The Foreign Corrupt Practices Act (FCPA) was enacted by the U.S. Department of Justice (DOJ) and the Securities Exchange Commission (SEC) to serve a few key anti-bribery and accounting purposes.
Most notably, the FCPA prohibits U.S. persons and businesses (or foreign public companies that are listed on the U.S. stock exchange or subject to the act under other qualifications) from “paying, offering, promising or authorizing the payment or offer of money or ‘anything of value,’ directly or indirectly, with corrupt intent, to a ‘foreign official,’ political party official, or candidate in order to obtain or retain business,” according to the National Law Review.
The year 2020 saw a record level of $2.78 billion in penalties and fines for FCPA violations. Additionally, there were billions of dollars recovered by the DOJ and SEC in cooperation with other countries for similar violations.
Coming off this record year of FCPA corporate fines and penalties, companies (especially those doing business with high-risk countries such as China, India, and Brazil) need to take steps to mitigate risk in this area.
Here are tips for mitigating FCPA risks before learning how to report FCPA fraud:
1. Thoroughly evaluate third-party companies
If a company is providing third-party services on your behalf, you are legally responsible for any corrupt actions that take place. Utilizing a third-party company is often necessary but can carry tremendous risk, as 90% of FCPA enforcement actions involve a third party providing services to a company (according to the National Law Review).
Companies should have an effective FCPA compliance program that includes thorough evaluation of third-party companies. This evaluation can detect common FCPA red flags that include:
- Requests for cash payments
- Large commissions to agents
- Large discounts to distributors
- Lack of documentation for payments
- Vaguely described services
- Discrepancies between a consultant’s experience/area of expertise and services being offered
- Close ties between the third party and a foreign official
- The third party being a shell company incorporated in an offshore jurisdiction or requesting payments to an offshore bank account
2. Understand the nuances around lavish or excessive meals, gifts, travel, or entertainment
The FCPA prohibits companies or individuals from offering anything of value to foreign officials. “Anything of value” is defined as money, lavish meals, gifts, travel, or entertainment. Only gifts that are given appropriately, transparently, and with proper recording are acceptable.
To mitigate this risk, companies need to familiarize themselves with what constitutes a “foreign official” in the specific industry they are dealing with. Also, carefully monitor the giving of gifts and hospitalities no matter who they are being given to for an extra layer of risk mitigation.
3. Utilize the Transparency International Corruption Perceptions Index 2020
Risk assessments aren’t a one-size-fits-all solution. For example, there is significantly more risk involved with doing business with some countries than others; standardizing practices based on low-risk partners can leave companies susceptible to issues when dealing with higher-risk countries.
The Transparency International Corruption Perceptions Index 2020 is a resource companies can use to assess the relative corruption risk for specific countries. It also offers resources per specific countries to help companies make smarter decisions.
The above tips should be non-negotiable business practice for businesses, but unfortunately that’s not always the case. If you notice that one or more of these practices aren’t being followed in your company, you should come forward and take action to report FCPA fraud. Reach out to the Daniel J. Ocasio Whistleblower Law Group for a confidential conversation to determine if you have cause for a fraud case. If you do, our experts can work with you every step of the way to ensure your company is held accountable, per whistleblower laws, and you are protected, and possibly even rewarded.
