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Anti-Corruption & Bribery

FCPA: 2 Important Provisions Small Businesses Need to Know


Aug 16, 2016

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Last month, a Wisconsin-based global provider of HVAC systems paid $14 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by making improper payments to win business.

And that’s nothing compared to the $772 million fine the power and transportation company Alstom paid last year for secretly bribing government officials around the globe.

Large companies that operate all over the world are already very familiar with the FCPA; however, many small to medium size companies don’t think they are at risk for violating the FCPA because they don’t trade or conduct business overseas.

But with the economy becoming more and more global every day, it’s about time they start. Compliance takes time, and the most successful businesses are those poised to leap when opportunity arises.

So in order to help your small to medium size business get started understanding the FCPA, let’s focus on its two main provisions: anti-bribery and accounting transparency.

Provision #1: Anti-Bribery

Back in the 1970s, corporate bribery was widespread. An investigation uncovered more than 400 U.S. companies that had been paying off foreign government officials, politicians and political parties — to the tune of more than $300 million altogether.

The FCPA was the government’s response to the scandal, intended to “halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integrity of the marketplace,” according to the U.S. Department of Justice and U.S. Securities and Exchange Commission.

The law prohibits bribing a foreign official to gain an unfair business advantage, rendering it a crime to:

  • Make a payment or give anything of value
  • Offer a payment or gift
  • Promise a payment or gift
  • Authorize a payment or gift

While it doesn’t cover every type of bribe paid for any purpose, the anti-bribery provision is broadly applied to any bribe that helps a company gain or retain business. This encompasses a wide range of unfair business advantages such as favorable tax treatment, reduced customs duties, government help to prevent competitors from entering a market, or circumventing a licensing or permit requirement.

The law specifically applies to those who act with the intent to wrongfully influence the recipient. This means as long as the offer, promise or authorization is made with intent, it’s a violation even if no bribe is ultimately paid. For example, an executive who instructs others to “pay whomever you need to pay” has violated the FCPA.

Provision #2: Accounting Transparency

Shady accounting practices have long been used to mask corruption, both on U.S. soil and abroad. That’s why the law also prohibits off-the-books accounting and requires public companies to keep transparent financial records.

The intent of this provision is to “strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure.”

There are two main components to the accounting transparency section of the FCPA:

  1. Every company must keep reasonably detailed records that fairly reflect all of its transactions and assets
  2. Every company must maintain sufficient internal accounting controls to ensure responsibility for its assets remains firmly in management’s hands

Although the transparency provision operates in tandem with the anti-bribery provision, it doesn’t apply to only bribery-related violations. It demands that all public companies keep an accurate account of their assets and liabilities, regardless of foreign activity.

Conclusion

The FCPA is a large and complex law — not to mention a costly one to violate. To prepare your company for international trade, it’s important to begin implementing a compliance strategy now.

Learn more about anti-corruption compliance training, and get ready to take advantage of whatever new business opportunities are headed your way.

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