Foreign Sales Practices

Recently, the Department of Justice indicted 22 individuals for violations of the Foreign Corrupt Practices Act (FCPA)—the largest FCPA-related investigation ever. An undercover FBI agent posing as a sales representative for an African minister of defense allegedly secured a 10 percent bribe from defendants bidding for a $15 million government contract. Increasingly strict enforcement of the FCPA has major implications for senior management and directors at companies doing business internationally.

The companies represented by these individuals are now on the hook not only for the related legal costs, but potentially for civil actions brought by investors who feel that senior officials neglected their responsibility to prevent bribery and corruption among employees. In 2008, the largest FCPA criminal and civil corporate penalty was $800 million (against Siemens), and the current round of indictments may produce an even higher price tag.

How can executives and board members help reduce their exposure to FCPA-related risks? Following are some best practices to help avoid FCPA violations:

  • Get involved. Compliance issues are often delegated to risk managers, but because directors and officers face personal exposure, it’s critical for senior management to set the tone for compliance.
  • Assess your risk. There are several factors that increase a firm’s FCPA exposure, such as relying on external suppliers or doing business with industries historically associated with corruption (such as natural resources/oil).
  • Punish and remedy any problems promptly. Anyone engaging in unethical conduct should be disciplined swiftly; also, employees who fail to detect and/or report illegal activity also need to be addressed.

If an issue arises:

  • Do not allow employees to destroy documents. Failure to preserve documents during an investigation may trigger liability under the FCPA and other laws, including the Sarbanes-Oxley Act.
  • Stay informed. Create a special committee and engage independent outside counsel to investigate the allegations.
  • Don’t create collateral damage. Avoid the knee-jerk response to fire an employee accused of bribery or corruption—dismissing someone prematurely could prevent you from getting all the facts.

Learn more information about the Foreign Corrupt Practices Act and its implications.

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