Tech Companies Latest Targets of FCPA Enforcement

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GUEST BLOGGER

Sheila Keefe, CFE
Principal, BDR Advisors, LLC
Lake Geneva, WI

The Federal Bureau of Investigations and the Justice Department are investigating Oracle Corp. for possible Foreign Corrupt Practices Act (FCPA) violations related to payments made by Oracle and/or its agents to secure sales of database and applications software. Oracle is not alone in the tech world; enforcement agencies are increasing scrutiny for other tech companies including a pending investigation against Hewlett-Packard Co. and a $10 million settlement against International Business Machines Corp.

Try as they may, many businesses find it hard to compete on an unlevel playing field without engaging in corruption, as reported in the 2009 Global Corruption Report issued by Transparency International: “Nearly two in five polled business executives have been asked to pay a bribe when dealing with public institutions. Half estimated that corruption raised project costs by at least 10 percent. One in five claimed to have lost business because of bribes by a competitor.”

Since exiting lucrative global markets is not an option for many organizations, it is best to proceed with caution by enhancing FCPA specific compliance and detection programs. In terms of detecting corruption, two expense descriptions tend to be associated with bribes: gifts and travel. In examining gifts it is important to know the generally permissible gifts, which include items or services less than $100 that are given after obtaining approval. Bestowing a gift upon a foreign official is much different after approval is granted than before, with less scrutiny placed on gifts given after obtaining approval.   Regardless of timing, the exchange of a gift for a business favor often comes down to whether or not the public official had the right to say “no.” If the public official had to say “yes,” most likely because the organization qualified for approval without any favors, the gift is less likely to be deemed a bribe.

As for travel, the FCPA does not prohibit U.S. companies from paying for travel expenses of foreign officials that are legitimate business expenses, such as traveling to meet company personnel, inspecting products or company facilities or executing a contract. As outlined on the SEC Whistleblower Blog on December 6, 2010, travel expense policies must be established to simplify FCPA compliance. A few of the suggestions listed include:

  • Use a central travel office rather than allowing foreign officials or other third parties to book travel
  • Have a clearly articulated travel policy, requiring detailed expense reports especially when foreign officials are entertained
  • Additional care when families or spouses of foreign officials are included in the travel plans
  • Consistent vigilance for international travel even travel between foreign countries

In some cases, organizations can qualify for deferred prosecution agreements (DPA). DPAs involve prosecutors dropping charges in exchange for full cooperation. Halliburton Co. and its subsidiary Kellogg Brown & Root LLC took advantage of a DPA and paid a fine of $579 million. The philosophy behind DPAs is that fraud prevention is better than punishment. Companies that do not have stringent compliance programs in place before a FCPA violation typically have the establishment of a compliance program as a condition of their DPA. 

When it comes to FCPA compliance, organization will save themselves a lot of time and money by proactively setting up stringent FCPA compliance programs that will alert them to potential FCPA exposure. The alternative can be very expensive. 

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