Expect Costlier Penalties for Violating the FCPA

In March of this year, IBM agreed to pay US$10 million in penalties to settle charges brought by the United States Securities and Exchange Commission.  In a separate case, Alcatel-Lucent is expected to settle with prosecutors and pay US$137 million in similar penalties by the end of the year.  What transgressions led to these hefty penalties?  Both firms were penalized for paying bribes in China and Costa Rica respectively, in violation of the Foreign Corrupt Practices Act (FCPA), a US law requiring accounting transparency and forbidding any bribing of foreign officials for US MNCs.

These high-profile cases underscore a new level of resolve in the US government to enforce FCPA compliance.  For MNCs, this means that foreign operations will be subject to greater scrutiny by regulators and are at higher risk of being slapped with significant fines.  For individual executives involved, this means an increased likelihood of personal prosecution.

Stricter regulation, high growth targets and the need for rapid decision-making in emerging markets put companies and executives at a much higher risk of violating the FCPA — even if violations are unintentional.  Having an effective strategy for preventing, detecting and responding to breaches in compliance is increasingly important in order to avoid complications.

Among Frontier Strategy Group’s member executives in Latin America, 65% feel that remaining compliant with FCPA is more difficult now than it was just three years ago.  Remaining compliant in Brazil alone requires twice as much time and resources than the regional average.

The three most common sources of FCPA compliance violations are:

  • Third-party and local partner violations
  • Locally-empowered manager violations
  • Political or campaign contributions

Protect your company from bribes with the following best practices:

  • Create and publicize clear, positive incentives for ethics compliance as well as serious sanctions for violations
  • Require regular reporting of compliance practices in each business unit

 

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