3 key take-aways from costly bribery penalties & examples of gaps that caused them in 2018 + 2019.
FCPA / anti-bribery regulatory priorities from 2018 to 2019 - what you can do to avoid penalties.
As we approach Q4 and budget for 2020, it is the perfect time to consider regulatory focus areas and plan to strengthen internal control gaps that have been costly for other public companies.
For the last 9 years, a specialized SEC unit has focused on bribery cases, at times partnering with the Department of Justice. FCPA cases are regularly spotlighted on the SEC’s website to show SEC priorities.
In 2018 and 2019 (as of September 2019), the SEC issued press releases about 23 companies penalized for bribery (these were the issues the regulator prioritized — more companies were likely penalized).
3 key take-aways that jump out:
- 17% of the companies had at least one executive who was penalized for the bribery (7 executives at 4 of the 23 companies) — the executives included three presidents / CEOs, a CFO, a Chief Legal Officer, and a COO, which means the SEC is targeting all functions, not just finance or sales functions
- 39% of the companies penalized were in the tech / telecomm industry (or 9 of the 23 companies)
- 22% of the companies were penalized over $100 million (or 5 of the 23 companies)
“Walmart valued international growth and cost-cutting over compliance” Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit
In 2019, Walmart was penalized over $282 million in bribery penalties for failing to operate an effective anti-corruption compliance program during a period of rapid international growth.
Next step for continuous improvement: Assess your organization’s FCPA internal controls, for gaps prioritized by regulators
Compliance best practice: one approach is to assess your organization’s controls to identify gaps that regulators focused on, and assess whether controls are operating effectively.
Below is a list of FCPA internal controls prioritized in 2019:
1. Controls for payments to third-parties / intermediaries:
- Adequate records to reflect the services provided
- Prevent the use of unvetted subagents
- Identify and review success-fee compensation
- Detect secret agreements with third-parties
- Excessive discounts to unauthorized third parties
2. Controls related to government officials:
- Systems to identify hiring relatives of government officials
- Payments for improper travel and gifts to foreign government officials
- Providing tickets and hospitality to government officials who are in a position to influence legislative actions