How to Ensure Your Company Doesn't Break Federal Anti-Bribery Law

Ever since the Foreign Corrupt Practices Act was passed in 1977, American corporations have bitched that the law puts them at a competitive disadvantage. How? By making it harder for them to bribe foreign political officials to win business with the same reckless abandon as non-U.S. firms. One recent example:

"[W]e operate in many parts of the world that have experienced governmental and commercial corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices," Diebold (DBD), an Ohio-based company whose products include automated teller machines, said in a recent regulatory filing.

Foreign companies that are not subject to the U.S. law "may be more likely to engage in activities prohibited by the FCPA, which could have a significant adverse impact on our ability to compete for business in such countries," Diebold said.

Although companies often complain about the FCPA, for most of its history the statute has largely collected dust. From 1978 to 2000, the feds averaged only three FCPA prosecutions per year. But by 2008 the number had jumped to more than 80. And since President Obama took office, the crackdown has really intensified.

Over the last two years, the Justice Department and SEC have charged dozens of companies under the law, including titans such as Dow Chemcial (DOW), General Electric (GE), Halliburton (HAL), IBM and Tyson Foods (TSN). Major foreign companies also have been busted. In 2010 alone, the government dished out more than $1 billion in fines, or more than 10 times the $87 million collected in 2007 by the Bush administration. The SEC has even recently started examining the foreign business dealings of Wall Street, which to date has largely escaped such scrutiny.

FCPA: How to comply
Although most corporate chieftains at least pay lip service to the idea of fighting corruption overseas, behind the scenes in Washington business lobbyists are trying to weaken the FCPA. The U.S. Chamber of Commerce wants the government to limit companies' criminal and civil liability under the law and to narrow its scope to exclude executives who work for state-owned companies.

Sabotage? Of course -- that's how the Chamber rolls. By contrast, I suspect many executives see good reason to combat bribery, which greatly raises the cost of doing business in critical global markets. For them, the question isn't how to evade or gut the FCPA, but how best to comply with it.

To that end, attorney Richard Cassin at the FCPA Blog outlines 10 key elements that companies should have in place to ensure they stay within the law:

1. A Written Program. The organization must have standards and procedures to prevent and detect criminal conduct.
2. Board Oversight. The organization's board of directors or equivalent must be knowledgeable about the content and operation of the compliance and ethics program and must exercise reasonable oversight of its implementation and effectiveness.
3. Responsible Persons. One or more individuals among the organization's high-level personnel must be assigned overall responsibility for the compliance and ethics program.
4. Operating and Reporting. One or more individuals must be delegated day-to-day operational responsibility for the compliance and ethics program. They must report periodically to high-level personnel and, as appropriate, to the board of directors or its audit committee or equivalent on the effectiveness of the program. The individuals must have adequate resources, appropriate authority, and direct access to the board or audit committee.
5. Management's Record of Compliance. The organization must use reasonable efforts not to hire or retain personnel who have substantial authority and whom the organization knows or should know through the exercise of due diligence have engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.
6. Communicating and Training. The organization must take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to directors, officers, executives, managers, employees and agents -- by conducting effective training programs and otherwise disseminating information appropriate to the individuals' respective roles and responsibilities.
7. Monitoring and Evaluating; Anonymous Reporting. The organization must take reasonable steps (a) to ensure that its compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct, (b) to evaluate periodically the effectiveness of the compliance and ethics program and (c) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization's employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation.
8. Consistent Enforcement -- Incentives and Discipline. The organization's compliance and ethics program must be promoted and enforced consistently throughout the organization through appropriate (a) incentives to perform in accordance with the compliance and ethics program and (b) disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.
9. The Right Response. After criminal conduct has been detected, the organization must take reasonable steps to respond appropriately and to prevent further similar criminal conduct, including making any necessary modifications to the organization's compliance and ethics program.
10. Assessing the Risk. The organization must periodically assess the risk of criminal conduct and take appropriate steps to design, implement, or modify its compliance program to reduce the risk of criminal conduct identified through this process.

Related:

• SEC Bribery Probe Opens New Front on Wall Street Corruption
• Why Business Should be Embarrassed by the U.S. Chamber of Commerce
• How Wall Street Banks Help Tyrants Loot Their Countries