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Will the new U.S Pilot motivate companies to self-report?

April 20th, 2016 - Posted by Sam Hemmant in Anti-Bribery And Corruption, Anti-Money Laundering

Guidance on FCPA enforcement issued

The US DOJ's FCPA enforcement plan and guidance memo was issued in early April.  It detailed some of the measures that the DOJ is taking to combat fraud – including the appointment of 10 new prosecutors and three new squads of FBI agents that will be dedicated to enforcing the FCPA.

The DOJ FCPA memo also highlights how much additional international co-operation is taking place, commenting: "We are sharing leads with our international law enforcement counterparts, and they are sharing them with us". The memo lists a significant number of international prosecutions that have come about through co-operation with other enforcement agencies, including large US brands like Hewlett Packard but also significant businesses from outside the States such as as European oil companies and Russian telecommunications company VimpelCom.

However the memo was not all stick and no carrot.  Page two of the document outlines how the DOJ will run a pilot programme for one year offering a reduced punishment for voluntary disclosure of wrongdoing.  The critical sentence reads: "The principal goal of this program is to promote greater accountability for individuals and companies that engage in corporate crime by motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs."  Companies that self-report may not be subject to prosecution and those that do self-report and are prosecuted will likely receive reduced fines.

A global perspective

This guidance is in line with other countries that are encouraging companies to self-regulate and report misdoings quickly.  The UK Bribery Act of 2010 included guidance for companies, issued by the Serious Fraud Office (SFO) that self-reporting companies may avoid prosecution in certain circumstances if the company has a "genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice".

Due Diligence – front and centre

All this leads to an inescapable conclusion for businesses: bribery and corruption will be rooted out wherever it is found.  The combination of increased legislation, enhanced enforcement, global co-operation and individual accountability (for example through the Yates Memo) means that companies have no space to hide wrongdoings.  The only way in which a company can mitigate against prosecution and fines is through self-reporting and, critically, this will only be taken into consideration when the company can demonstrate that it is running or plans to implement an effective compliance and ethics programme.  

For any business trading internationally, this means proactive and ongoing checks to on-board new suppliers and customers, as well as monitoring news around key suppliers and customers to ensure a reduced exposure to risk.  Regular oversight of Politically Exposed Persons and comprehensive checks around key personnel within relevant companies, particularly in reference to other companies owned by the same individuals is essential to demonstrate a strong due diligence programme.  Companies also need to implement a comprehensive internal communications programme to advise staff of known risks and the legislation relating to fraud and bribery across the globe.  

The DOJ pilot scheme guidance concludes by commenting that "If successful, the pilot program will serve to further deter individuals and companies from engaging in FCPA violations in the first place (and) encourage companies to implement strong anti-corruption compliance programs to prevent and detect FCPA violations."  The message is clear –a demonstrable and thorough due diligence programme is the only means for companies to comply with an increasingly powerful international campaign against bribery and corruption.

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