Companies Still Need to Crack Down on Bribes Paid to Government Officials


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Companies Still Need to Crack Down on Bribes Paid to Government Officials

Ed Rial
Leader, Foreign Corrupt Practices Act Practice
Deloitte Touche Tohmatsu

While hundreds of millions in fines and dozens of executives have been charged with Foreign Corrupt Practices Act (FCPA) violations, less than one-third (32 percent) of respondents to a Deloitte online poll reported that their companies are increasing internal controls to prevent such violations.

“FCPA prosecutions have increased dramatically in recent years, and all indications are that this trend will continue,” said Ed Rial, leader of Deloitte’s Foreign Corrupt Practices Act Consulting practice. “The Department of Justice and Securities and Exchange Commission have repeatedly identified the FCPA as an enforcement priority and have added staff dedicated to the investigation of suspected violations. As more U.S. companies seek to expand into developing foreign markets — many of which have spotty reputations for corruption — the need for effective anti-corruption programs and controls to prevent and detect potential violations is critical.”

The FCPA makes it a federal criminal offense for any company or individual doing business in the U.S. to offer, pay or authorize a bribe to a foreign government official to gain some form of business advantage.

Companies are particularly vulnerable when acquiring or partnering with foreign firms. “Traditional due diligence isn’t always enough to uncover FCPA violations made by potential business partners or transaction targets,” said Wendy Schmidt, national leader of Deloitte’s Business Intelligence Services practice. “FCPA due diligence needs to be focused on determining if a given subject is a foreign government entity or person, or is associated with a government entity or person. Research then needs to be conducted for adverse information, such as allegations of bribery, corruption or criminal activity. Thorough searches of available public records, including native language media and internet searches, as well as inquiries with knowledgeable industry and other sources, are critical.”

The areas where respondents believed FCPA violations were most likely to arise were in agent/consulting relationships (30.3 percent), foreign subsidiaries of U.S. companies (28.4 percent) and joint venture or strategic alliance partnerships (21.8 percent).

Nearly one-third (32.8 percent) of respondents indicated that their primary source of information in assessing vulnerability to potential violations was typically company sources as opposed to using external sources such as corruption indexes, media and government reports and third party vendors.

“In-house compliance, legal and audit teams rarely have the resources and language capabilities to conduct comprehensive due diligence on people and entities throughout the world,” continued Schmidt. “These same teams have a tremendous burden of risk thrust upon them as executives and boards push for more--and better--preventative measures.”

Rial continued, “FCPA due diligence requires a top down risk assessment, taking into account the target’s business, countries of operation, foreign government sales, other interactions with government officials, anti-corruption program and policies, prior compliance issues and its use of agents, consultants and other third-party intermediaries. Depending on the results of this assessment, targeted transaction testing may be required in certain accounts to determine whether suspicious payments may have been made directly or through third parties.”

Leading practices Deloitte recommends to help prevent and detect FCPA violations include:
•    Find out where payments are going. Payments are typically routed through third parties or “front” organizations created by the funds’ ultimate recipients.
•    Be wary of acquisition or partnership targets that do not have effective anti-corruption compliance programs. Even if the target is not subject to the FCPA, anti-corruption programs are staples of good corporate governance and a strong ethical culture.
•    Don’t rely on off-the-shelf FCPA products alone. Multi-national companies may benefit from a tailored system to identify areas of risk and monitor them through consistent testing of controls and procedures.
•    Don’t assume that some industries are safer than others. While the defense and energy industries have a higher perceived risk of corruption, cases have been brought against companies in all sectors.

More than 620 executives from the financial services, telecommunications and manufacturing industries responded to the polling questions during the webcast, which was titled “Foreign Corrupt Practices Act: Why Heightened Vigilance Can Be Critical.”

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