Directors, in addition to executives, soon may be targets of Foreign Corrupt Practices Act (FCPA) enforcement actions for failing to make a good faith attempt to assure that a corporate information and reporting system is in place.

The FCPA, which prohibits bribery of foreign public officials in order to obtain or retain business, includes accounting provisions related to bookkeeping and internal controls. These accounting provisions already have an expansive reach and can create pitfalls to corporations and their employees. In addition, the internal controls provision can pose a particular risk to board members, audit committee members, and other independent directors.

There is real concern that the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) may be setting the stage to charge independent directors and members of audit committees for knowingly failing to implement and/or maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions and assets are properly authorized and recorded. In particular, directors may face internal controls charges for failing to implement the controls necessary to prevent improper payments, even in instances where the director is not aware of the improper payment itself.

These risks should not be taken lightly, given the recent increase in internal controls violations charges by the DOJ, and the continued use of the internal controls charge by the SEC. For additional guidance on how directors can protect against liability for internal controls violations, read our extended article in the FCPA Advisor.

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