FCPA Instills Fear

In the movie “Syriana” – a politically charged story of greed, self-interest, betrayal, and corruption in the oil and gas industry – one of the characters angrily learns he is under investigation by the U.S. Department of Justice (DOJ) for bribery to obtain drilling rights in Kazakhstan. “Corruption charges! Corruption? Corruption is government intrusion into market efficiencies in the form of regulations. … We have laws against it precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the streets. Corruption is why we win.”

These contemptuous comments are what one would expect from those who have been caught up in bribery probes and prosecutions under the U.S. Foreign Corrupt Practices Act (FCPA).

Since 1977, the FCPA has been an available weapon in the arsenal of federal prosecutors in the United States. Yet, the specter of the FCPA was once infrequently seen, so much that companies and their employees came to believe they had nothing to worry about. But times have changed. Now, the mere utterance of the acronym FCPA is enough to instill deep concern, and even fear, in corporate suites throughout the world.

The FCPA makes bribery of foreign officials to obtain or retain business and the failure to maintain accurate books and records, as well as related internal controls – a very serious crime. The act’s provisions significantly impact business organizations through criminal and civil prosecutions and the collateral damage that comes with government enforcement of anti-corruption laws.

Like at no other time before, there is a growing global crackdown on corruption. The United States has been joined by other countries in this fight. There have been more investigations and prosecutions of both businesses and their employees than at any time in the past 30 years.

TRAINING AND COMMUNICATION 

Preventing corruption and bribery from occurring is the best defense to an FCPA or other criminal violation. There is a good reason that training and communication is one of the seven steps of the Federal Sentencing Guidelines for Organizations because effective anti-corruption training is a critical component in protecting an organization. Some of the best training programs are found in companies that have had FCPA violations, but companies should not wait until after a prosecution to implement a best-in-class program.

Employee training is a required element for a compliance program to be deemed “effective.” Training must cover anti-bribery laws, as well as the books and records requirements, and the company’s policies, procedures, standards, and requirements related to them.

Recent FCPA enforcement actions illustrate the perils of nonexistent or inadequate training programs. In the February 2008 Securities and Exchange Commission (SEC) enforcement action against Westinghouse Air Brake Technologies Corporation (Wabtec), the government found that Wabtec “did not have a FCPA policy or provide training or education to any of its employees, agents, or subsidiaries regarding the requirements of the FCPA.”¹

In a June 2008 DOJ settlement with Faro Technologies, the DOJ found that “Faro offered no FCPA training of any kind to its employees, including salespeople and managers in China and other countries where there is an increased risk of improper payments.²

Faro Technologies’ Chinese subsidiary made improper payments to government officials between 2004 and 2006. A high-level executive authorized employees of the Chinese subsidiary to make the payments through third-party intermediaries to avoid detection. The company made a voluntary disclosure to the DOJ and SEC. On June 5, 2008, the DOJ and SEC announced settlement of the enforcement action against Faro. There was a total of $1.8 million in disgorgement of profits and a $1.1 million fine as well as a non-prosecution agreement and a two-year monitorship.

Anti-corruption training should stress the importance of FCPA compliance to the company’s culture, reputation, and ethical standards. Companies need to cover more than just the FCPA and other U.S. laws. Be sure to discuss the existence of and compliance with anti-corruption laws that apply in the countries in which they operate. At minimum, training should be provided to all persons within the organization who have contact with government officials as well as the organization’s leadership team. Remember that the FCPA is an unknown quantity to most employees and they have no idea of the potential consequences.

A more costly, but more effective approach, is to train all employees and anyone who acts on the company’s behalf. For example, Monsanto gives its anti-corruption training to employees as well as third parties, including vendors and contractors, who interact with government employees. The training policy is so broad almost all employees are trained worldwide. A strong recommendation is for more detailed and specific training of salespeople with government touch points, senior managers, country managers, and finance employees (such as subsidiary controllers), and controls and compliance managers outside the United States and in high-risk countries.

Training should adopt rules- and values-based approaches. Remember that gifts, business travel and entertainment, and charitable donations can be appropriate business tools if used legally and within corporate policy boundaries. A risk-based approach will focus increased education on certain employees involved in the process of obtaining or retaining business in foreign countries, as well as high-risk business sectors and countries.

In looking at risk, be mindful of perceived corruption concerns in countries where business is sought to be acquired or maintained. Consider focusing on countries with high risk such as China, India, Nigeria, and Indonesia, but remember that bribery can occur anywhere. Tailor training to the specific organization including industry sector, risks, and culture as well as factoring in Transparency International’s Corruption Perception Index.

RED-FLAGS TRAINING 

It is especially important to provide training on the many red flags of corruption that might occur whether they pertain to third parties, travel and entertainment, or other high-risk areas. Employees must understand what a red flag is and what to do if recognized.

Train employees on red-flag identification and how to report them. Training must include real-life examples of these red flags. This includes guidance on the organization’s responsibility for dealing with third parties and agents who might be conduits of bribes to government officials. Other red-flags training should include due diligence steps; anti-corruption clauses and audit provisions in contracts; prohibition on side letters in contracts; and lavish travel and entertainment, gifts, and special treatment expenses for government employees.

Train employees in specific business lines who deal with government officials in any form. State-owned enterprises abound especially in countries like China and Russia. It is critical to be able to identify government officials when engaging in business transactions. Ownership arrangements are not always clear. For example, doctors in China might be government officials if they are employed in the government-run health care system. Provide training around distributor agreements and arrangements, distributors selected by government officials or sales consultants, distributors who are simply pass-through entities or shell companies.

