International Trade: Stay OnThe Right Side of the Law

{mosimage} Those prosecutions resulted in $435 million in fines and penalties levied by the U.S. government. In 2008, Siemens AG pled guilty to violating the FCPA. The company agreed to pay a $450 million criminal penalty, and to disgorge $350 million in wrongful profits.Such cases illustrate why manufacturers doing business in foreign countries need to be aware of the FCPA. They need to understand what the act prohibits. They need to understand what actions are allowable under the act. They need to implement and sustain effective FCPA compliance programs.The FCPA was enacted in 1977. It essentially bars a U.S. public registrant from bribing a foreign official to attain business. A foreign-based company whose stock is traded on a U.S.-based exchange must comply with the FCPA. Privately held U.S. companies operating overseas face compliance as well.The anti-bribery provision is enforced by the Department of Justice (DOJ), while the act's books-and-record provision is enforced by the Securities and Exchange Commission (SEC). That provision addresses the need for publicly traded companies to accurately and fairly record transactions, and to design an effective system of internal accounting controls."Grease" paymentsThe FCPA allows two exceptions for offering money or items of value to foreign officials. First, a company operating in a foreign country can offer a "grease" payment or facilitation fee to expedite or secure what would be regarded a routine government action. Such activities include issuance of a permit, or providing water supply.The act also allows expenditures for what would be considered reasonable business-and-marketing costs. If a manufacturer, for example, is seeking approval to build a production facility in a foreign country, it can pay the travel expenses for government officials from that country to tour its U.S. facilities.Such expenses, though, need to be documented, and must be deemed reasonable. If costs include lodging at the most expensive hotel, lavish entertainment items and numerous meals at gourmet restaurants, the manufacturer could face scrutiny.FCPA compliance extends to any agents or other entities acting on a company's behalf. If a contracted agent bribes foreign officials or has improper relationships with those individuals, the company is guilty of violating the FCPA: Ignorance of a third party's background or activities will not work as a defense.In addition to penalties resulting from DOJ and SEC investigations, FCPA violators face numerous other government actions, including being barred from doing business with the federal government, or being ruled ineligible for an export license.While the FCPA does not charge foreign officials with accepting bribes, those officials face potential charges for fraud and money laundering. Governments are increasingly cooperating in sharing information needed to investigate and prosecute such cases, too.Compliance with the FCPA begins with establishing and maintaining a culture in which bribery is viewed as an illegal and unacceptable practice, and not as an unsavory but sometimes necessary means for attaining business objectives.Within a company, employees need to understand FCPA provisions and what constitutes improper activity. The company must maintain suitable documentation for expenses incurred in dealings with foreign officials. The company also needs to conduct background checks and monitor the activities of any third parties that it hires to act on its behalf. An increasingly global economy presents many opportunities for manufacturers. The presence of such opportunities, though, also heightens the importance of being aware of the FCPA.Alan D. Nelson, CPA, CFF, [email protected], is a Senior Manager, Forensic Accounting, at independent public certified accounting firm Weaver, with offices in Austin, Dallas, Fort Worth, Houston, Midland, Odessa and San Antonio.

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