It’s a Mad, Mad World: The Rewards and Risks of FCPA Investigations

February 2013

IN THIS ISSUE

— Navigating a Global Economy: The Importance of FCPA Compliance
— Caution On All Sides: Risks for Participants — And Prosecutors

GREETINGS!

Welcome to the February 2013 edition of our newsletter! In this issue, we’ll examine best practices for Foreign Corrupt Practices Act investigations, and the potential downside if those practices aren’t properly executed.

NAVIGATING A GLOBAL ECONOMY: THE IMPORTANCE OF FCPA COMPLIANCE

Companies of all sizes conduct business internationally in today’s economy, certainly more so than even 30 years ago. While the globalization of trade has opened up markets to businesses, and offered goods and services to consumers who didn’t have access to them before, the differing laws, customs and social norms between countries can pose a serious risk to a company’s reputation and operations. For U.S. businesses conducting transactions overseas, much of this risk falls under the rubric of the FCPA.

There are several key questions to research (and perhaps ask for further details in pre-transaction interviews after that research is completed) when considering business with an overseas partner. What is their standing in the community? How did they attain it? How have they responded to competitive threats in the past? This is one point where cultural differences matter: the answers to these questions may be different for a Greek shipping tycoon operating a third-generation business than they will be for a former South African politician using his clout to start a new private equity fund. In order to assess each situation in its proper context, research must be conducted with an understanding of the current and historical political, social and economic events in the country where your firm hopes to do business, and examine your potential partner’s actions in that context.

CAUTION ON ALL SIDES: RISKS FOR PARTICIPANTS — AND PROSECUTORS

While good FCPA compliance practices can aid a business in preventing prosecutions, with proactive programs often persuading authorities to complete an inquiry without taking any action, occasionally the regulators themselves can go too far. This was the case with former Siemens executive Herbert Steffens, who was accused of orchestrating a bribery scheme to elicit favorable behavior from officials in Argentina. A federal court dismissed the U.S. Securities and Exchange Commission’s complaint against Steffens on the grounds that it was overly broad, asserting that regulators were suggesting that every employee of the German company who had knowledge of the scheme (or the falsified financial statements meant to cover up it existence) could be found liable under their reading of the FCPA. The court found that no such jurisdiction existed over Steffen in the United States, who was brought into the scheme solely for his purported connection to Argentine officials.

While this apparent regulatory overreach is a matter of legal interpretation, it raises an important point: whether working for a regulatory agency or the companies subject to them, it is essential to know your partners overseas on a holistic level, using thorough investigative techniques to foresee as many red flags as possible and information a business judgment before it is made, not after it is too late.