Foreign Corrupt Practices Act

If your company conducts business in a foreign country, the Foreign Corrupt Practices Act (FCPA) is something you need to know about. Don’t be fooled into thinking that the FCPA only covers “large” companies – it covers all companies doing business in foreign countries. There are no ifs, ands or buts on this issue. If you want to protect your bottom line, you need to be in compliance with this Act.

Just a bit of history may put this crucial business requirement into perspective for you. At one time, some larger companies with a great deal of financial and political clout, decided that compliance issues like due diligence, risk assessments and a defined ethical standard operating procedure for international business transactions (mergers and acquisitions) didn’t need to be done to avoid spending too much money. Translation: they felt cutting corners would save them money. While it may have saved them money at the time, those inelegant slips of ethics ultimately cost them big bucks later in terms of fines and penalties.
In the 1970s a lot of larger companies admitted they made substantial “questionable payments” to foreign officials such as politicians. Subsequent amendments to the US securities laws prohibited bribing non-US officials, and mandated that records show accurate details of asset disposition, and employ accounting methods with controls built in to thwart bribery and other corrupt practices.

These companies participated in shaky and questionable offshore business ventures, or partnered with not particularly noteworthy or trusty entrepreneurs to extend their business empires. The net result was a company in hot water looking for a way out and to recoup their losses and reputation. Billions of dollars in fines and criminal sentences made continual headlines in the media, showcasing the Department of Justice and the Securities and Exchange Commission intent to vigorously enforce the FCPA.

This crackdown was a wakeup call for companies to take the time to complete their background checks of foreign entities “before” any business was done. This was vitally important when it came to any proposed global merger or foreign business acquisition. While this may seem to be a giant pain requiring a great deal of time to accomplish, it may ultimately save a company from serious problems later if the merger/acquisition process goes awry.

Due diligence will include screening any parties that are a part of global transactions against the US list or prohibited/restricted individuals or companies. “Any” party is fairly inclusive and covers joint venture partners, marketing agents, financial institutions, consultants and distributors. In other words, leave no stone unturned.

Companies need to be on the alert for warning signs when doing business overseas. When the parties insist on commissions or extraordinary payments, don’t seem to have an established reputation or that much experience in the venture under consideration, don’t wish to comply with FCPA compliance agreements or agree too quickly to sign the agreements, it’s time to do more in depth checking.

While external matters are of great important in foreign deals, your company needs to have FCPA compliance when it comes to your internal accounting procedures. All financial transactions need to be painfully clear and present a very precise picture of any payment or receipt in order to meet the books and records provisions of the FCPA. Understand that the burden of compliance is not just on the US company but also on the foreign parties as well. In other words, they must have accurate documentation relating to their expenses, reimbursements and audits.

Be aware that in the case of a civil liability, the parent company doesn’t need to have any knowledge or suspicion that the books/records contain misleading information. The appearance of bribery is enough to have the FCPA regulations kick in, even if the parent company didn’t know about any questionable actions. A parent company is also liable for any failures of its subsidiaries for internal control.

Saving money is one thing, losing your company’s good reputation is quite another. At the Miller Leonard, PC, quality comes before quantity. In your search for an attorney to advise you on the provisions of the FCPA and keep you in line with the requirements so you don’t find yourself on the wrong side of the law, Miller Leonard has the experience and due diligence to guide your company forward and have it be in