November 2012

The U.S. Justice Department (DOJ) and Securities and Exchange Commission (SEC) jointly published a much anticipated guidance on the U.S. Foreign Corrupt Practices Act (FCPA).  Entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act”, the “Guide” is 120 pages long, and is significantly more comprehensive than its predecessor, the “Lay Person’s Guide to the FCPA”.

The new Guide provides no major surprises and is non-binding.  In some cases, the guidance is not established law, but the government’s view based on its positions and what the government has been able to extract in prior settlements.  Nevertheless, the book is useful because it accumulates in one place the DOJ’s and SEC’s frequent FCPA positions, and provides practitioners with guidance regarding these positions.

Now 35 years old, the FCPA prohibits bribery, including giving, offering, or promising anything of value to official(s) to induce misuse of his position to obtain or retain business. The FCPA applies to all U.S. persons and issuers of securities, regardless of where the bribe is paid.  The FCPA also requires U.S. issuers to record accurately all payments in their books and records, and to maintain sound internal accounting controls in these areas.  The Guide’s contents include:

  1. A description of the FCPA’s anti-bribery provisions
  2. A description of the FCPA’s accounting provisions
  3. Other laws used in conjunction with the FCPA
  4. Guiding principles of enforcement
  5. Settlement alternatives, and prosecutions
  6. Whistleblower provisions and protections
  7. DOJ Opinion procedure

Compliance and accounting officers are challenged to identify illegal payments.  Like any fraudulent conduct, those engaging in this behavior often do not accurately characterize the payments.  For example, according to the Guide,

“Bribes Have Been Mischaracterized As:

  •  Commissions or Royalties
  •  Consulting Fees
  • Sales and Marketing Expenses
  •  Scientific Incentives or Studies
  •  Travel and Entertainment Expenses
  •  Rebates or Discounts
  •  After Sales Service Fees
  •  Miscellaneous Expenses
  •  Petty Cash Withdrawals
  •  Free Goods
  •  Intercompany Accounts
  •  Supplier / Vendor Payments
  •  Write-offs

Perhaps the most unique part of the Guide is six recent anonymous examples where the DOJ and SEC declined to take enforcement action.  The six examples had the following items in common:

  1. The bribes and related benefit of the wrongful conduct were relatively small;
  2. The company self-reported to the government;
  3. The company provided the results of its investigation to the government;
  4. The company took remedial action in terms of control and training improvements; and
  5. The company took strong disciplinary action (generally termination) against those involved in the wrongful conduct.

While the government wishes to claim that the cooperating self-reporters are treated better, this is not always the case.  Legal and forensic accounting expertise should be sought throughout the process of investigating the scope of wrongful conduct and determining how to resolve the complex related challenges.

Fulcrum Inquiry performs forensic accounting investigations.