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FCPA Compliance Dangers for Clients in the Global Marketplace
Clients today have the potential to engage in transactions all over the world, especially via the internet. Because of easy access to the global marketplace, CPAs should be in tune with the realities of the Foreign Corrupt Practices Act when conducting audits, reviews, and even bookkeeping for clients doing business internationally. Insist on an appropriate level of substantiation for transactions and obtain additional documentation for transactions that do not make sense.
By William E. Ebersole, CPA, JD
Today, clients have the potential to engage in transactions all over the world, especially via the internet. In light of this tremendous global marketplace, CPAs should be in tune to the realities of the Foreign Corrupt Practices Act (FCPA) when conducting audits, reviews, or even bookkeeping entries for clients doing business in the international arena.
The FCPA is enforced by the Securities and Exchange Commission (SEC) and the U.S. Department of Justice FCPA Unit. In general terms, the FCPA prohibits the giving or offering of anything of value to foreign government officials to obtain or retain business. In 2019, 30 individuals were convicted of violating the FCPA, and 15 corporate resolutions were obtained by the federal government resulting in $3.2 billion in U.S. dollars payable to U.S. and foreign enforcement entities.1
The FCPA has two functional sections: the anti-bribery provisions and the accounting provisions. This blog focuses on the accounting provisions.
The accounting provisions are further subdivided into two sections. The first section covers books and records requirements; the second section deals with internal control mandates. Essentially, publicly traded companies are required to maintain books and records that accurately reflect the company’s financial activity. Basically, companies must report their transactions in an acceptable manner that will prevent off-the-books slush funds and bribe payments.2 Vaguely characterizing transactions as “consulting fees” or “miscellaneous expenses” will invite unwanted scrutiny from regulators and investigators.
The internal control provisions require a company to have processes and procedures in place to ensure that the recording and authorization of transactions is reasonably reliable.3 Companies have flexibility to implement a system of internal controls appropriate to their own circumstances. However, permitting payments to suspect third-party intermediaries or failure to document authorization of transactions may be viewed as violating the FCPA.
Violations of the FCPA can be addressed via criminal or civil prosecutions, as well as forfeiture and disgorgement actions. Further, FCPA prosecutions can be coupled with other criminal charges such as conspiracy, money laundering, and wire fraud.
Not every FCPA violation has to end with an investigation. Companies can avoid a sanction based upon a DOJ review of 10 factors evaluated when a deferred prosecution agreement is considered. Factors such as voluntary disclosures, cooperation with the investigation, and a robust compliance program will go a long way toward a successful resolution of the matter. In fact, in the absence of aggravating factors, companies that voluntarily disclose wrongdoing on a timely basis and with full cooperation and remediation can presume the issuance of a declination by DOJ.4 Examples of aggravating factors include executive involvement or recidivism by the subject company. Of course, one should seek the advice of counsel learned in FCPA matters fully assess reporting obligations.
A variety of anti-corruption resources can be found on DOJ’s website at Foreign Corrupt Practices Act (justice.gov). Here are a few observations to help clients avoid getting into murky FCPA waters:
- Successor liability is an FCPA reality, so conduct appropriate due diligence prior to engaging in a merger or joint venture with a foreign business.
- Be careful when conducting business in countries where seemingly private businesses are actually owned and operated by the government.
- Employees of a state-owned entity (SOE) may be viewed by federal investigators as government officials.
CPAs should insist on an appropriate level of substantiation for transactions. Obtain additional documentation for transactions that do not make sense, especially if the transactions are conducted in countries with a high corruption index, as defined by Transparency International.
Also, some conduct that may not violate the FCPA may actually violate another country’s anti-corruption statute. For example, the United Kingdom’s Anti-Bribery Act of 2010 is much broader than the FCPA and covers bribes offered or requested by some private individuals in addition to government officials.
The FCPA does allow for “facilitation payments” or payments made to expedite a routine, nondiscretionary act by a foreign official, such as reviewing a visa application.5 Be advised: this is a narrow exception, and any after-the-fact review of the facilitating payment will be stringent. The best bet here is to seek the advice of an attorney trained in FCPA matters.
The world marketplace provides great promise to many of your clients. Just make sure they have the benefit of your insight when conducting overseas transactions.
1 U.S. Department of Justice – Criminal Division/Fraud Section, Year in Review 2019.
2 FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act, 2nd Edition, U.S. Department of Justice (2020).
3 Ibid., page 40.
4 Ibid., page 51.
5 Ibid., page 25.
William E. Ebersole, CPA, JD, is security compliance/emergency manager for Disney Cruise Line in Celebration, Fla. He can be reached at spykids1229@brighthouse.com.
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