Last week, Alcoa became the latest in a long line of companies to settle Foreign Corrupt Practices Act (FCPA) violations with the U.S. government. Alcoa agreed to settle the Securities and Exchange Commission's (SEC) charges and a parallel Department of Justice criminal case by paying a total of $384 million in fines and disgorgements.
This latest FCPA settlement may have generated nothing more than a collective shrug by corporate America, but the details underlying Alcoa's settlement provide a cautionary tale for any company doing business internationally. These are some of the more noteworthy messages emerging from the Alcoa settlement:
KNOW YOUR BUSINESS PARTNERS—REALLY KNOW THEM.
According to the SEC's news release, "Alcoa’s subsidiaries used a London-based consultant with connections to Bahrain’s royal family as an intermediary to negotiate with government officials and funnel the illicit payments to retain Alcoa’s business as a supplier to the plant." Was anyone directly employed by Alcoa guilty of FCPA violations? No, but as evidenced here, you must know what those acting on your behalf are really doing.
COMPLIANCE AND INTERNAL CONTROLS ARE VITALLY IMPORTANT.
Would proper books and records, and internal controls have uncovered the scheme earlier? The SEC thought so. The payments to government officials were improperly recorded as valid commissions or sales.
DON'T IGNORE RED FLAGS.
The consultant in question was identified as someone who would work hard to keep various stakeholders happy. Keeping stakeholders happy is not a bad thing. It's important to ask: exactly how will you keep the stakeholders happy? If the answer is vague or implausible, look for other resources.
ONE ADDITIONAL LESSON.
The Alcoa example lends further importance to the role of proper compliance in M&A activity. Merging with or acquiring a company that later discloses an FCPA investigation can be an unwelcomed surprise. Compliance due diligence and integration is an all-too-important step that is often neglected in M&A deals—a missed step that can produce costly results.
The attorneys at Stinson Leonard Street have experience in helping companies detect and prevent the kind of activity that led to Alcoa's settlement. We also have the experience in helping companies respond to and resolve government investigations. Finally, we have the experience and resources to assist with development and implementation of compliance procedures that will help protect the company from loss.