Aug 7, 2008. While hundreds of millions in fines and dozens of executives have been charged with Foreign Corrupt Practices Act (FCPA) violations, less than one-third (32 percent) of respondents to a Deloitte online poll reported that their companies are increasing internal controls to prevent such violations.
“FCPA prosecutions have increased dramatically in recent years, and all indications are that this trend will continue,” said Ed Rial, leader of Deloitte’s Foreign Corrupt Practices Act Consulting practice. “The Department of Justice and Securities and Exchange Commission have repeatedly identified the FCPA as an enforcement priority and have added staff dedicated to the investigation of suspected violations. As more U.S. companies seek to expand into developing foreign markets — many of which have spotty reputations for corruption — the need for effective anti-corruption programs and controls to prevent and detect potential violations is critical.”
The FCPA makes it a federal criminal offense for any company or individual doing business in the U.S. to offer, pay or authorize a bribe to a foreign government official to gain some form of business advantage.
Companies are particularly vulnerable when acquiring or partnering with foreign firms. “Traditional due diligence isn’t always enough to uncover FCPA violations made by potential business partners or transaction targets,” said Wendy Schmidt, national leader of Deloitte’s Business Intelligence Services practice. “FCPA due diligence needs to be focused on determining if a given subject is a foreign government entity or person, or is associated with a government entity or person. Research then needs to be conducted for adverse information, such as allegations of bribery, corruption or criminal activity. Thorough searches of available public records, including native language media and internet searches, as well as inquiries with knowledgeable industry and other sources, are critical.”
The areas where respondents believed FCPA violations were most likely to arise were in agent/consulting relationships (30.3 percent), foreign subsidiaries of U.S. companies (28.4 percent) and joint venture or strategic alliance partnerships (21.8 percent).
Nearly one-third (32.8 percent) of respondents indicated that their primary source of information in assessing vulnerability to potential violations was typically company sources as opposed to using external sources such as corruption indexes, media and government reports and third party vendors.