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Foreign Corrupt Practices (FCPA) Investigations

The decision to conduct regular internal audits and investigate incoming tips related to suspected acts of bribery are costly. However, is the price worth potentially saving the reputation and financial future of a company?

Posted by Joe Gerard on May 12th, 2010

“Both the need for, and the value of, internal investigations has grown, but the corporate appetite for doing them may be waning, largely due to economic pressures.”- George J. Terwilliger III, White & Case.

The decision to conduct regular internal audits and investigate incoming tips related to suspected acts of bribery are costly. However, is the price worth potentially saving the reputation and financial future of a company? FCPA enforcement continues to grow, as liability risks expand beyond companies, to include individuals and other key players making bribery transactions possible. The recent news of bribery allegations at Avon, Daimler and Hewlett-Packard (HP), demonstrate the frequency with which FCPA violations are uncovered. This is the result of an increase in groups devoted to seeking out corrupt business practices. Regardless of economic pressures, companies and executives have responsibilities to uphold when it comes to combating bribery.

The Trend for 2010: FCPA Violations

At the start of 2010, articles reported the opinions of experts, stating that 2010 would be the year of FCPA violations— and so far, they have been correct. In the article “2010: All Signs Point to a Record-Breaking Year for FCPA Enforcement” by White & Case, refers to some of the record breaking costs associated with FCPA violations:

“On the heels of the US Department of Justice’s massive sting operation, which resulted in the indictment of 22 individuals for conspiracy to violate the US FCPA, the DOJ and US Securities and Exchange Commission appear close to settling half-a-dozen investigations involving corrupt payments to foreign officials made by Alcatel-Lucent, BAE Systems plc, Daimler AG, Innospec Inc., Pride International, Inc. and TechnipS.A. If concluded, these anticipated settlements could result in more than US$1.1 billion in criminal fines, civil penalties and disgorgement—nearly double the more than US$646 million in fines, penalties and disgorgement recovered in 2009, and more than ever recovered in a single year since the FCPA’s enactment in 1977. And it’s only March 1.”

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FCPA Violations and Internal Investigations

Many people feel they can get away with pleading willful blindness or ignorance. By claiming  payments were made but had never inquired about what the money was for or who the money was going to, some feel they have reduced liability. However, this act of ignorance is far from successful, as the responsibilities of those in charge require them to be aware of such large company expenditures or bogus financial or accounting reports. In the article “FCPA Internal Investigations—Worth It?,” George J. Terwilliger III, of White & Case stated:

“Moreover, managers may believe that internal investigations often lead to voluntary disclosures (though that conventional wisdom need not be followed in many cases) and do not perceive enforcement officials to be extending any real benefit to those who self-report. Thus, a business faced with an indication of a potential FCPA violation and forced to control costs more closely may conclude that digging up dirt on itself is not in the company’s interest. As a result, companies may be electing not to conduct thorough internal investigations of potential corrupt payment problems and eschewing the self-assessment needed to measure the effectiveness of global FCPA compliance programs.”

Operating in this manner leads to increased risk and short-term reduced costs. Unfortunately, the discovery of FCPA violations and mandatory investigations significantly increases company costs in the long-term. Facing recent bribery allegations, Avon has spent $35 million in 2009, and is expected to spend an estimated $95 million in 2010 on investigations related to the bribery acts originating in the company’s operations in China.

Preventing FCPA Violations

As discussed in the article “Unspoken Rules of Doing Business in China,” operations in countries, such as China, where corrupt business cultures and bribing officials is the norm, creates a difficult situation for businesses. In some countries there are no clear laws prohibiting bribery, in fact, its how business is done. Many companies remaining compliant with laws at home in North America still find themselves committing illegal acts, such as bribery, in order to gain business in foreign countries. A solution for businesses to prevent or decrease the risks of FCPA violations is careful consideration of the environment and laws where subsidiaries and international offices will be located. Create policies that apply to every employee, regardless of the country of operation. This helps to reinforce company goals and values, as they are the basis of corporate culture.

In the article “2010: All Signs Point to a Record-Breaking Year for FCPA Enforcement,” Assistant Attorney General Breuer was quoted, stating:

“The DOJ will continue to seek guilty pleas or criminal charges and stiff penalties where the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct.”

Another solution to help prevent FCPA violations is to establish and communicate the consequences an employee or executive will face if found guilty of committing illegal acts. When an employee fails to detect or report known cases of bribery, they too should face some form of consequence, as they haven’t upheld their responsibility to the company. Compliance issues are highly involved and require a commitment from the entire organization. The effort put into a robust ethics and compliance plan can help companies prevent FCPA violations and continue to uphold their positive reputation.

Joe Gerard
Joe Gerard

CEO, i-Sight

Spend my days showing off the i-Sight investigative case management software and finding ways to help clients improve their investigations. Usually working with corporate security, HR & employee relations, compliance and legal teams.

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