Foreign Corrupt Practice Act (FCPA) violations have been on the rise the past few years. In 2019, FCPA enforcements saw an all time high with $2.65 billion in penalties. This was eclipsed in 2020 where enforcements rose substantially. According to the FCPA Blog, 2020 saw the largest single FCPA fine against Airbus with fines and penalties of $3.9 billion for a massive bribery scheme spanning multiple years in China and other countries.
Doing business is an increasingly global endeavor, from establishing international locations, sourcing, manufacturing and global supply-chains to mergers and acquisitions of international entities, plus increasing foreign investments. Global networks and collaborative partnerships provide many advantages with regard to access and diversity, broader staffing resources, improved costs of doing business, innovation across all sectors, and expansion of business opportunities. However, these benefits come with a wide range of potential and even substantial risks.
In recent years, ongoing global business dealings have seen increased cooperation between corporations and multi-national government agencies to uncover corruption violations. As a result, there has been an increase in multi-jurisdictional FCPA cases and other countries have begun adopting FCPA laws similar to those of the United States. In 2020, foreign governments received more than $5 billion in relation to FCPA settlements from global anti-corruption cases.
Individual FCPA enforcements have also been rising in recent years. Thirty-six individuals were charged by the Department of Justice (DOJ) and Securities and Exchange Commissions (SEC) for FCPA-related misconduct.
The first quarter of 2021 may appear to be "quiet", however the DOJ currently is reportedly investigating more than 110 disclosed and pending FCPA cases.
Companies need to implement a healthy and vigorous compliance program. In addition to legal and financial forms of due diligence, companies need to consider the human element. Companies are often involved in fraudulent activities because their executives are either complicit in the misconduct or they are ignoring or circumventing financial due diligence and accounting controls.
Truly effective due diligence combines legal and financial due diligence and supplements this with effective vetting of executives. 20% of executives have serious issues in their history; however, less than 1% of these issues will be found using only routine employment type background checks. Implementing executive due diligence, and performing due diligence prior to any M&A proceedings will yield important issues such as serious breach of contracts, history of felony fraud, sexual abuse or harassment, anti-competitive behaviors, history of SEC violations, hidden history of bribery and corruption, and even murder, to name just a few issues.
When hiring executives abroad or acquiring foreign businesses in M&A deals, companies should also make sure that international executive due diligence is being performed by an investigative firm that specializes in this area of due diligence. It should not stop there - supply-chains and business partners should also be more carefully evaluated for the risks posed, using due diligence to safeguard your business. Avoiding risks of fraud, bribery and corruption in addition to minimizing reputation damage is key to protecting your hard-won business.
Pre-emptive care and ongoing transparency remain a company’s best practice. It is critical to create both an ongoing FCPA program and to partner with an external, third-party global security and risk management firm who are experts in deep due diligence investigations at individual and corporate levels worldwide.
Deep dive due diligence investigations will protect your company, employees and investors, and provides an important layer of fiduciary protection to all the members of your board of directors.