It’s easy to wag a finger at companies incurring costly violations under the Foreign Corrupt Practices Act (FCPA), to date this year.
They stand accused of bribing, defrauding, and other actions you don’t like to see written about in your newspapers.
Apart from the practices the FCPA frowns on, new reports show it’s very costly to cross the FCPA -- erasing the competitive gains that spur these practices.
Companies need to improve at helping their teams in challenging markets understand how to play for the long game and compete within the law.
The FCPA blog, a watchdog for stories related to FCPA violations, says the most expensive violations have involved bribery, corruption and elaborate schemes to defraud company stakeholders. The price for crime grows higher each year, with companies paying hundreds of millions of dollars in criminal fines.
These guilty companies systematically failed to create sufficient compliance policies and procedures to identify and control such significant third-party risks. Even when corruption was detected, investigations were botched and negligently responded to. Without a reliable internal audit resource to support their compliance efforts, these overlooked financial gains ended up costing the companies significantly more in fines than what they had sought to earn.
Let’s take brief look into some of the industries that have been plagued with corruption, leading to the some of the most historic criminal fines.
Oil & Gas
Access to natural resources is limited based on the regulations and land use rights of the local government. Some companies looking to enter into the competitive natural resources market bribe government officials to obtain valuable contracts to develop significant oil and gas fields.
After the acquisition of one accused corporation for bribery related to EPC contracts, the FCPA went after its new parent corporation for failing to devise adequate internal controls and for failing to maintain and enforce those internal controls.
The cost: Guilty companies have paid anywhere between $398 million to $218 million for illegal payments made through third parties in connection to obtaining contracts. The parent company that failed to detect the corporation paid $579 million for its oversight.
Some manufacturers of commercial vehicles have commanded the attention of large governments and provided incentive through illegal kickbacks.
One company’s elaborate scheme revealed about 200 transactions -- which involved 6,300 commercial vehicles and 500 passenger vehicles -- were a result of illegal third-party intervention. In many of these sales, customers were over-invoiced, with the excess being paid to third-party government officials to secure contracts.
The cost: $185 million
Telecommunications laws can impede a company’s access to business, unless these companies block the law from passing.
A telecommunications firm once lobbied local government officials to create a “protocol of cooperation,” where government officials agreed to delay the limiting laws, as well as provide the company with regulatory benefits. As with many other manufacturers, another telecommunications equipment firm featured in the top 10 list were charged and fined for bribing government officials for business.
The cost: $137 million for bribery to win business, and $95 million for the bribery related to influencing local officials to amend their laws.
Military and Defense Contracting
An international government contractor has given its full faith to U.S. governmental agencies, including the Department of Defense and Department of Justice, that it created an FCPA compliance program and even created shell companies to circumvent the law. When the company bribed a government official to obtain a lucrative contract for the sale of fighter jets, the DOJ intervened and fined the company for its violation.
The cost: $400 million for failure to scrutinize their contracts and for the corrupt procurement practices.
Engineering and Technology
In an unprecedented scale of bribery and corruption, an international conglomerate overlooked over 4,200 allegedly corrupt payments totaling about $1.4 billion to foreign officials in numerous countries.
The cost: $800 million
The Bottom Line
A third-party risk management program can help detect and deter costly corruption activity. As we ask in our recent post on the GlaxoSmithKline money laundering scheme in China, once a third-party contractor is established, are you monitoring or auditing payments? Seemingly tedious, it’s worth asking this and other questions and spending time and resources on the front end to manage third-party risk.