Management, compliance & auditing

How to comply with FCPA regulation – 5 Tips

The Foreign Corrupt Practices Act of 1977 (also known as the "FCPA") is a piece of United States Federal Legislation that serves two main purposes:

1. To ensure both an accurate and transparent process with regards to accounting procedures as it relates to the Security Exchange Act of 1934
2. To ensure stiff consequences regarding the bribery of foreign officials.

It is important to note that this legislation was amended twice, in 1988 and 1998, but has had its fair share of controversy as well. The main point of concern is whether the FCPA actually discourages U.S.-based corporations and businesses from investing overseas. It should be noted that one of the prime objectives of the FCPA is to prevent U.S.-based organizations and their respective officers from influencing or bribing any foreign official or even offering personal rewards or gifts that are non-monetary in nature.

In this article, we review the top five methods that a U.S.-established corporation or business can use in order to come into compliance with the FCPA.

Top 5 tips

1. Ascertain and formally determine your level of FCPA risk

There are a number of key variables that your organization should focus upon with regards to this aspect:

• The kinds of foreign transactions that are currently being engaged in
• The specific geographic location of these transactions
• The extent to which your business makes use of foreign government officials and related agencies
• The federal regulations that your company is currently required to comply with
• The degree to which you use brokers (or other intermediaries) in order to conduct foreign business transactions
• The degree of control that you exercise with the above-mentioned entities

Determining the level of risk also means that your business or corporation is formally responsible for any violations committed by any intermediaries that are involved in the course of business transactions. You can even be held financially responsible for any actions that you are unaware of for these intermediaries as well.

It is also important that you should review any contracts used to conduct foreign transactions in which intermediaries are involved. The terminology and the respective clauses that are contained in these clauses must also include "…representations and warranties, as well as indemnifications and termination provisions, regarding FCPA compliance." You should also conduct your own due diligence when engaging any new brokers that you are considering hiring for any future business.

You should also document in hard copy any due diligence activities that you have engaged in. You may want to consider using such resources as TRACE International, Inc. to help make sure that your due diligence processes and associated documentation are effective and can be enforced.

2. Create and maintain an FCPA compliance policy

The key components of this policy, at minimum, must include the following:

• It must define what "bribery" is, and the penalties for bribing a foreign official. This provision should apply to employees that are stationed both in the United States as well as those that are stationed abroad
• It must address what the appropriate and legal payments and gifts are, and under what specific circumstances they can be offered to a foreign official
• Keeping and maintaining detailed and accurate logs of all foreign transactions that have been conducted (this must be updated in real-time as events unfold throughout the business transaction lifecycle)
• Defining what the appropriate travel/entertainment categories are, and the expenses that be included with them for tax write-off purposes.

It is also very important that you make all employees in your organization aware of what your specific FCPA policy is; educate them on it and keep them apprised of any updates or modifications that occur. It is also very wise to designate a compliance officer with whom employees can consult before they engage in any potential foreign business deals. This policy should also include the implementation of an anonymous hotline so that employees can report any suspicious or illegal activities that they become aware of.

3. Create an FCPA-based compliance team

Although it is important to have a designated point of contact, you must also have and maintain an FCPA compliance team. This team should include members from the following departments:

• Legal
• Finance
• Accounting
• Human resources
• Upper management

This team should have the following:

• The ability to audit the actual FCPA policy
• Both internal and external investigative powers for both the offices in the United States and abroad, as well as any foreign subsidiaries
• Mechanisms to quickly ascertain any suspicious activities in real-time
• Offer solutions for remediation for any violations of the FCPA policy which may occur
• The ability to check for any and all miscellaneous expenses that are incurred by employees
• With regards to the above, have the powers to determine what exactly constitutes a "miscellaneous expense," and what the spending limits are for employees
• Possess the powers to scrutinize in detail all receipts that are collected as foreign transactions transpire
• Have the needed powers to engage an external advisory board in order to determine the effectiveness of the FCPA policy

4. Ascertain the anti-corruption/bribery legislation in other countries

In this aspect, your company does not have to examine each and every law that exists for all countries in the entire world. Rather, this is only necessary for those countries in which your organization has foreign offices, and for those you are currently conducting or anticipating conducting business.

It is important to note that at the present time, there are only 37 countries that have enacted and mandated legislation similar to the FCPA.

But you should also be aware that as much as you are scrutinizing the details of the foreign transactions that you are engaged in, your company is also prone to be investigated by that foreign country as well. For example, if they levy any sort of investigation against your company, this could also trigger an investigation in the United States as well. As a result, it is wise to make sure that your company is educated and versed on the laws not only here in the U.S., but on the laws in the country where you are intending to conduct business.

5. Implement and maintain an adequate set of internal audit controls

For the most part, this means that you are maintaining an extremely accurate set of accounting controls and associated documentation. This should include the following:

• Recording any illegal payments as bribes
• Keeping separate ledger accounts for expenses related to advancing gifts and rewards to foreign employees and foreign government officials
• Keeping tabs on money that is withdrawn from the "petty cash account"
• Keeping a separate ledger account for payments that are made to outside third-party vendors

It is highly recommended that your organization create a separate and succinct policy as to how each and every transaction category should be established, as well as any other related subcategories. Your organization should also seriously consider hiring an outside, third-party accounting firm to monitor and audit your books.

Keep in mind that under the FCPA, any business or corporation can face severe and stiff financial penalties for transactions and expenses that are not accurately represented, whether it is intentional or not.

Conclusion

This article has reviewed the top 5 tips for your company to come into compliance with the FCPA. There are many others as well, but those detailed here will at least get your organization headed in the right direction.

Sources

• Top Ten Tips for FCPA Compliance, Association of Corporate Counsel
• US Foreign Corrupt Practices Act (FCPA), GAN Business Anti-Corruption Portal
• FCPA Compliance Guide, GAN Business Anti-Corruption Portal
• A Resource Guide to the U.S. Foreign Corrupt Practices Act, U.S. Department of Justice