FORENSIC
file
The U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act BY DAVID A. ANDERSON, CPA, CITRINCOOPERMAN
T
he United States Foreign Corrupt Practices Act of 1977 (FCPA) makes it a crime for a business or any of its officers, directors, employees, agents or shareholders to bribe a foreign official, foreign political party or candidate for political office for the purpose of influencing a foreign official in order to obtain or retain business. The United Kingdom Bribery Act of 2010 (UKBA), which took effect on July 1, 2011, has been described as “the FCPA on steroids” and takes the FCPA further by giving the U.K. jurisdiction over any commercial organization that conducts operations in the U.K., regardless of where the bribe is paid. This means, for example, that if an agent of a U.S. company with operations in multiple countries, including at least one U.K. country, pays a bribe to a foreign official in any country where it has operations, the U.S. company could be convicted under the UKBA. The UKBA also prohibits facilitation payments and certain entertainment and promotional expenditures which are permitted under the FCPA. Both the FCPA and UKBA present significant risks for companies conducting business internationally. The Securities and Exchange Commission (SEC), U.S. Justice Department (DOJ) and Federal Bureau of Investigation have aggressively investigated and prosecuted companies for FCPA violations. In 2010, the top eight FCPA settlements (with either the SEC or DOJ) totaled more than $1.5 billion. In the first half of 2011, the top ten FCPA settlements totaled more than $490 million. As of November 2011, the DOJ had about 150 ongoing investigations and
prosecutions. In several recent rulings, the courts have held that bribery of an official of a state-owned business also constitutes a violation under the FCPA. In addition to the financial settlements, both the SEC and DOJ have also been focusing on prosecuting individuals, including company management. In one recent case, the SEC brought claims against both the CEO and the CFO of a large nutritional/personal care products company for failing to adequately supervise the miscreant employees of a foreign subsidiary. The U.K. Justice Ministry, instead of providing specific written guidance regarding the key provisions of the UKBA and the applicability of the UKBA to non-U.K. companies, decided to let the U.K. courts decide these issues. Recently, the U.K. Justice Ministry brought its first UKBA violation case – for a bribe of approximately $800! So, how does a company minimize this risk? The answer is to put in place an effective and robust FCPA/UKBA compliance program and actively monitor compliance, especially in highrisk locations. Having such a program will minimize the risk of violating the FCPA and UKBA, and it is the only acceptable mitigating factor to reduce the size of financial settlements and penalties if a company is convicted of violating either statute. There are seven key components to an effective FCPA/ UKBA compliance program: • Establish standards and procedures to prevent and detect criminal conduct and ensure compliance with government regulations and industry standards. NEW JERSEY CPA • MARCH • APRIL 2012
23
• Create a culture of compliance led by the company’s senior management. • Use reasonable efforts to exclude known violators from activities that could lead to program violations. • Provide reasonable ongoing communication and training sessions to senior management, employees and third-party agents regarding the standards and procedures of the compliance program. • Monitor, audit and evaluate the effectiveness of the compliance program on a regular basis. • Establish appropriate performance incentives and disciplinary measures which are promoted and enforced consistently within the company to support the compliance program. • Provide appropriate response to possible criminal conduct, and subsequently reassess the compliance program to reduce the risk of the same conduct repeating. Of course, no program can prevent rogue employees or agents from violating the FCPA or UKBA. But, a well-designed and implemented compliance program – with effective communication and training as well as regular monitoring and evaluation – can minimize the risk of a company and/ or its employees violating the FCPA or UKBA. The existence of such a program may also mitigate punishment of the company in the event of violation of either statute. David A. Anderson, CPA, CFE, M.B.A., is a director in CitrinCooperman’s valuation & forensic services group. Contact him at 215-545-4800.