BoardAndFraud

Red Flags That May Indicate You Might be at Risk of Violating FCPA

A wind torn red warning flag indicating danger on an English beach.

Some FCPA Risk Exposure Questions – Copyright 2021

If this is your answer, you might be exposed.

 

  • Is your company buying or selling products or services internationally?

Yes

  • Are there any suspicions of FCPA violations by company personnel or third-party agents acting on the company’s behalf within any countries where the business is conducted internationally?

Yes

  • Do employees or third-party agents acting on the company’s behalf come into contact with foreign officials (for example, customs agents, business licensing officials, government employees, and local political officials)?

Yes

  • Are bribes, entertaining, and gift-giving historically and culturally acceptable in the countries where your company does business?

Yes

  • Are contracts to provide goods or services to foreign governments or state-owned entities a source of revenue for your company?

Yes

  • Have employees who are directly or indirectly responsible for international operations been trained on FCPA issues? Do such employees represent via written confirmation their understanding of and compliance with FCPA policies?

No

  • Does your company have an established, well communicated anti-corruption policy that explicitly addresses FCPA concerns?

No

  • Are procedures in place for periodic monitoring of employee and third-party agent compliance with FCPA or anti-bribery laws?

No

  • Does your company use third-party agents, consultants, intermediaries, or distributors when performing business overseas?

Yes

  • Does your company have a robust due diligence process to scrutinize third parties securing international contracts on your company’s behalf?

No

  • Is your company doing business in a high-risk FCPA industry such as aerospace and defense, telecommunications, oil, pharmaceuticals, or manufacturing?

Yes

  • Is your company doing business in high-risk countries such as Brazil, China, Russia, India, Nigeria, Afghanistan, Venezuela, or the United Arab Emirates?

Yes

  • Has your company recently merged, or are you in the process of merging with a company that does business internationally?

Yes

  • Does your company have or is your company considering a joint venture with a company that does business internationally?

Yes

Update

In 2020, the DOJ and SEC brought FCPA enforcement actions against 12 companies and imposed financial penalties totaling a record $6.4 billion. For a comparison, in 2019, 14 companies paid a (then) record $2.9 billion to resolve FCPA cases.

FCPA

The FCPA’s anti-bribery provisions make it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international companies with the intent to obtain or retain business.  These provisions apply to “issuers,” “domestic concerns,” and those acting on behalf of issuers and domestic concerns, as well as to “any person” who acts while in the territory of the United States.  Foreign Corruption also may implicate other U.S. criminal laws. Increasingly, prosecutors from the FCPA Unit of DOJ have been charging non-FCPA crimes such as money laundering, mail and wire fraud, Travel Act violations, tax violations, and even false statements, in addition to or instead of FCPA charges. Thus, it is increasingly commonplace for the DOJ to charge the alleged provider of a corrupt payment under the FCPA and the alleged recipient with money laundering violations. DOJ has even used these foreign officials to cooperate in on-going investigations. The DOJ has even used these foreign officials to cooperate in on-going investigations.

 

In addition to the anti-bribery provisions, the FCPA also has “accounting provisions” that apply to issuers and those acting on their behalf.  First, there is the books-and-records provision, which requires issuers to make and keep accurate books, records, and accounts that, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets.  Second, the FCPA’s internal controls provision requires that issuers devise and maintain reasonable internal accounting controls to deter and detect FCPA violations.  Prosecutors and regulators frequently invoke these latter two sections when they cannot establish anti-bribery prosecution elements or as a mechanism for compromise in settlement negotiations.  Because there is no requirement that a false record or deficient control be linked to an improper payment, even a payment that does not constitute a violation of the anti-bribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal controls deficiency.

Thus, we understand and appreciate your needs, the importance of this initiative, and we will work with you and others to ensure the project is effective and efficient. We interact with many companies with circumstances similar to yours – trying to build/enhance anti-corruption capabilities – and we are confident our experience, industry knowledge, products, solutions, and thought leadership could assist you in meeting your objectives.

Baker Tilly has invested significant time and effort in developing our Anti-Fraud/Corruption Program, which is part of our Global Forensic, Compliance, and Integrity Services Practice Beyond tools and templates, though, our experienced professionals we will ensure your project runs smooth.

Methodology

Our anti-corruption methodology believes that senior executives and board members should exemplify business ethics and practices and promote integrity and good corporate governance throughout the Company.  The overall attitude, awareness, and actions of directors and management regarding these practices and the importance of an effective internal control system help maintain high company standards.  The “tone from the top” is the atmosphere a company’s leadership creates to sustain a focus on achieving business objectives through ethical business practices.  We believe management is responsible for creating an environment that promotes ethics and integrity throughout the Company.

An ethical environment created by management, together with a proactive approach to fraud deterrence and detection, is the best way to mitigate your Company’s corruption and bribery risk and reduce the probability and significance of violations of the Foreign Corrupt Practices Act (FCPA).  Allocating a relatively small amount of resources to deterrence and detection can often significantly reduce your exposure to potentially devastating losses.  The optimal environment includes useful and practical policies and procedures, sound financial controls, secure financial systems, and robust employee training that reflects the Company’s values and educates employees about the risks.  All of these activities reduce the likelihood and potential impact of corruption and bribery. Regular monitoring and testing of procedures and controls go a long way in deterrence and early detection.

A base consisting of the Company’s culture and business practices and ethics, and effective Fraud Risk Management Program generally consists of Training & Communication, Enterprise-wide Assessments, Fraud Deterrence and Detection Activities, Fraud Response Management Monitoring as depicted in Baker Tilly’s Anti-Fraud Model below.

Philosophy and International Resources

We recognize the importance of having international resources in performing FCPA work. Our direct experience is that having native professionals from the country or jurisdiction involved helps in understanding local laws and customs and bridges cultural and communication gaps, which ultimately increases our effectiveness and efficiency. A global practice, we can tap into professionals located in more than 400 cities worldwide who possess detailed and specialized knowledge regarding local accounting principles, tax laws, and business practices.

Key Services

Response

Compliance

 

Please feel free to call or email with any questions you might have.  Also, see my other article on red flags and misconduct here.

Best,

 

Jonathan T. Marks, CPA, CFF. CFE

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