Foreign Corrupt Practices Act Compliance: A Key Program for Risk Mitigation in a Global Market
In March 2024, a South Florida federal grand jury indicted the former finance director of an international waste management company headquartered in Illinois for his role in bribing foreign officials in Brazil, Mexico, and Argentina with over $10 million. This indictment follows two years after the waste management company agreed to pay over $84 million to resolve federal investigations related to the same bribery scheme. Among other violations, the company's foreign affiliates and subsidiaries regularly inflated invoices from vendors that provided otherwise legitimate services to cover bribe payments to obtain contracts. In settling the matter with the Department of Justice, the company paid the enormous fine and agreed to enhance its global compliance program, retain an independent compliance monitor, and engage in further mandatory self-reporting to the Department of Justice (DOJ). This indictment is a reminder that DOJ takes foreign corruption seriously and that even foreign subsidiaries are subject to DOJ jurisdiction.
Ultimately, any business seeking to engage in global trade must be prepared to face the inherent challenges of operating within the international market and negotiate the web of statutes and regulations that undergird global trade, promote fair competition, and further national security. A significant component of these statutes and regulations are those devised to counter corrupt business practices abroad. In response to several bribery scandals involving American corporations in the 1970s and 1980s, Congress passed a series of anti-bribery measures, including the Foreign Corrupt Practices Act (FCPA) of 1977, the FCPA Amendments of 1988, and the International Anti-Bribery Act of 1998. Since passing this legislation, violations have incurred stiff enforcement action from both the SEC and DOJ. Therefore, companies engaged in global trade and cross-border transactions must avoid the risks associated with an FCPA violation by establishing programs and internal controls that promote compliance.
An FCPA violation, alleged or proven, exposes companies engaged in global trade to severe risks. Companies that engage in overseas transactions encounter diverse legal systems, cultural norms, and business practices that increase the potential for a breach of anti-corruption laws, intentional or not, to ensue. In 2022 alone, regulators imposed over $1.5 billion in sanctions with an average penalty of $1.5 million. In addition to sanctions, companies that self-reported violations in 2022 experienced an average penalty of $90,000, significantly less than the average sanction but still costly. Most challenging to quantify are the costs to reputation that an FCPA violation incurs on those accused. A company can work for years to establish a name recognized for ethical behavior and quickly call that reputation into question with a corrupt practices violation that leads to years of investigations, negotiations, and negative publicity.
For this reason, a quality FCPA compliance program is worth the time and investment for companies that engage in transactions within the global market. An FCPA compliance program offers education on what are acceptable business practices for American companies and reduces the risk of careless errors within a company's team. Additionally, a strong global trade compliance program that incorporates FCPA training signals competence and trust to business partners. Finally, a strong FCPA compliance program buttressed by legal advice from counsel is helpful in not only identifying potential violations early-on but, also mitigating penalties in the event a self-report is contemplated or required.
Ultimately, businesses engaged in global trade that institute robust compliance programs focused on well-known compliance areas like FCPA and lesser-known ones such as export control position themselves for success as these measures are synonymous with risk mitigation, managed growth, and long-term prosperity.
References:
https://www.justice.gov/criminal/media/1345101/dl?inline
https://www.justice.gov/criminal/criminal-fraud/file/1496296/dl?inline
https://fcpa.stanford.edu/fcpac-reports/2022-fcpa-year-in-review.pdf