Q&A/Protecting Your Business at Home and Abroad:
Understanding the Foreign Corrupt Practices Act
Much Shelist spoke with John Kocoras, Managing Director and Regional Counsel at Kroll, about how U.S. companies should approach compliance with the Foreign Corrupt Practices Act. John—along with Joseph A. Spiegler, a Principal in the firm's Litigation & Dispute Resolution practice group—will address this and other topics during a breakfast seminar on November 6. Hosted by Much Shelist, the complimentary program will explore managing corporate investigations, steps to take before allegations arise, preventing fraud and protecting goodwill. Click here for more information or to register for “Compliance and Corporate Investigations: Strategies for Protecting the Company.”
Much Shelist: First, what is the Foreign Corrupt Practices Act?
John Kocoras: The Foreign Corrupt Practices Act of 1977 (FCPA) was a federal, legislative response to a number of 1970s-era SEC investigations into questionable or illegal payments to foreign government officials, politicians and political parties. The FCPA prohibits bribes or so-called “facilitating payments” to foreign officials for the purpose of obtaining or keeping business.
Following the passage of the FCPA, Congress became concerned that U.S. businesses were operating at a disadvantage compared to foreign companies that paid bribes routinely and — in some countries — were even allowed to deduct these payments as business expenses on their tax filings. In 1988, the United States began negotiations with the Organization of Economic Cooperation and Development (OECD) to obtain consensus among major U.S. trading partners and to encourage those countries to enact their own legislation similar to the FCPA. In 1997, the United States and 33 other countries signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which was ratified by the U.S. Congress in 1998.
Both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are charged with enforcing the provisions of the FCPA.
MS: What are the key provisions of the act?
JK: In general, the FCPA applies to any U.S. business or to any individual, officer, director, employee, agent, stockholder or firm acting on behalf of that business that orders, authorizes or assists someone in the violation of — or enters into a conspiracy to violate — the provisions of the act. According to the FCPA, the success of these actions is not considered a requirement, but “corrupt intent” is. Payments of (or offers to pay) money or anything of value to a foreign official, a foreign political party or party official, or a candidate for foreign political office are prohibited. Prohibited payments include those designed to assist the U.S. entity in obtaining, retaining or directing business to itself or any person.
Exceptions to these rules include payments for routine governmental actions such as obtaining permits and licenses, for processing governmental papers such as visas and work orders, for telephone and other utility services, and for scheduling inspections. Similarly, alleged violators can defend themselves by demonstrating that the activity was legal under the written laws of the country where the payment was made or that the money was spent in performing a lawful contractual obligation.
Violators face a range of civil and criminal penalties, including fines, imprisonment, and debarment or suspension from doing business with the U.S. federal government.
MS: How can businesses protect themselves from potential violations?
JK: As I mentioned previously, “corrupt intent” matters under the FCPA. Therefore, any company doing business, or planning to do business, in a foreign country should develop and implement an enterprise-wide commitment to compliance with the act. To be sure, this can be a delicate effort — especially when acquiring a foreign business in a country where bribery and other prohibited practices are part of normal business operations, or in a joint venture in which you may have little direct influence over a company’s operations.
There are several steps a U.S. business can take to establish a commitment to FCPA compliance. First, when contemplating a foreign acquisition, joint venture or business operation, conduct a thorough investigation of your potential business partners, suppliers and vendors. Assuming that the target company or business opportunity is attractive because it is successful, you should find out whether that success is linked to actions that might include violations of the FCPA.
Businesses should also learn as much as possible about the actual business practices in the target country, as well as the perception of those practices by outsiders. To help with this effort, Transparency International publishes the annual Corruption Perceptions Index, which ranks countries on the basis of perceived corruption.
MS: What if my company is already doing business in foreign countries?
JK: Businesses should immediately establish clearly articulated compliance policies and procedures, in language that is understood by local management and employees. These policies should be reinforced by regular, in-person training conducted by managers and experienced businesspeople who can lead by example (as opposed to lawyers and other consultants who are brought in for the sole purpose of conducting seminars). An enterprise should follow through with a zero-tolerance policy that requires the immediate investigation of suspected violations and maps out clear consequences to violators.
In a joint venture in which the U.S. company has relatively little influence over a partner’s business actions and/or an inability to investigate potential violations directly, the U.S. company should establish a policy of negotiation and cooperation — and remove itself from any business relationship in which it is unsure about or uncomfortable with its partners’ actions. Another option, established by the DOJ, is the FCPA Opinion Procedure, through which any U.S. company may request guidance regarding proposed or potential business conduct.
MS: What if I discover that my company has violated the FCPA?
JK: Do not sweep it under the rug. Instead, investigate the violation and make necessary corrections. It is important to identify the responsible parties, hold them accountable and improve controls where possible to reduce the likelihood of it happening again anywhere within the company. Discuss with your counsel whether the matter must be reported, and if not, whether it should be reported. In the end, self-assessment, self-reporting and self-correction could go a long way toward demonstrating good faith, establishing a lack of corrupt intent, and minimizing potential penalties sought by enforcement agencies.
With offices in more than 33 countries, Kroll is one of the world’s leading risk consulting companies, providing a broad range of investigative, intelligence, financial, security and technology services to help clients reduce risks, solve problems and capitalize on opportunities. A former Assistant U.S. Attorney in the Criminal Division in Chicago, John Kocoras manages corporate internal investigations for Kroll, directing multidisciplinary teams of forensic accountants, computer forensic specialists and seasoned investigators on matters involving the Foreign Corrupt Practices Act and a variety of other issues. For more information, contact John at jkocoras@kroll.com or visit www.kroll.com.
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