCPA.
The US DOJ has also made it clear that it is targeting specific industries. In a November 2009 speech to a pharmaceutical convention, Mr. Breuer announced that the pharmaceutical and medical devices industries, among others, would be specifically targeted.
Recent FCPA cases show several other industries at the US Government’s crosshairs: weapons, media, and oil and gas.
Game changing
The US DOJ also appears to be interested in the element of surprise.
In January 2010, in a startling example of its upgraded enforcement efforts, an undercover FBI sting operation raided an arms industry convention in Las Vegas netting 22 individual arrests.
Each of the length (15 months), scope, secrecy and volume of arrests in this investigation were unprecedented in the history of the enforcement of the FCPA.
There is another major new trend that should be amongst the most disturbing and alerting to company executives and senior managers doing business internationally. Individuals, including executives with no direct contact with, or even knowledge of, alleged bribery, are being specifically targeted for punishment.
The “ostrich” defense that they didn’t know bribery was taking place will no longer be available to individuals as a clear recent enforcement example – the Bourke case – amply illustrates.
A case involving Halliburton last year illustrates the heightened duty companies now have to conduct third party vetting and due diligence especially in the context of M&A. Global companies have begun to take this development seriously by deploying a broad variety of technological and analytical approaches to vetting third parties.
This ranges from doing specific due diligence on contemplated new relationships to vetting the tens (and even hundreds) of thousands of third parties large companies deal with around the world to understand who they are doing business with and lower the risk of dealing with corrupt officials, criminals and terrorists.
Lastly, but perhaps most importantly, is the fact that the US DOJ is not alone in this heightened enforcement effort.
International collaboration between prosecutors and governments (especially those subscribing to the OECD Anti-Bribery Convention) is on the rise and not likely to subside.
Beyond the now famous Siemens case settled in 2008, the expanded global enforcement cooperation is well illustrated by the recent example of the reported BAE $500M settlement achieved through the cooperation of the UK’s Serious Fraud Office (even before the UK officially enacts its new anti-bribery law) and the US DOJ.
Guidelines
But companies are not powerless in dealing with this heightened governmental scrutiny and enforcement. There are clear and proven measures they can take to meet this growing reality. Here are the most important:
Anti-Corruption Leadership & Culture. First and foremost, a company’s executive suite and board must be aware and knowledgeable.
They need to be engaged and on top of what their company is doing to deal with the constant threat and reality of bribery and corruption including its intended and unintended consequences (extortion, crime and security threats to corporate personnel and property).
Leaders must set a clear example by encouraging the creation of a customized anti-corruption program, providing sufficient resources, communicating often and clearly and demanding the right results, including walking away from lucrative but corrupt business propositions.
Anti-Corruption Programmes
To create an effective anti-corruption culture, a company must have a real anti-corruption program -- not merely corporate wallpaper -- with effective components including:
• Anti-corruption policy.
A company must tailor an anti-corruption policy that is customized to (1) its industry/sector; (2) its geographical spread and risk; (3) its regulatory profile (from highly regulated like the pharmaceutical business to barely regulated like the publishing business); and (4) its culture (a start-up versus a well established company).
• Anti-corruption education and communication.
A company’s business integrity officer, partnering with business leaders and other functions, must implement an anti-corruption awareness program through periodic, practical and targeted training that identifies and informs those at greatest risk of confronting bribery – e.g., business developers, sales people, executives, country managers. Such a program should include access to useful, periodically updated information and practical decision-making tools, for example, through the company’s website.
• Anti-corruption advice line.
It is no longer good enough to just have a so-called whistleblower or reporting line. Companies – especially large global ones -- need to deploy resources on a real time basis to help colleagues and personnel around the world with their corruption concerns and questions so that problems are dealt with immediately and headed off at the pass if at all possible.
• Anti-corruption monitoring and auditing.
Companies should implement a systematic approach to monitoring the issue of corruption – through an internal resource such as the advice line or a more systematic, technology-based approach to vetting third parties and new M&A activity. Additionally, they should periodically deploy their internal or external auditors or other experts to test and verify how their anti-corruption program is (or is not) functioning.
• Anti-corruption reporting and disclosure.
Companies should create reporting processes that ensure that results are clearly communicated to the top of the organization and even beyond when and if corruption violations have been detected.
Companies that provide social or corporate responsibility reporting should consider disclosing their anti-corruption efforts – both successes and failures. By doing so they will create greater internal and external awareness and accountability as well as potential leniency or even forgiveness from governmental authorities when and if violations occur.
• Joining alliances and supporting practical research.
Finally, companies can publicly commit to the fight against corruption by (a) joining industry groups such as the Extractive Industry Transparency Initiative and the World Economic Forum’s Partnering Against Corruption Initiative to seek common solutions and tools and (b) supporting practical research and thought leadership in this area such as the extraordinary work done for many years by Transparency International.
Corruption and bribery are amongst the highest risks global companies face today.
Governments are increasingly investigating, prosecuting and cooperating across international lines.
Companies too have heightened their awareness of and responses to the risk of corruption by creating better internal programs and external cooperative forums.
Company management and boards are wise to pay heightened attention to this risk by deploying more systematic internal anti-corruption programs -- not only because they are increasingly in the line of sight of regulators on a personal basis but also because it’s simply the right thing to do.
Andrea Bonime-Blanc is general counsel, chief compliance officer & corporate secretary at Daylight Forensic & Advisory. abonimeblanc@daylightforensic.com. www.daylightforensic.com