Nearly 50 years on and compliance officers are still struggling with the Foreign Corrupt Practices Act (FCPA). Enacted in 1977 as a means of clamping down on bribery and corruption after the Watergate scandal, the Act makes it illegal for certain persons and entities to pay foreign officials with the intent of securing or maintaining business deals. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) both have specialized units that prosecute criminal activity and civil actions, respectively.
Since the Act’s introduction, enforcement levels have varied but become stronger overall. A 1998 amendment expanded the Act’s anti-bribery provisions to cover foreign firms and individuals who are involved in corrupt practices within the United States. Consequences for FCPA violations are materially harsh per violation:
Civil fines up to $16,000 for individuals and entities
Criminal fines of up to $250,000 plus up to five years in prison for individuals
Criminal fines of up to $2 million per violation for entities
Forfeiture of profits and/or fines up to twice the anticipated gains from the illegal actions
Additionally, violators can lose the privilege of bidding on government contracts and may have export privileges revoked.
FCPA enforcement returns with force
Prior to the pandemic and conflict between Russia and Ukraine, FCPA enforcement was a growing priority for the federal government. From 2016 to 2020, the DOJ and SEC introduced almost 50% more enforcement actions than they did the five years prior, prompting companies to temporarily pour more money into compliance teams.
However, the last two years have seen a sharp drop in enforcement. SEC and DOJ enforcement actions plummeted from 54 in 2019 to just 20 in 2021. Although 2022 saw a slight increase to 25, it’s clear that issues like pandemic-related fraud and possibly sanctions activity have taken greater priority.
It’s also worth noting that during this period the size of fines dropped off significantly. In 2020, settlements amounted to more than $6.4 billion. Just a year later, enforcements totaled a paltry $282 million. In 2022, enforcement reached a more precedented $1.5 billion, indicating a return to enforcement levels that drove the 2010s focus on bigger compliance budgets.
A looming compliance challenge
In response to a discernible reduction in enforcement activities, many companies have seized the moment to streamline expenses within their compliance departments and redirect resources to alternative areas. While this strategic shift might appear prudent, it carries the inherent risk of diminishing the focus on FCPA compliance, potentially leading to an escalation in undetected violations—regardless of their intent. Organizations undertaking this gamble are staking their prospects on the premise of sustained leniency in enforcement, potentially disregarding the implications of the U.S. Strategy on Countering Corruption. Unveiled by the White House in December 2021, this strategic blueprint outlines a comprehensive approach to fortifying anti-corruption and anti-bribery capabilities. Articulated upon five interdependent pillars, the Strategy’s aims encompass:
- Modernization, coordination, and expansion of anti-corruption resources.
- Curbing of illicit finance in the US and international financial systems.
- Expansion of accountability for corrupt actors.
- Preservation and reinforcement of global, multilateral anti-corruption efforts.
- Improvement of diplomatic engagement and expanded use of foreign assistance resources.
- While the strategy refrains from introducing explicit regulatory mandates, it unmistakably underscores the government’s intent to foster heightened enforcement of bribery and corruption transgressions under prevailing laws, including the FCPA. Against this backdrop of an anticipated enforcement uptick, now is the time for companies to consider economical ways to augment their FCPA compliance capabilities.
The new FCPA enforcement policy
Despite the possibility of a spike in enforcement actions, there is some good news for ethical compliance leaders. In January, a significant revision was introduced to the FCPA Corporate Enforcement Policy, aimed at incentivizing companies to voluntarily divulge possible misconduct. This marks the second update since the policy’s inception in 2017. Notably, this update eliminates the consideration of “aggravating circumstances” as disqualifiers and significantly enhances the potential financial incentives available to companies. Departing from the initial 50% fine reduction, corporations can now secure a remarkable 75% reduction. To take advantage of the sentence reduction, companies must meet four requirements:
- Make a full, voluntary disclosure of the FCPA violation to the DOJ that is “reasonably prompt” and contains all “relevant, non-privileged facts.”
- Fully and proactively cooperate with the DOJ’s investigation and take steps to ensure no interference with said investigation.
- Analyze the underlying causes of misconduct and complete a timely, appropriate remediation that includes the implementation or update of compliance programs.
- Payment of disgorgement, forfeiture or restitution.
- This update, coupled with the anticipated enforcement upswing, not only empowers the DOJ to wield more efficient enforcement tools but also provides FCPA-violating companies a potential lifeline through sincere cooperation and verifiable compliance efforts, effectively averting severe financial repercussions.
The FCPA and third-party intermediaries
A key element of FCPA compliance is maintaining a comprehensive view of third-party networks. Third-party intermediaries, such as agents, distributors, consultants, and partners, can expose companies to significant risks of bribery and corruption. In fact, in 2022 nearly 90% of FCPA matters involved the actions of third-party intermediaries such as agents, consultants or contractors. By ensuring robust FCPA compliance measures are in place when engaging with these entities, organizations can mitigate legal liabilities, maintain the trust of stakeholders, and safeguard their reputation.
Third-party intermediaries are often used in regions with varying ethical and legal standards, making them potential conduits for improper payments to foreign officials. Rigorous due diligence, comprehensive risk assessments, and clear contractual agreements become essential tools in identifying and mitigating these risks. Failure to maintain FCPA compliance in third-party relationships not only jeopardizes business deals but also exposes companies to regulatory investigations, hefty fines, and reputational damage that can have long-lasting negative impacts.
The Ethixbase360 Third-Party Risk Management platform has been purpose-built to weed out bribery and corruption and fully document activities should the need to evidence compliance ever arise. With built-in capabilities and Anti-Bribery and Corruption subject matter expertise Ethixbase360 offers clients a modular solution that can be configured to their business needs and risk thresholds. Anti-Corruption Third-Party Risk Management Capabilities include:
- Off the shelf ABAC specific or configured risk assessment
- Risk based screening and monitoring with inbuilt false positive remediation
- Escalation to multiple levels of Enhanced Due Diligence reporting
- Certification options such as TRAC or Tcertification for low to high-risk third parties
- Third Party Anti-Bribery and Anti-Corruption training available in over 26 languages
- Financial Due Diligence
- Ultimate Beneficial Ownership
- Third-Party Questionnaires
As a potential compliance crisis becomes increasingly probable, Ethixbase360 is ready to scale your compliance efforts with a hybrid approach that combines automation, configurability, and world-class customer service. Contact us today to learn more about why Ethixbase360 is your ideal ally in FCPA compliance.