Doing business globally can increase the risk of FCPA violations

Doing business globally is increasingly complex, from establishing international locations, establishing and maintaining intricate sourcing, supply-chain and manufacturing processes, exploring mergers and acquisitions of international entities, and making foreign investments. While these efforts have many advantages such as improved opportunities for diversity and collaboration, lowering costs, and greater opportunity for innovation, there is also the potential to significantly increase business risks.

As a result of these increased risks, there has been a significant rise in the number of violations of the Federal Corruptions Practice Act (FCPA).

FCPA violations can have consequences for both the individual and the enterprise

These are basic guidelines, other additional penalties that may be imposed include:

  • injunctions,
  • forfeiture of associated profits,
  • forfeiture of assets, and
  • suspension (or in some instances banning) from doing business with the government.
  • Unlisted costs are loss to reputation, affects on company and staff performance, and future revenue.

Best Practices

Fourth Quarter 2018 FCPA Highlights

Vantage Drilling International (11/19/2018): The Houston based company agreed to pay $5 million to settle charges against its precursor, Vantage Drilling Company, for failing to develop an internal accounting controls system in regards to transactions with its former external director, biggest shareholder, and exclusive supplier of drilling assets and for failing to properly enact internal accounting controls relating to use of third-party marketing agents.

Vantage Drilling failed to devise a system of internal accounting controls with regard to Vantage’s transactions with a former outside director who was the largest shareholder in Vantage and its only supplier of drilling assets, the SEC said.  The unnamed director is described in the order as a “Taiwanese shipping magnate.”   What is most surprising is that Vantage had not even conducted basic levels of due diligence investigation of this key shareholder and director

Vantage had an ineffective anti-corruption compliance program when the violations occurred and didn’t conduct any due diligence on the director before “relying on him as its sole source of drilling equipment and appointing him to its board of directors,” the SEC said.

Because of the internal control failures, Vantage provided funds and reimbursements to the director who used the money to pay bribes to officials at Petrobras in connection with a 8-year, $1.8 billion drilling services contract.

Stryker Corporation (9/29/18): The medical device company, located in Michigan, agreed to pay a penalty of $7.8 million for inaccurate books and records and insufficient accounting controls.

Petroleo ⦁ Brasileiro⦁ S.A. (9/27/2018): This Brazil based oil and gas company agreed to pay a $7.8 million penalty in a global resolution resulting from a massive bid-rigging and bribery scheme.

Patricio ⦁ Contesse⦁ González (9/25/18): The Chilean-based chemical and mining company’s once-CEO, Sociedad Química y Minera de Chile S.A., agreed to pay $125,000 to settle charges that he violated the FCPA during his leadership.

United Technologies (9/12/18): The Connecticut company agreed to pay almost $14 million to resolve charges of unlawful payments used to facilitate sales of elevators and aircraft engines.

Joohyun⦁ Bahn (9/6/18): The New Jersey real estate broker agreed to settle charges in the amount of $225,000 for attempting to bribe a foreign official while brokering a high-rise commercial building sale on behalf of a private foreign issuer.

Best Practices

Businesses should implement a healthy and robust compliance program. This includes implementing regular board and executive due diligence, and performing due diligence prior to any M&A proceedings.

Preventative care and ongoing transparency is a company’s best practice. Not only is it important to create a built-in, on-going FCPA program within an organization, it is critical to partner with an external, third-party global security and risk management firm who can perform deep due diligence investigations at individual and company levels.