Earlier this year San Diego-based Titan Corp. paid $28.5 million to settle criminal and civil charges by the SEC and Justice Department that it had violated the Foreign Corrupt Practices Act, or FCPA, in connection with its overseas operations.
The charges included that Titan paid a $2.1 million bribe to the election campaign of the president of a West African nation, and covered up other payments and commissions in six countries. The $28.5 million settlement by Titan was the highest amount ever paid by a company under the FCPA. The lesson of the Titan case is clear for other companies doing business internationally: Be FCPA compliant, or be prepared to face the consequences.
This article provides a general overview of the FCPA and also indicates "red flags" for spotting suspect transactions in the shadowy world of corrupt payments in international business.
The general antibribery rule of the FCPA is easily stated. It is illegal for any U.S. person, acting directly or through third parties, to pay money or anything else of value to any foreign official in order to obtain or retain business.
The general rule is refined, however, by several key definitions, an important exemption, and the availability of certain defenses:
The accounting provisions of the FCPA aim to prevent slush funds, off-the-book transactions and improper expense classifications that can lend themselves to bribery. The provisions apply only to public companies and their majority-owned subsidiaries. A discussion of the accounting provisions is beyond the scope of this article, but the rules basically enact recognized accounting and record-keeping standards and procedures. Violations are subject to civil and criminal sanctions.
Here are some common "red flags" that call for the exercise of extreme caution and the utmost due diligence:
Anyone who suggests that a sum of money will fix the problem.
An agent or business partner whose main qualification appears to be a personal relationship with government officials.
Requests for large amounts of cash or for payment in bearer instruments; payments through a third party or to an account in a third country.
Contracting with an entity whose ownership is not disclosed.
An agent or business partner who refuses to enter into a written agreement governing his conduct, including compliance with prohibitions on bribery.
Companies run a high risk of FCPA misconduct if they employ foreign agents, deal with government officials involved in the procurement process, bid on large foreign projects, or do business in countries where bribes, "gifts" and similar inducements are common business practice.
The Titan case starkly illustrates the risks -- and costs -- of not having in place effective controls for FCPA compliance. The SEC claimed that although Titan had over 120 agents in over 60 countries, it had never had a formal company-wide FCPA policy -- a factor which apparently figured largely in the record settlement payment. If you think your company doesn't need an FCPA compliance program for its international business, you may wish to think again in the light of Titan's experience.