Other red flags to look for:

• Agents, foreign sales representatives, consultants or other intermediaries used by the business

• Consultants retained by government customers might be considered government officials.

• Corporate policy and waivers of policy

• Government-sponsored conferences and promotional expenses

• Review FCPA permitted “grease payments” and whether or not they are permitted by corporate policy as well as a clearly defined facilitation payments policy.

• Foreign charitable contributions

• Abnormal credit terms

• Define what slush funds and off-the-book transactions are and that they are prohibited.

• Travel for government officials, especially around contract signing or renewals

• Policies and restrictions on hospitality, gifts, and entertainment

• Other key aspects of training from recent DOJ/SEC enforcement actions 

Extend enhanced training beyond senior managers and compliance/legal staff. (Many cases show that those in lower/middle management make the decisions that lead to violations.)

ANTI-CORRUPTION TRAINING BEST PRACTICES 

Subject matter experts (SME) from legal and compliance departments should provide ongoing onsite training to the organization’s employees in addition to online training. Anti-corruption SMEs have experience and expertise in fighting corruption and bribery and intimate knowledge of case studies that can be shared with employees. Be sure to train the trainers so they are well-versed in organization policies and current development in anti-corruption activities.

Subsidiary leadership and employees must be trained to reinforce knowledge around anti-corruption, the company’s policies and procedures, and to enhance tone at the top. Your local jurisdiction’s anti-corruption rules should be included in training. Subsidiary company employees have numerous contacts with government officials and provide the greatest risk of corruption and related ramifications. In many countries there is a high turnover of employees and leadership and that reinforces the need for ongoing anti-corruption training.

Training should include frequently asked questions (FAQs) and examples drawn from the company’s business operations and experiences. FAQs help employees apply the anti-corruption policies and procedures in real-world situations. Include time for questions and answers from attendees. This is a benefit of live training, but it is also possible with online training that includes chat tools. Ensure that all important topics are covered by training. Advanced, business-cycle, or other topic-intensive training can be prepared and provided as necessary to address specific issues. Train in the native language as needed.

Training must be mandatory with attendance documented by sign-in sheets. If possible, require 100 percent completion of online and in-person training. Stress that this is serious business and that the company – meaning all employees – must comply with FCPA standards. There have to be consequences for noncompliance such as loss of bonus payment or other disciplines. That means no open laptops with employees reading and responding to e-mail or texting on cell phones during training. Document participants’ exits and returns to the training room. Those who miss sections of training must take them during another session.

The presenters should also document the training with their names, titles, dates, times, location, and subject matter presented. Track, document, and periodically refresh all training. Be sure to create a living record to demonstrate that employees were appropriately trained. Have someone take notes during the training session. Document the questions asked, and then build on the answers into future classes.

These procedures will be beneficial if and when the government needs proof of the effectiveness of your training and compliance programs. Remember to train your internal investigators and compliance staff on anti-corruption subjects and have them become subject matter experts.

Martin T. Biegelman, CFE, ACFE Fellow, CCEP, is the director of financial integrity for Microsoft Corporation and a member of the ACFE Foundation.

Daniel R. Biegelman, J.D., CCEP, is an attorney with the law firm of Baker Hostetler.

^{1 Securities and Exchange Commission v. Westinghouse Air Brake Technologies Corporation, Civil Action No. 08-CV-706, Feb. 14, 2008.
2 U.S. Department of Justice letter to Gregory S. Bruch, Willkie Farr & Gallagher, LLP, attorney for Faro Technologies, containing Statement of Facts as part of nonprosecution agreement, June 3, 2008.} 

This article is excerpted and adapted with permission from the publisher, John Wiley & Sons, from “Foreign Corrupt Practices Act Compliance Guidebook,” by Martin T. Biegelman, CFE, ACFE Fellow, CCEP; and Daniel R. Biegelman, J.D., CCEP © 2010 John Wiley & Sons. See the ACFE Bookstore. 

CASE HISTORY: Control Components Inc. Illustrates Feds' New Approach 

If there is a recent case that exemplifies the strong stance that government authorities are taking in pursuing FCPA violations, it is the prosecution of Control Components Inc. (CCI). CCI is a California corporation that designs and manufactures control valves for the nuclear, oil and gas, and power generation industries throughout the world.

Between 1998 and 2007, CCI’s officers, employees, and agents made more than 200 corrupt payments to employees of state-owned enterprises and private companies in 36 countries including China, Korea, Malaysia, and the United Arab Emirates. The bribes totaled $6.85 million and earned CCI $46.5 million in net profits.

Prosecutors used a variety of tactics to unravel the pervasive conspiracy, which is indicative of the new approach to fighting FCPA violations. Both the corporation and individuals were prosecuted. In fact, the eight CCI defendants were the largest number of individual defendants in an FCPA case. Prosecutors used the U.S. Travel Act to charge commercial bribery. This act prohibits using interstate or foreign commerce to promote unlawful activity including bribery and corruption in violation of state law.

The government’s multi-pronged, focused attack on FCPA violations has had a visible impact on corporations. The $25 million fine against Lockheed Martin in 1994 held the record for many years until Titan Corporation paid $28.5 million in 2005. The $44 million fine levied against Baker Hughes in April 2007 was the largest ever at the time. That was eclipsed by the Siemens penalty. In December 2008, Siemens paid the largest fine ever handed down to settle the biggest FCPA case in the history of the statute. Siemens voluntary paid $1.7 billion in fines, penalties, and disgorgement of profits to U.S. and German authorities. In early 2009, Halliburton settled a bribery probe with a $559 million fine.

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