Tag Archives: Foreign Corrupt Practices Act

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Complying for Compliance’s Sake Is Foolish

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Complying for compliance’s sake really helps no one.

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It doesn’t help the regulators who enacted the rule to ensure some sort of protection or expertise was gained.

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And it doesn’t help the company that is presumably getting none of benefits intended by the spirit of the rule.

But we see it again and again and again and again. And again.

Here is one such tale from a great post today over at The FCPA Blog by Aaron G. Murphy.

An interesting piece recently appeared in Randy Cohen’s “The Ethicist” column in the New York Times Magazine.

It discussed  an exchange with a company employee that should keep corporate legal and compliance departments awake at night. An employee, unhappy that his company wanted him to take a four hour on-line training course about the Foreign Corrupt Practices Act (FCPA), claiming it was a waste of his time, asked The Ethicist if he had an ethical obligation to complete the training. The Ethicist gave the best possible answer, stating that even if it was inefficient, it was the company’s prerogative to train its people, and that it might not be the waste of time the employee assumed since the company could have a larger plan of action invisible to the employee.

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The punch line lay in the “Update” posted later: The employee skipped the course, went straight to the on-line test, and passed it. The employee, who underwent no training of any kind (and arrogantly assumed he needed no such training), is now certified by his own company as having mastered the FCPA. This is an all too common scenario, and everyone involved in it is a fool.

Murphy goes on to explain exactly why and how everyone involved is a fool and I encourage you to go read the rest.

But at this point, you probably already know why they are fools.

Turning Whistleblowers into Millionaires

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The U.S. Foreign Corrupt Practices Act is not new. Founded in 1977, the act’s main mission has always been to curtail improper accounting practices by companies operating internationally and prevent bribes. Thus, the “corrupt” aspect. In many parts of the world, there is a thin line between a “gift” and a “bribe,” and this regulation is designed to better demarcate that line and ensure that those businesses that overstep it have to pay a penalty for doing so. (Here’s a more detailed explanation if you’re into reading legalese.)

Only in recent years, however, has the act started to gain any real teeth.

Dow Jones reports on the expansion of the FCPA of late.

There have been a rising number of FCPA enforcement actions in recent years…with 34 prosecutions netting $435.3 million in penalties in 2009, according to the Department of Justice. In 2008, Justice said 17 prosecutions netted $497.6 million in penalties.

Because of this ramped up enforcement, companies should be sure to revisit compliance efforts. In fact, we ran a piece by Jonathan Marks of Crowe Horwath on that very topic last November, offering 10 tips on how to make sure your foreign operations are on the up-and-up. (“Global Presents”/global presence … Get it? We’re very clever … We know.)

Thus, the real news now is not more fines — it is the coming overhaul of the incentives that will be awarded whistleblowers going forward. The Senate and House bills for financial regulation differ on the matter somewhat, but both will create what is being termed a “bounty program,” in which the person who reports the FCPA violation would receive a percentage of whatever the related fine ends up being.

The final percentage will obviously hinge on what is actually written into legislation, but regardless, it has the potential to turn a whistleblower into a millionaire overnight.

Among key language differences between the bills, the House version, which passed in December, has no set minimum percentage of the collected funds in a case for the SEC to pay to a whistleblower. The SEC has greater discretion in determining the bounty than it does under the Senate’s version, which has a 10% minimum. Both have a 30% maximum payout.

Theoretically, a whistleblower could come into a huge windfall based on this formula. Consider the case of Siemens AG, which paid $800 million in fines to the SEC and the DOJ in 2008 after pleading guilty to violating the FCPA. Had those penalties been the result of information obtained by a whistleblower, the person could have received a $240 million payout, or a minimum bounty of $80 million based on the Senate language.

$80 million for tipping off the G-men about a foreign infraction? That’s a lot of coin. Certainly enough to motivate employees, you would think.

Mike Koehler, an assistant professor of business law at Butler University in Indiana, who is an expert on FCPA-related issues and blogs under the name FCPAProfessor, sees such sums being an effective incentive.

“Any time you incentivize rank-and-file workers with a lot of money, rational actors are going to respond. You’re going to see an increase in enforcement activity regardless of whether the action violates the law,” Koehler said.

I know I’ll be on the look-out

whistleblower

The future whistleblowers of America?