By Maria F. Boodoo, CPA
Recently, there have been more reports regarding Foreign Corrupt Practices Act (FCPA) investigations as well as record-breaking fines. In the past, many FCPA fines - based on a 30-year-old law to curtail the bribery of foreign officials and governments for the purposes of obtaining business - were viewed as minute charges that had no affect on the modus operandi. This changed, however, as more emphasis was placed on restoring confidence in the American business system.
The size and number of enforcement actions brought by the SEC and Department of Justice (DOJ) have dramatically increased. According to a Shearman and Sterling LLP report from March 2006, "between 2001 and 2006, the average number of new DOJ prosecutions was over four times the average number in the preceding five years" and from "2002 through 2004, the number of SEC and DOJ new investigations increased steadily from 7 to 19."
The enforcement trend can be attributed to a variety of factors discussed in this column.
Broader Focus on Corruption
The SEC and DOJ have clearly stepped up efforts on the corruption front, particularly corporate corruption. According to the DOJ’s strategic plan for 2007-2012, "fighting public corruption has become one of its top six priorities."1 This is reinforced by the facts of a 40 percent increase in corruption indictments over the past two years and an increase in federal agents assigned to work corruption cases. On the international business front, the DOJ intends to publicize the FCPA rules to companies, develop policies to detect and recover proceeds of foreign corruption, and negotiate forfeiture agreements with the international community.
Voluntary Disclosure of Violations
Companies are increasingly stepping up and voluntarily disclosing potential and actual FCPA violations. A prime example is the case of GE’s acquisition of InVision. Bribery scandals detected in the Far East during due diligence of the acquisition were immediately disclosed by both companies to the SEC and DOJ, which reduced the penalties paid out by InVision and assisted GE in limiting its liability as a successor company. As explained by Assistant Attorney General Alice Fisher, "voluntary disclosure, followed by extraordinary cooperation, can result in a real, tangible benefit to the company."2 On the other hand, firms that fail to self-report, or consistently disregard FCPA, face severe penalties.
For instance, in the case of Vetco Gray UK Ltd., the DOJ took into consideration the company’s prior FCPA conviction when levying a $12 million criminal fine.3 Systemic failure is oftentimes symptomatic of an ineffective or noncompliant FCPA program.
Alternative Legal Remedies
Deferred prosecution agreements, non-prosecution agreements, and plea agreements are pathways chosen by many prosecutors recently to achieve a balance between the deterrence and prevention of corrupt activities and the minimizing of damages from corporate convictions on innocent employees, shareholders, and the market.4 Companies also are turning to these means of settling cases more harmoniously, which often requires them to disgorge profits from the corruption, cease and desist from future FCPA violations, implement a robust FCPA compliance program, and engage an independent compliance consultant/monitor.
Conclusion
The rise in FCPA violations is somewhat akin to the old maxim of a tree falling in the forest: FCPA violations have always existed, but they were often not "heard" due to blatant indifference, willful blindness, or tacit condonation of the improper act. The confluence of the factors discussed above, however, has served to bring "ears" into the international woods to listen for violations and, in some respects, prevent the trees from falling in the first place.
1 U.S. Department of Justice Strategic Plan, "Stewards of the American Dream, FY 2007-2012."
2 U.S. Department of Justice, "Prepared Remarks of Alice S. Fisher, Assistant Attorney General, at the American Bar Association National Institute on the Foreign Corrupt Practices Act," Washington D.C., Oct. 16, 2006.
3 U.S. Department of Justice, "Three Vetco International Ltd. Subsidiaries Plead Guilty to Foreign Bribery and Agreed to Pay $26 million in Criminal Fines," Feb. 6, 2007.
4 Scott A. Resnik and Keir N. Dougall, "The Rise of Deferred Prosecution Agreements." New York Law Journal: Securities Litigation & Regulation, Dec. 18, 2006.
Maria F. Boodoo, CPA, is a senior consultant with FTI Consulting Inc. in King of Prussia. She can be reached at mariaboodoo@yahoo.com.
Copyright 1998-2007 PICPA. All rights reserved. Contact journal@picpa.org for reprint permission