We often are asked how the U.S. government finds out about potential Foreign Corrupt Practices Act (FCPA) violations. Internal company whistleblowers are perhaps the main source. Industry sweeps run by the government also provide many targets. A recent EDGAR filing by a U.S. issuer highlighted one of the other main ways that potential FCPA violations come to the government’s attention – a competitor that just lost a bid.
Net 1 UEPS Technologies, Inc., (Net1) a company based in South Africa, but is listed on the NASDAQ Exchange, filed an announcement that the Department of Justice had closed its investigation into possible FCPA violations. That investigation “was initiated largely as a result of one of the losing bidders for the contract, . . . referring unsubstantiated South African press articles to the DOJ, alleging or implying that the  tender process [for a government contract] was tainted by corruption involving [Net1]’s subsidiary . . .”
As the Net1 announcement points out, the investigation was started in November 2012. The SEC closed its investigation with no action in June 2015, two and one half years later. The DOJ closed its investigation in July 2017, more than four and one half years later. In addition, Net1 disclosed the allegations to the corruption authority in South Africa. That investigation was closed without any action more than two and one half years later. Finally, a civil class action lawsuit was pending against Net1 and its CEO and CFO for nearly two years before it was dismissed.
A rejected competitor caused almost five years of strife for this company, which in the end prevailed. In such competitive bidding situations, it is important to ensure that your company adheres closely to its anti-corruption compliance program so that if it is ever investigated, it will be able to demonstrate that no FCPA violation occurred.