Compliance Program More Than Pays for Itself

The Foreign Corrupt Practices Act (FCPA) was enacted in 1977 after over 400 US firms admitted to paying over $300 million in bribes to foreign officials, politicians, and political parties. The FCPA was intended to end this type of bribery, with financial penalties, federal contracting debarment, and jail time as persuasion to follow the letter of the law.

The FCPA has been in the media lately, with a notice in Sun’s 10-Q that:

“We have identified potential violations of the Foreign Corrupt Practices Act, the resolution of which could possibly have a material effect on our business. During fiscal year 2009, we identified activities in a certain foreign country that may have violated the Foreign Corrupt Practices Act (FCPA). We initiated an independent investigation with the assistance of outside counsel and took remedial action. We recently made a voluntary disclosure with respect to this and other matters to the Department of Justice (DOJ), Securities and Exchange Commission (SEC) and the applicable governmental agencies in certain foreign countries regarding the results of our investigations to date. We are cooperating with the DOJ and SEC in connection with their review of these matters and the outcome of these, or any future matters, cannot be predicted. The FCPA and related statutes and regulations provide for potential monetary penalties, criminal sanctions and in some cases debarment from doing business with the U.S. federal government in connection with FCPA violations, any of which could have a material effect on our business.”

According to the Wall Street Journal this week, the DOJ is increasing its investigations and prosecutions related to the FCPA. For organizations found out of compliance, the financial penalties are tremendous. The Journal article identified that Siemens paid $800 million in December to settle an FCPA case. In February, KBR and Halliburton agreed to pay $579 million for US charges of bribing foreign officials.

Indeed, it seems that the cost of creating a rigorous ethics and compliance program (including employee hotlines) would be much less expensive than being caught outside of compliance. If we can learn anything from the Siemens situation, we should. According to the WSJ article, “A Siemens spokesman said in an email that it’s wise for a company ‘to have an adequate compliance system in place and a corporate culture that stands for clean business.'”.