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The 5 Critical Considerations: What to do When an Allegation of a FCPA Violation is Raised Within Your Company

By Robert Appleton

The reaction to corruption by both national enforcement authorities here and abroad, as well as within multi-national corporations throughout the world, has changed dramatically over the past 10 years. In 2004-05, U.S. federal government FCPA investigations were at their infancy, and the DOJ and the FBI were just beginning to focus heavily on significant global corruption and foreign bribery investigations and prosecutions. Similarly, many companies, including a number of multi-nationals, did not have “compliance” departments, and the mere mention of the term “compliance” was often met by a strange look of unfamiliarity. 

Back in 2005, on behalf of Former Federal Reserve Chairman Paul Volcker and the Independent Inquiry Committee Investigation Into the Iraqi Oil for Food Programme (OFFP), I was meeting regularly with national authorities from all over the world, Europe, Asia and elsewhere, who were focusing on corruption, including some of my former colleagues at the Fraud Section at Main Justice. The purpose of my efforts at the time was to refer completed OFFP corruption investigations and evidence of bribery and corruption schemes involving the Government of Iraq and thousands of companies, for further enforcement actions, including criminal prosecution and civil forfeiture and asset recovery efforts. The referrals helped lead to an increase in focus by the US Government and others on the topic of foreign bribery.

Corruption investigations elsewhere, especially extraterritorial - focusing on activities beyond a country’s own borders - were virtually non- existent. Likewise, the exchange of a benefit for a government contract, or as a gratuity/expression of appreciation for one, in many parts of the world, was engrained in the society’s culture as well as the government institutions themselves.

In a number of regions, a “commission” was expected to be made for a government contract, or as an expression of appreciation. Not only were such payments not punished, in a number of places the practice wasn’t even considered illegal.

In addition, there were, and still are, very few extraterritorial laws addressing corruption that occurred beyond a country’s own borders, and even less efforts to enforce them. As one high level government official in Southeast Asia told me in 2013, “We don’t investigate cases of our citizens bribing foreign officials. Our laws do not address that. It’s only if [the corruption] happens [here].” On several occasions in distant lands, I came across actual tables on how the profits of bribery were to be divided through the government hierarchy, increasing proportionally depending upon the level of seniority of the official. All of this translated into a circumstance where just a fraction of the incidents of bribery and corruption were investigated, let alone successfully prosecuted.

Today, circumstances have changed somewhat, albeit not dramatically. They have changed enough to drive a difference in the response to allegations of corruption. Companies engaged in commercial activity beyond their borders, wherever located, must take allegations of corruption and bribery, as well as their compliance efforts to lessen these risks, seriously. To do otherwise, companies risk a fate similar to that which befell Alstom and Siemens, as well as others that have been highly publicized, or worse. Now, the downside risk of punishment and potential consequence for a bribery or corruption finding has increased exponentially, even though only a fraction of contracts tainted by bribery are pursued by enforcement officials. In addition, in order to promote greater accountability, whistleblower reward programs have formed, and some have received the commitment of substantial funding. As a result of enabling legislation and agency programs, there is now at least the potential for significant whistleblower and insider rewards for disclosure of evidence of corruption within corporations. 

Similarly, much tougher anti-corruption legislation has been passed in a number of important countries, including Brazil and China, and prosecutions are on the rise. While a paltry number of corruption cases are prosecuted in Asia and Africa, much greater attention is being paid to this issue.

In addition, African countries are now demanding a greater percentage of the fines and penalties being imposed by foreign authorities that prosecute cases in their territory – asserting that their communities are the victims of schemes, and they should therefore join in the spoils of the recoveries.

Further, fine and penalty amounts are increasing substantially, and the SEC and DOJ have publicly announced intentions to hold individual corporate officials personally responsible for undertaking as well as intentionally turning a blind eye to corruption schemes. And last but not least, compliance programs and compliance officers are now an ever increasing subject of enforcement actions. The very recent case of BHP Billiton is a potential paradigm shift - wherein the company agreed to pay a $25 million fine to the SEC for alleged failures in their compliance program and their “Olympic Hospitality Program,” where no there was no actual contract procured, no government involvement, and no quid pro quo was proven to exist. The case represents the trend where the pendulum has swung to a landscape where there is much more scrutiny not only on the acts of corruption, but the instrumentalities of it as well - such as gifts, hospitality, travel and entertainment, and even the hiring of relatives of foreign government officials as a basis for an enforcement action.

While most agree that all companies must now take allegations of corruption, improper benefits, and faulty compliance, seriously, when an allegation is raised, the question what a company should do does not lend itself to an easy answer. The question of if, and when, to disclose the issue to the government haunts many. The goal of this article is to examine some important considerations for corporate leaders when such an issue arises, either through a whistleblower hotline, a direct complaint, a routine audit, a compliance review or some other manner. The first two considerations assume that notice of the allegation has not reached the government, and that a subpoena or notice that the DOJ and/or SEC, or some other enforcement body is investigating, has not been received. The premise is that the issue has arisen entirely internally. If such is not the case, and notice has been achieved through a subpoena, search warrant, or a visit from a government agent, much of the later discussion in this piece nevertheless remains relevant.

To continue reading about 5 things to do when an allegation of a FCPA violation is raised, click here to view the entire whitepaper in PDF format.

You'll learn detailed information that will guide you through assessing whether:

  • You Have a Possible FCPA or Similar Violation
  • To Undertake a Deeper Internal Investigation
  • Internal Controls and Compliance – Remediate
  • To Make a Voluntarily Disclosure
  • To Fully Cooperate with a Government Investigation

View the Whitepaper