Basic FCPA compliance principles

Jan. 1, 2020
Most US entities by now are familiar with the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits US companies and citizens, foreign companies listed on a US stock exchange or any person acting while in the US, from paying or offering to pay, wh

Most US entities by now are familiar with the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits US companies and citizens, foreign companies listed on a US stock exchange or any person acting while in the US, from paying or offering to pay, whether directly or indirectly, money or anything of value to a foreign official in order to obtain or retain business. The FCPA also requires “issuers” — any US or foreign companies with securities traded on a US exchange or otherwise required to file periodic reports with the Securities and Exchange Commission — to keep books and records that accurately reflect business transactions. These entities also must maintain effective internal controls.

As a result of these requirements, automotive exporters that operate abroad need to put in place compliance programs designed to minimize the risk of FCPA violations. This is especially true for automotive-sector companies that have frequent dealings with foreign officials or foreign state-owned companies and that operate in high-risk environments where bribery requests are common.

Establishing a program: General principles
A good FCPA compliance program serves four purposes: (1) educating employees about anti-bribery and recordkeeping requirements; (2) effectively communicating that the company is serious about its anti-bribery initiatives and that they are not just window dressing to be discarded when they get in the way of an important sale; (3) providing a means by which employees can distinguish between clear-cut areas where few FCPA concerns are present and those where involvement of experts is necessary; and (4) providing a means of monitoring adherence to policies and encouraging the early reporting of problems so that the company can take ameliorative action.

Regulators expect that companies that operate abroad will respect certain principles in the formation of compliance programs. They expect that these companies will:
• Apply a uniform standard across the company for all divisions and countries of operation.
• Promulgate a clear policy that takes away decision-making in “gray areas” from employees who are not experts in the FCPA and diverting it to people, either at corporate headquarters or in the general counsel’s office, who are well versed in the law.
• Provide comprehensive training to new hires with regular supplemental training (with more intensive training for key employees, such as those in sales and marketing, those who operate abroad, finance employees and people who supervise same).
• Prepare a written compliance policy that includes both a recitation of the law and real-world examples that are relevant to the industry and business.
• Prepare procedures in advance for dealing with foreign agents, distributors and joint venture partners, including model FCPA provisions and procedures for performing due diligence that can be tailored to meet individual situations as they arise.
• Establish procedures to ensure tight control over the distribution and tracking of expenditures.
• Develop procedures to ensure the retention of all due diligence and FCPA compliance actions.
• Set up a structure for deciding whether a potential FCPA violation exists by people who are independent of the transaction and who have no pressure to approve suspect transactions.
• Establish procedures for the confidential reporting of suspected problems.
• Establish procedures to evaluate potential FCPA violations and to investigate them.

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In putting these requirements into practice, a company should tailor the program to its industry and needs. In the automotive sector, this means that careful consideration needs to be given to interactions with foreign companies that are either completely or partially owned by a foreign government or controlled by one, since every employee of such a company is considered a “foreign official” for FCPA purposes. It also means that there should be careful evaluation of areas where there are frequent interactions with foreign officials, whether in a procurement, legislative, judicial or regulatory context. For automotive-sector participants, the frequency of exports means that thought should be given in particular to dealings with Customs agents — whether by the company itself or by freight forwarders/Customs brokers — since payments to evade duties or to expedite processing are a frequent source of FCPA settlements.

Based upon a thorough risk assessment, a good program should:

• Contain elements to show that the company is establishing a culture of compliance.
• Be accessible and written in plain language.
• Allocate senior-level responsibility at both the management and director levels.
• Have procedures governing the training and monitoring of employees.
• Ensure that third parties are subjected to adequate due diligence.
• Contain provisions to allow the reporting of problems, including anonymous whistle blowing.
• Make clear that the company will severely discipline violators of the policy.

Implementing a program
Even the best program, if not properly implemented, will be ineffective. Proper implementation of a program depends on establishing from the outset that the firm has a culture of compliance and that it will not countenance short-term profit gains at the expense of an increased risk of an FCPA violation. Communication of this message is best served by including business people within the presentation of the FCPA policy.

A proper FCPA compliance program cannot be designed in a vacuum. The program should reflect the individual company’s requirements, including its own procedures for tracking payments, its specific corporate organization, and its business interests. The following general considerations form the core of the design of the program.

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Risk identification. The first step is to consider the risks posed by the company’s business activities. This includes an evaluation of where the company does business, its particular product line, the degree of interaction with foreign officials (from both a regulatory and a procurement perspective), and the company’s history of compliance issues.

Control identification. The next step is to determine what controls already have been established and to evaluate their adequacy and defects.

Resource identification. The controls the company implements must be commensurate with the resources available.
Scope and objectives identification. The next step is to evaluate the scope and objective of the program — who needs to be covered, what level of training is required, what monitoring needs to occur and so forth.

Compliance procedures. Most multinational companies prefer to implement FCPA controls on a company-wide basis, including with regard to how payments and disbursements are to be controlled.

Accounting procedures. In evaluating compliance procedures, companies generally should implement antibribery compliance and internal accounting controls simultaneously. The two naturally work together, with the accounting controls being a useful tool to ferret out substantive violations of the FCPA.

Testing procedures. It is difficult to have a strong compliance program unless it is regularly tested, probed, and analyzed.
Reporting procedures. Reporting procedures are a key element of any FCPA compliance program. Companies should have clear procedures in place from the start regarding when the compliance officer will take care of things, when the general counsel’s office will get involved, and when senior management and directors will be informed of potentially serious issues.

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