Enforcement of the Foreign Corrupt Practices Act (“FCPA”) is an important priority for the SEC and the DOJ, and last year represented a banner year for the government. The number of cases filed in 2007, including cases against individuals, grew significantly from prior years as the government dedicated more resources to FCPA enforcement. Additionally, the cost of settling FCPA violations has dramatically risen. Settlements in 2007 included the largest criminal penalty in FCPA history ($26 million) and the largest overall financial payment ($44 million). Moreover, the government continues to regularly seek disgorgement of profits earned from the business allegedly won as a result of a bribe, as well as costly and burdensome non-monetary penalties.
Companies must take a global view of their FCPA compliance cultures. Violations by a subsidiary, even if foreign-based, could subject the parent company to liability. Further complicating matters, companies may be liable for actions of third-party “consultants” hired in the local country. The definition of a “prohibited payment” is also complicated and subject to 20/20 hindsight review by the government.
Certain industries and countries may require additional compliance efforts. Companies with frequent contact with foreign officials, such as companies involved in foreign infrastructure projects, seem to account for a high percentage of recent FCPA cases. In addition, companies doing business in countries such as China with numerous wholly or partially state-owned enterprises face complex questions of whether the individual with whom they are interacting is a foreign official under the FCPA. Certain countries’ perceived corrupt business norms pose greater risks.
Once a potential violation has been discovered, a company’s entire international operations may be subject to review. Companies who discover a problem are well advised to ask themselves where in the company other FCPA issues might exist, because the government is likely to do so. Additionally, violations discovered at one company may lead to an expanded government inquiry into other companies in related industries. Companies may also simultaneously be subject to various domestic and foreign regulatory investigations, and the U.S. government may condition resolution of domestic FCPA violations on a company’s resolution with foreign regulators as well.
In short, more frequent, and costly, enforcement of the FCPA is likely here to stay. Companies doing business abroad thus should, among other things, adopt and enforce FCPA controls (both domestically and internationally), conduct frequent training, and engage experienced FCPA counsel at the first signs of potential trouble.