A Value Case for FCPA Compliance

Many companies choose to invest significant time, effort and money into Foreign Corrupt Practices Act (FCPA) compliance because they fear the consequences of failure to comply. The good news is that FCPA compliance can have an upside: creating value for the business. Congress enacted the FCPA in response to disclosures in the early 1970s that hundreds of U.S. corporations had made more than $1 billion in questionable payments to foreign officials, politicians and political parties. The FCPA, passed by Congress in 1977, is meant to halt the bribery of foreign officials by U.S. citizens and companies, to improve recordkeeping and internal accounting controls in order to detect illegal payments and to restore public confidence in the integrity of the American business system. The focus on the FCPA is stronger than ever: The Department of Justice (DOJ) is estimated to have more than 140 open FCPA investigations, and the number of foreign bribery cases filed by criminal and civil investigators in the United States has more than doubled since 2004. To protect your organization, it is especially important to have a comprehensive FCPA compliance program. Although complying with the FCPA can be time-consuming, costly and a strain on resources, it can affect your organization positively. When it is viewed as an opportunity to improve processes and add value to the bottom line, FCPA complian ce suddenly doesn’t seem like such a burden. It can benefit companies in several ways:

1. Heightened competitive advantage

Organizations that commit to FCPA compliance can demonstrate their focus on fair and ethical business practices to clients and potential business partners. Through FCPA compliance, organizations display their knowledge of international business processes and their determination to succeed lawfully in the global marketplace. FCPA compliance can be a market differentiator because organizations are more likely to do business with those that can assess exposure to fraud and illegal acts and have a robust compliance program in place. Such a program should include creating action plans and developing policies and procedures necessary to maintain an acceptable level of risk. Marketing these differentiators can be key to building brand, increasing market share, closing new deals and continuing business with current clients. Moreover, trust in business relationships generally yields better loyalty, terms and pricing — thereby increasing an organization’s competitive advantage even further.

2. Improved risk position

Avoiding and monitoring the business behaviors likely to violate the FCPA will require heightened discipline with respect to internal controls and business practices. This discipline not only facilitates compliance, but may yield other improvements to the company’s risk position. For example, improving controls in the sales function as part of the compliance program will reduce the likelihood of unlawful acts. The people who were willing to pay bribes to win business may also have been engaging in other risky behaviors, and the increased discipline regarding internal controls and business practices will likely minimize those behaviors. Agents and other intermediaries can also create risk for organizations doing business in foreign locations.  Companies should properly screen such individuals and clearly communicate their expectations with regard to FCPA compliance. to reduce the risk that their agents or other intermediaries might engage in potentially detrimental behaviors. Companies should monitor the activities of these individuals and document all contacts they make with government officials on behalf of the organization. Having an FCPA clause and stipulating a right to audit in all intermediary contracts can be a useful tool if a pr oblem arises, and audits often create stronger partnerships.

3. Operational efficiencies

The operational and technological changes required to facilitate FCPA compliance and keep the process manageable may be leveraged to increase the efficiency of other compliance and business processes. The continuous control monitoring (CCM) process and the software installed to monitor both offshore bank accounts and payments for potentially illicit transfers of funds may help to capture cash flow information that could improve the company’s treasury management process. Part of the compliance program may include having a unified view of all enterprise risks. This intelligence not only helps monitor risk for FCPA violations, but can help identify other exposures so that companies can make informed decisions about risks, costs, remediation efforts and action plans. Companies may also be able to streamline risk and compliance activities by automating processes and removing redundancy. Performing proper due diligence prior to any merger or acquisition of a foreign entity has also proved to be a worthwhile investment. Recent DOJ and SEC enforcement actions indicate more empathy from a successor liability perspective for U.S. organizations that took steps to detect any violations before closing the deal. If activities that are questionable from an FCPA perspective are discovered during the course of due diligence, they might indicate risk and culture issues that need to be considered in determining the suitability of the company to be acquired.

Next steps

Adherence to the FCPA is essential, especially when doing business in (or with partners in) emerging markets that have a heightened risk of government corruption. However, companies that address FCPA compliance with the broader goal of creating value in addition to reducing risk may more easily obtain the support and funding they need to comply with the FCPA effectively. Compliance executives may wish to explore what value has already been created, even if unintentionally, through FCPA compliance efforts to date and then determine how that value can be increased or expanded through additional resources. The resulting value case, when presented to the organization’s executives and board, may yield a surprisingly high level of interest and support.

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About the Author Matthew Podowitz is an experienced management consultant and a thought leader in the area of leveraging business functions that have historically been viewed as cost centers (such as compliance and information technology) to create tangible value for organizations. In addition to his featured column on CorporateComplianceInsights.com, Mr. Podowitz also authors and maintains ITValueChallenge.com as a resource for business executives seeking greater returns on their annual investments in information technology. Bill Olsen, a Principal in the Economic Advisory Services practice of Grant Thornton LLP and the Forensics, Litigation and Investigation Services national practice leader, contributed to this article.

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