For many companies, it’s getting harder and harder to get around Foreign Corrupt Practices Act. That’s because the sprawling nature of global business and the growing amount of vendors and others they partner with is getting almost impossible to vet. Add to this incentives embedded within Dodd-Frank that is spawning a new generation of whistleblowers and places like China where one often can’t tell the difference between a government official and a company representative.
The result has been companies getting ahead of the curve by self-reporting. This they’ve been doing for some time, however, it was recently announced that MNCs will be required to self-report. That means if MNCs have any hope of getting a deferred or non-prosecution agreement in exchange for their cooperation, they must report any possible FCPA violations to US securities regulators as soon as possible.
But as more MNCs become aware of FCPA rules they may be wondering just what to report. News in the last year or so about banks like JP Morgan and BNY Melon hiring as interns the relatives of Chinese government officials shows that it’s not just money that must be exchanged. It’s “anything of value” and that which could give a company a possible business advantage runs afoul of the rules, according to the FCPA statute, which ironically doesn’t mention the word bribe beyond describing it as an anti-bribery mechanism.
Even more perilous is that even offering something of value versus actually giving it is considered breaking the law, experts say. So companies have been eager to mention to the US Justice Department anything that has a whiff of corruption. “You get enormous credit for reporting an infraction,” said an attendee at a recent NeuGroup peer group meeting. “It’s way better if you report it rather than if someone else reports it… if there is a reasonably good chance of someone else reporting something, report it.”
But even self-reporting can be dangerous, as it opens up the company to other issues. So one self-reported transgression in, say, Brazil, may bring up another illegal and unknown transaction in Mexico. Not only that, but the US government, may begin to ask for more than a company is offering, which then could put the company in the unwanted position of being “uncooperative.”
In the early 2000s, being uncooperative included not handing over any materials a company might have put together ahead of its self-reporting or litigation involving FCPA. Under the attorney-client and work-product doctrine, companies had been able to protect this material from the government. However, the so called Thompson Memorandum of 2003, named after then US Deputy Attorney General Larry Thompson, attempted to get companies to waive their work-product rights in order to avoid being labeled uncooperative.
“One factor the prosecutor may weigh in assessing the adequacy of a corporation’s cooperation is the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors and employees and counsel,” the memo stipulated.
However, this tactic proved controversial and unpopular and in either case, not getting the desired results. It later was superseded by the McNulty Memorandum, which was seen as a compromise for the government to get the evidence it wanted while still offering protection to corporations.
It should be noted that both the DOJ and the SEC can bring separate investigations. And settling with one doesn’t necessarily exonerate you with the other. For instance, the DOJ might not find any criminal behavior in its investigation and drop the case, but the SEC might continue the investigation under the civil code.
It’s a lot of work and an ongoing effort for companies to keep on the right side of the FCPA law. But companies see no choice in the matter. What experts recommend is to always update lists of state-owned entities that are clients in places like China, Russia, Africa and the Middle East. This requires “constant vigilance,” as one expert says. Also, in joint ventures, make contracts explicit about what can and cannot be done by whom and with whom.
And perhaps most important of all: have a robust compliance program in place to be ready for that inevitable knock on the door by the Justice Department. One expert says, however, that even that latter measure might not protect a company. “Not matter what you do, they’ll say you didn’t do enough,” he says. Still having something is better than nothing.