In an ideal world, a company could simply disclose mistakes they have made that violated the FCPA, disgorge assets from the deal, and that would be the end of it. However, that’s not the case in today’s complex financial environment. It’s very common for a firm to violate the FCPA without meaning to. This is why the Department of Justice started the FCPA mitigation pilot program. While many companies have taken advantage of this, there are still some risks that may not be immediately evident.

Before deciding if it’s necessary to disclose, you need to weigh the risks versus the rewards of the program. After all, once you disclose, you can’t take it back. There’s no guarantee that the disclosure won’t open your firm up for further investigations or potential loss of revenue. While the pilot program is one which should be used in some cases, there are other instances where disclosure isn’t necessary and could be damaging.

Questions to Ask Before You Disclose

It’s not always 100% clear whether or not an action by one of your employees or vendors meets the burden of an actionable offense. The FCPA deals solely with transactions that indicate some level of corruption which has or may lead to unfair enrichment of the company. To determine if something is disclosable, you need to look at the five Ws: Who, What, Where, When and Why.

  • Who – The FCPA deals strictly with communications with overseas officials made by any agent of your company. An agent includes both direct employees and third parties directed to act on your behalf.
  • What – The FCPA specifically looks for violations that could be construed as bribes, as well as the rewards gained from them. If you give a client movie tickets as a gift, it’s unlikely this would be considered a violation. The official wouldn’t offer a lucrative contract in exchange for a pair of $20 movie tickets. On the other hand, if you gave them a $10,000 Rolex, this is something that could be considered a violation.
  • Where – The FCPA strictly deals with overseas transactions, though some countries get more attention than others. If you’re dealing with a country where the government owns private businesses, this is more likely to be an area scrutinized by the DOJ because of the limited oversight and risk of corruption.
  • When – To qualify for the FCPA’s mitigation program, you must give timely disclosure of an issue. While there’s no specific timeline given, it’s determined that reporting should be made as soon as you knew, or should have known, that there was a possible violation. The second you have notice, the clock starts ticking. The longer you go without disclosure, the less likely you’ll be to receive mitigation.
  • Why – The DOJ considers intent a major part of whether something is a violation. So, if you gave a foreign official who was also a personal friend an expensive watch for their birthday and had no plans to do any future business with them, that doesn’t show intent. However, if you gave them that $10,000 watch two days before they award your firm a million-dollar contract, that will be considered constructive intent, even if you didn’t mean for it to be taken as a bribe.

If you have a situation where all five of those criteria are meant, then you’ll need to discuss the possibility of disclosure with your compliance department. There will be direct costs involved in that, including fines and the disgorgement of any assets obtained in the transactions. But there also may be indirect costs that you’ll need to measure as well.

The Indirect Risk of FCPA Disclosures

Keep in mind that the FCPA mitigation program doesn’t offer a clean slate. Fines and penalties will be reduced and you’re likely to escape criminal prosecution, but there will be backlash. For some companies, this backlash can be catastrophic. Specifically, when you disclose the FCPA violation, you open yourself up to the following indirect risks:

  • Larger overall investigations – One of the biggest risks of disclosure is that after you disclose, you’ll find out the overall problem is much larger. For example, say in the instance of the employee giving the client the $10,000 watch, you decide to disclose. Then, the DOJ opens the investigation and determines that this was not an isolated incident and your overseas reps regularly offer bribes. It is important to be proactive in your own investigations to help avoid surprises like this.
  • Reputation damage – The DOJ reports all cases openly on their website. That means it will be known that your firm participated in something unethical. While larger firms may be able to weather the storm, smaller ones may find their business reputation permanently damaged.
  • Stock drops – The results of this investigation will have to be reported in your firm’s financial filings. This means that stockholders will know and may become hesitant to invest in your company. Sudden stock drops following these disclosures are not unheard of.
  • Potential litigation – When you’ve disclosed, you’ve essentially admitted liability. This could open you up to third party litigation if it’s found you acted negligently, and those disclosures can be used as evidence.

All disclosures, even ones that seem obvious, should be carefully examined with your corporate counsel. Part of this is doing a thorough investigation to ensure you know all the facts. Your timetable will be limited following discovery, so this must be a top priority for management.

One way of completing these investigations quickly is to utilize technology like Remote Risk Assessment (RRA), as an investigatory tool. This can help you get a full picture of the possible violation while minimizing your time investment. For more information on using this technology, contact AC Global.

Image Source | Unsplash user Helloquence

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