DOJ and SEC enforcement officials have made it clear in
recent years that anticorruption and FCPA enforcement is a key priority. More
cases have been brought in the last several years than in the history of the
Act. Huge sums are being paid by increasing numbers of companies to resolve
potential FCPA cases - in addition to the substantial amounts being spent on
investigations and remediation. Increasing numbers of individuals have been
prosecuted and sentenced to prison. While in the last year there have not been
as many cases as in some earlier years, there should be no doubt that the DOJ
and the SEC continue to view FCPA enforcement as a top priority.
All of this should make the results of the 12th
Global Fraud Survey by Ernst & Young of significant interest to corporate
officials and their advisers (here).
The survey clearly reflects the increasing compliance efforts of many
companies. At the same time it raises troubling questions.
Key findings from the survey include:
Boards: Tone at the top is
critical to any compliance system. Yet 52% of those in the corporate suite
report that boards need a more detailed understanding of the business if they
are to be an effective safeguard against corruption practices.
Increasing enforcement: There
is no doubt that in the U.S. and other countries anticorruption enforcement is
an increasing priority. Yet 39% of the survey respondents reported that bribery
or corruption practices occurred frequently in their country.
Risk in growing markets: In
2011 thirty-one of thirty six reported FCPA cases focused on conduct in growing
markets, according to the survey. In those countries, however, corruption
continues to be a major difficulty. In Brazil 84% noted that bribery and
corrupt practice were widespread. In the Czech Republic 80% made a similar
report while in Indonesia it was 72%, Mexico 60% , Turkey 52% and China 14%.
Difficult economic conditions: An
increasing number of respondents indicated a willingness to make cash payments
to obtain or retain business. In the most recent survey 15% indicated a
willingness to make such payments compared to 9% one year earlier. Similarly 5%
stated they would be willing to misstate financial performance if necessary
compared to 3% one year earlier.
Type of payments: The
type of payments respondents indicated they were willing to make to obtain or
retain business is also instructive. In the survey 30% indicated a willingness
to pay for entertainment to retain business while 16% would make gifts and 15%
would cash payments.
Recent high profile FCPA cases such as the one involving Morgan Stanley have
focused on compliance procedures as have many business groups in lobbying for a
compliance defense. The survey found that 81% of those responding have
compliance procedures in place. At the same time only a little more than half
report that there is training on anticorruption policies, a key element of any
effective system as enforcement officials have repeatedly stressed.
critical issue in implementing any compliance system is enforcement.
Ineffective enforcement can suggest the system has not been effectively
implemented and increases the risk that enforcement officials will view it as
less than adequate. Yet 45% of those responding in the E&Y survey report
that breaches of company anticorruption policies have not been disciplined.
Third parties: A
large number of corruption enforcement actions center on agents and vendors.
Yet 44% of those responding do not conduct background checks on third parties.
While 59% of those responding indicated that they used an approved supplier
database, that suggests that a large percentage of companies fail to check the
ownership or backgrounds of third-party suppliers.
economic conditions can increase the likelihood of violations. When presented
with a list of questionable actions, 47% of the CFOs surveyed reported that one
or more could be used in an economic down turn. At the same time 52% of that
same group reported that company management is likely to cut corners to meet
Overall the survey confirms that the increased
enforcement efforts by the DOJ and the SEC have had an impact. Many companies
are implementing compliance systems. At the same time there is a question
regarding the effectiveness of those systems in view of the responses regarding
third parties, training and enforcement. Perhaps most disturbing are the survey
results indicating the increasing numbers of those willing to utilize improper
means to achieve an end. Regardless of how good the compliance system is, it
can be subverted by those willing to engage in wrongful conduct. This may also
suggest that the tone at the top is not adequate and corporate boards and
executives need to do more to ensure a culture of compliance.
ABA Seminar: Fifth
Annual FCPA Update: Protecting Your Business in the Future: Lessons from the
New DOJ-SEC FCPA Guide, June 19, 2013 from 1:00 -2:30 p.m. EST. The discussion
will focus on building effective compliance systems and conducting M&A due
diligence. Co-moderators: Thomas Gorman and Frank Razzano. Panel: John Buretta,
Principal Deputy to the Assistant AG, DOJ; Charles Cain, Assistant Director,
FCPA Unit, SEC Division of Enforcement; Catherine Razzano, Assistant General
Counsel, General Dynamics Corporation; Steve Siegal, Senior Counsel, Northrop
Grumman Corporation; Ryan Ong, President, U.S. China Business Counsel. Live in
Washington, D.C at 600 14th St. N.W., Penthouse (no charge for ASECA
members attending live in Washington who pre-register by sending an e-mail to
email@example.com). Webcast Nationally by the ABA. For further
For more commentary on developing securities
issues, visit SEC Actions, a blog by Thomas
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