I was recently researching the Foreign Corrupt Practices Act (FCPA) while developing sales material for Oversight's FCPA monitoring solution. While visiting the U.S. Securities and Exchange Commission's website I landed on the enforcement actions page and was struck by two things: 1) the number of highly regarded major global companies that have agreed to significant penalties totaling into millions of dollars 2) their agreement to implement stringent monitoring programs moving forward. A few examples:
Bristol-Myers Squibb - The SEC charged the New York-based pharmaceutical company with violating the FCPA when employees of its China-based joint venture made improper payments to obtain sales. Bristol-Myers Squibb agreed to pay more than $14 million to settle charges.
Hitachi – The SEC charged the Tokyo-based conglomerate with violating the FCPA by inaccurately recording improper payments to South Africa's ruling political party in connection with contracts to build power plants. Hitachi agreed to pay $19 million to settle charges.
Mead Johnson Nutrition – SEC charged the infant formula manufacturer with violating the FCPA when its Chinese subsidiary made improper payments to health care professionals to recommend the company's product to new and expectant mothers. Mead Johnson Nutrition agreed to pay $12 million to settle the case.
Goodyear Tire & Rubber Company - SEC charged Goodyear with violating the FCPA when its subsidiaries paid bribes to land tire sales in Kenya and Angola. The company agreed to pay $16 million to settle the charges.
Avon Products Inc. - SEC charged the global beauty products company with violating the FCPA by failing to put controls in place to detect and prevent payments and gifts to Chinese government officials from a subsidiary. Avon agreed to pay $135 million to settle the SEC charges and a parallel criminal case.
Hewlett-Packard - SEC charged the Palo Alto, Calif.-based technology company with violating the FCPA when subsidiaries in three countries made improper payments to government officials to obtain or retain lucrative public contracts. H-P agreed to pay $108 million to settle the SEC charges and a parallel criminal case.
Alcoa - SEC charged the global aluminum producer with violating the FCPA when its subsidiaries repeatedly paid bribes to government officials in Bahrain to maintain a key source of business. Alcoa agreed to pay $384 million to settle the SEC charges and a parallel criminal case.
Archer-Daniels-Midland Co. - SEC charged the Illinois-based global food processor for failing to prevent illicit payments made by foreign subsidiaries to Ukrainian government officials in violation of the FCPA. ADM agreed to pay more than $36 million to settle the SEC's charges.
The list goes on and on, but I think you get the idea. You're welcome to drill into the details on the SEC's website as it makes for fascinating reading, but to summarize what I gained from reading each case were a handful of common themes.
- Most of these actions took place after the SEC was alerted by either whistle-blowers or through self-disclosure.
- These companies fell into two camps, either they were unaware due to weak monitoring programs or were aware at some level of their organization and chose to ignore their liability.
- Most violated the FCPA’s internal controls and recordkeeping provisions and many were slow to remediate gaps in internal controls.
- Most agreed to report to the SEC for a specific period of time on the status of its remediation and implementation of FCPA and anti-corruption compliance measures.
- The cost to these companies in terms of damaged reputation and the millions each had to spend in legal and forensic accounting fees in their defense was significant.
In light of the above it's no surprise to me that our 100% FCPA monitoring programs for travel and entertainment expense and accounts payable are so popular. Based on our own client’s experiences, when it comes to building an FCPA transaction monitoring program there are a few points to keep in mind.
First, there are no guarantees that you’ll be able to prevent bad actors from circumventing the controls you have put in place. However, there are best practices to consider. With Oversight, you get a continuous monitoring system that leverages data analytics and automation to monitor 100% of your entire population.
Our analytics take a risk-based approach to identify anomalies. We incorporate risk preferences from our clients in the form of input parameters to identify what we consider to be high risk spend categories: the type of vendor or transactions, ranking of keywords, and other such parameters including the Corruption Perception Index (CPI) of the country and the Politically Exposed Persons (PEP) database.
Based on this input, our algorithms create exceptions that are weighted and ranked for further review. Any action you take to review and resolve these exceptions using the built in workflow in our product is automatically documented and logged by the system. This provides a defensible audit trail that demonstrates to internal or external stakeholders that you are proactively monitoring your business transactions and acting on the exceptions.
As you may be aware the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have been favorable in their rulings with companies that have been able to demonstrate such capabilities. Ultimately it comes down to this, at Oversight we provide a solution that enables you to operationalize your FCPA compliance efforts at a price point, which is palatable, and in a timeframe that’s achievable.
