Corporations Caught In Rising Tide Of FCPA Enforcement

Duing business around the world has been getting more hazardous lately. The culprit is neither the geopolitical situation nor global economic conditions--although both are indeed tense and volatile. No, the danger is increasing enforcement of the Foreign Corrupt Practices Act (FCPA).

As several recent high-profile cases illustrate, the SEC and DOJ have been cracking down on bribery and quid-pro-quo arrangements between U.S. companies and overseas officials (see sidebar).

As a result, more companies are voluntarily reporting potential FCPA violations to the SEC than might have done so before SOX. This self-reporting occurs as part of internal accounting audits and governance reviews and, in some cases, as part of merger-related due-diligence reviews. Indeed, one of the biggest FCPA cases to date--which Titan Corp. settled for $25 million--came to light when Lockheed Martin's due diligence in anticipation of a merger turned up questionable payments.

"M&A due diligence is a high growth area for FCPA cases," says Pat Brady, a principal with Deloitte Touche Tohmatsu in Chicago. "Thorough due diligence is part and parcel of Sarbanes-Oxley, and it also reflects a recognition in the global business community that payments to officials won't be tolerated."

"Situations in ordinary commercial disputes get salted with corrupt-payment allegations, simply because litigants know they will get the other party's attention," Stark says. "And of course the longer that litigation sits out there in the public record, the higher the likelihood that an SEC or DOJ investigator will decide to look into it."

The threat of an FCPA investigation can be intimidating for companies in large part because the law doesn't clearly define what kind of conduct they must report. Recent governance and accounting reforms only exacerbate this anxiety.

>Defense contractor Titan Corp. settled an SEC case in March in which the government alleged the company paid more than $3.5 million in bribes to the business adviser for the president of Benin, Africa. Titan agreed to surrender $12 million in profits that resulted from corrupt payments and paid a $13 million criminal fine. Titan's would-be acquirer, Lockheed Martin, uncovered the bribes during due diligence.

>Monsanto Co. settled an SEC complaint in January alleging the company funneled more than $700,000 in corrupt payments to Indonesian government officials between 1997 and 2002. In one case the SEC said Monsanto arranged to bribe a senior official in Indonesia's Ministry of Environment to influence regulatory changes that would have benefited Monsanto. Although Monsanto reportedly paid the official $50,000, the regulatory change never happened. Monsanto agreed to pay $1.5 million in fines to the SEC and the DOJ and negotiated with the DOJ to defer prosecution on criminal charges.



Michael T. Burr

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