Corporate Compliance Programs To Avoid FCPA Problems

Since the enactment of the Foreign Corrupt Practices Act ("FCPA") in 1977, all multinational corporations domiciled in the United States have faced the possibility that their business activities will be scrutinized by U.S. government officials, embroiling them not only in costly civil difficulties, but possibly serious criminal ones as well. As a practical matter, the U.S. government did not consistently investigate FCPA matters throughout the first 20 years of the law’s existence. Now, however, as a consequence of a worldwide epidemic of corruption scandals and the imminent enactment of over 35 foreign corollaries to the FCPA, the tide has turned abruptly. Multinationals simply cannot afford to ignore the extremely disruptive and potentially devastating consequences of becoming involved in an international business corruption investigation, and should not assume that any present safeguards they have in place to detect such problems will adequately meet the new international environment.

The FCPA regulates the business conduct of U.S. corporations by proscribing the bribery of foreign government or political officials for the purpose of obtaining or retaining business, and by requiring most U.S. public companies to make and maintain accurate books and records and to implement adequate internal accounting controls. The Department of Justice and the Securities and Exchange Commission ("SEC") both are authorized to conduct investigations of FCPA violations.

For those found to have violated the FCPA, the financial and personal penalties can be severe. Individuals can be incarcerated for up to five years for FCPA criminal violations, and can face even greater penalties of up to ten years in jail if their conduct is found to constitute money laundering, a charge commonly alleged in conjunction with the FCPA. The pecuniary penalties can be equally serious. As criminal fines of up to two times the pecuniary gain derived from the offense can be imposed for criminal violations, corporations have been required to pay more than $20 million dollars just to settle FCPA cases. Moreover, criminal fines imposed against employees can not be paid by their employers. The civil penalties can be equally onerous for individuals and entities found to violate the FCPA. Both the Department of Justice and the SEC can initiate civil injunctive proceedings, and the SEC can bring other enforcement proceedings to sanction multinational entities that violate the FCPA. Companies operating in many industries can be suspended or barred from receiving export licenses or selling to government and government-sponsored entities merely upon the filing of criminal charges.

Even if the amount of the alleged bribe payment seems insignificant in comparison to the total value of the contract secured by it, or to the total revenues of the alleged bribe-paying entity, the failure to disclose such payments may constitute a distinct violation of the securities laws if there is a material amount of business dependent on the illegal conduct or if there is a reasonable possibility that discovery of the illegal conduct will result in expropriation of a material amount of assets or imposition of material fines or damages. Moreover, for U.S. companies required to report to the SEC, the FCPA imposes bookkeeping obligations to accurately reflect on their books all transactions and dispositions of assets, including off-the-book slush funds and bribe payments of any amount, regardless whether such events were material to the company or whether the company actually knew about the existence of the fund or the payment. All SEC reporting companies also are required to devise and maintain a system of internal accounting controls to detect slush funds and bribe payments. While violations of this requirement usually result in civil penalties, if a company knowingly fails to implement such a system, it can be criminally prosecuted for such failure.

For a variety of reasons, multinationals now face a much greater chance than ever of becoming embroiled in an FCPA investigation. Largely as a result of U.S. pressure, the Organization for Economic Cooperation and Development ("OECD") whose approximately 30 member nations comprise most of the world economic powers in Europe, the Americas and Asia, agreed in late 1997 to enact and enforce laws modeled on the FCPA by the end of 1999. Similar efforts at combating bribery in international business transactions are being promulgated by the World Bank, the United Nations, the Organization for American States, the Council of Europe, the International Chamber of Commerce and others. Consequently, where just two years ago, the United States was the only country to investigate and prosecute this activity, as we enter the new millennium, over 35 nations have committed to investigating and prosecuting bribery in international business.

Consequently, any multinational that is suspected of paying bribes to maintain or secure business may now be investigated for the same alleged conduct in any country affected by the activity. Moreover, because the OECD Convention obliges the participating countries to cooperate with and provide mutual assistance to one another, the impediments formerly facing U.S. investigators in gathering evidence abroad are quickly eroding. The Department of Justice and SEC already are increasing the resources they allocate to such investigations in order to seize the opportunities presented by these changes. Many foreign countries are establishing police and prosecutorial investigation units that will focus, for the first time, on detecting bribery in international business transactions. These new units will be eager to prove their worth by initiating new cases and filing charges. Thus, as set forth above, besides facing the specter of employees being threatened with incarceration, a multinational faces serious direct economic penalties and restrictions from government controlled markets. Even if a multinational successfully defends itself 2 against such an investigation, it will incur significant attorneys and other professional fees in defending against the charges, and can suffer serious damage to its business affairs and public reputation. For all these reasons, we believe it is far more cost effective to develop or review existing compliance programs now, before a problem arises.

Compliance programs are critical for companies seeking to reduce the risk of corporate criminal or civil liability. In light of the recent changes to the relevant law and enforcement procedures outlined above, we believe that an effective compliance program for multinational companies should include various components that are developed with regard to the particular needs of the individual company and the nations in which it primarily does its business. Depending on the nature of the multinational’s business, it also may be advisable to incorporate into a compliance program means to detect and prevent possible violations of the Arab boycott and export control laws.

Any such program should include the development of a policy manual setting forth compliance procedures for employees and agents, required educational programs for employees and agents, the implementation of auditing and accounting procedures tailored to comply with the relevant bookkeeping provisions, due diligence systems to detect signs of potential problems, the establishment of oversight or auditing committees to evaluate the effectiveness of the program, and the commitment of senior management to the program.

In developing particular programs for our clients, we carefully consider the effect of the U.S. Organization Sentencing Guidelines, which set the parameters for sanctioning corporations for FCPA and other violations. Under these Guidelines, a corporation that establishes a meaningful corporate compliance program before an investigation begins can expect to receive a lower corporate fine than one that does not have a pre-existing program. Simply put, a properly designed and regularly reviewed corporate compliance program is a sensible and cost-effective form of corporate insurance.

Greenberg Traurig is fully prepared to assist our multinational clients in devising and implementing programs designed to prevent and detect violations of the FCPA and its new foreign corollaries. Spearheading the development of such programs is Joel M. Cohen of our New York office. Before joining the Firm, Joel served as an Assistant United States Attorney in the U.S. Attorney’s Office for the Eastern District of New York for seven years, where he supervised that office’s Business and Securities Fraud Section. Both during his tenure with the government and previously, while in private practice, Joel investigated and defended cases involving FCPA allegations. In 1996, Joel was assigned by the Department of Justice as its first legal liaison to the French Ministry of Justice, and as a visiting fellow to OECD, where he advised the group that drafted the OECD Convention that requires 35 countries to enact laws modeled on the FCPA.

Greenberg Traurig draws from its experienced pool of international attorneys to counsel clients in these difficult areas. In developing such programs, we first meet directly with corporate personnel to review what practices and policies presently are in place. We also work closely with major accounting firms to further refine the programs, especially as they relate to auditing and reporting requirements. We look forward to meeting with you to discuss in greater detail the services we can provide in assisting our multinational clients to develop programs and safeguards before the trouble begins.