Addressing the ridiculousness of US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act
Corporate bribery and anti-corruption enforcement is big business for the US oversight authorities. Unfortunately, the current approach is neither fit to resolve international bribery issues and situations, nor delivers justice. The purpose of the FCPA must be redefined to combat global Bribery and Corruption in the long run.
More than four-fifths of the FCPA cases against global companies since 2010 have been settled with deferred prosecution or non-prosecution agreements. In other words the compromise between the authority and the company in scrutiny is an out-of-court settlement. The result is that the bribery or corruption case does not undergo the usual examination of a judge, details of the particular allegations are not studied for future guidance and references, the culprits who receive the payments are most often not punished and neither the company nor the executives have admitted any wrongdoing or guilt.
Furthermore when settlements are announced, the details are most often sparse to provide leadership to others on how to avoid a particular situation in a particular country. Other countries are also copying the American approach: Britain, for instance, has allowed deferred-prosecution agreements since 2013.
Aimlessly boiling the ocean
To make matters absurd in the 38 years the FCPA has existed, only one case against a public company has gone to trial. It seems that anti-bribery enforcement by the oversight authorities have galvanised into action because NGOs have started to raise a stink forcing western countries to step up the execution of the FCPA and similar legislation. Little do the NGO's know that they are hurting the countries they are trying to help the most.
The NGO's could help the emerging countries in Africa and other places, by working with local and global companies and acknowledge the positive elements of implementing good governance standards, ethics and the corporate responsibility to the society they operate. Instead the NGO's are demanding new floods of oversight, regulation policies and intensified regulatory scrutiny that brings unintended consequences to the poor countries.
The controlling oversight of US DoJ and SEC have shaken down the global corporate community with all the fines they probably can. Even Al Capone or the best Chicago mob enforcers cannot get so much dough from one legal source or application. On the top ten of fines given, is Germany's Siemens from 2008 at 800 musd and at the tenth place sneaks in Magyar Telekom/Deutsche Telekom (Hungary/Germany) with a settlement of 95 musd in 2011. The average of the top ten fines given by the oversight authorities in the US is 351 musd, mainly to foreign companies.
FCPA Inc
On top of the fines, there is more than double the amount that companies spend on internal or forensic investigations, lawyers, auditors and consultant fees, introduction of additional controls and tests and monitoring processes, hiring more compliance staff. The costs to combat corruption and bribery can continue after a company has paid for the investigation and settlement. Then the directors take over and management is required to bear the cost of being overseen, introduce independent compliance monitoring to avoid being excluded from procurement processes, may suffer a higher cost of capital and risk being hit by shareholder lawsuits. Siemens of Germany has spent more than $3 billion on corruption and bribery-related additional costs since 2008 and will continue to do so for years to come. If the same amount of effort and resources was sent on structured, embedded and integrated bribery and corruption processes, the stakeholders would have achieved compliance and progress. http://www.copenhagencharter.com/Framework.pdf
In 2015, Walmart's spent 800 musd for its internal investigations on alleged bribing of Mexican officials and looking the processes of all global subsidiaries for facilitation payments and related compliance improvements. Walmart's bill for lawyers' and forensic accountants' fees will be well close to $2 billion . In additional to the expenses there can be cost to settle related litigation, several thousands of valuable man-hours spent by managers and directors on matters that can be classified as pointless distraction from managing the everyday business affairs. http://www.copenhagencompliance.com/news/issueXVII/news-07.php
Outflank competitors
Until recently giving bribes, both big and small, to win or to speed up business transactions was considered a necessary evil, especially in emerging markets. In parts of Europe, companies were even allowed to deduct kickbacks they had paid as a tax deductible transaction. The FCPA even allows facilitation payments. Perhaps some of the spoils from the fines could be used to pay the monthly salary of a few dollars to the 'officer' who only has a uniform and a rubber stamp as monthly compensation.
The war on global commercial bribery is being waged with excessive vigour, not only by the US but also from the UK authorities, that have implemented cross-border and multi-jurisdictional US Bribery Act that is more or less similar to the USFCPA. This corruption overreach is now forcing companies to be overcautious in al business approached, increased the internal policing of all departments, and those businesses that are under investigation are starting to push back from emerging markets.
There's a fairness issue here
Note the word Foreign in the FCPA. Until 2007, the largest fine under the FCPA was less than $50m. Now the multinationals have to dish out more than 10-15 times to make a settlement. None of the foreign firms can avoid a presence in America, and get caught in the oversight prosecutors' net. Alstom, the French industrial group, was fined 772musd in 2014 for allegations that it had spent $75m on bribes in countries including Egypt and Indonesia. 2014 was a record year for FCPA penalties, and 2015 may be more. Besides KBR / Halliburton of USA that was fined 579 musd in 2009, all other companies in the top 10 are from Germany, UK, France, Holland, Italy, Japan, Hungary, South Korea, etc.
Christine Lagarde, head of the International Monetary Fund, recently quoted the 18th century French writer Voltaire and advised not to "follow the banker" in pursuit of compliance, but rather to "follow the financier". Perhaps that is why President Barack Obama earlier this week when he addressed students at The Georgetown University took an aim at the asset managers of hedge funds and private equity. "The top 25 hedge fund managers made more money than all the kindergarten teachers in the country," he added "There's a fairness issue here." Perhaps the continuation of global corruption implementation fairness could be to make the FCPA more justifiable by spending a portion of the revenues from the huge fines in anti-corruption combatting efforts around the world.
At the 9th annual European GRC Summit in Stockholm, we will have a number of speakers addressing the above issues and also conduct a Bribery, Fraud and Corruption workshop.
