Firms Charged with Both Bribery and Financial Crime Hit Hardest by FCPA Enforcement

Although passed in 1977, the Foreign Corrupt Practices Act (FCPA) was not significantly enforced until 2005. Since then, the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made up for the slow start in what has come to be called the "new era of FCPA enforcement."

As a result, 70% all FCPA bribery enforcement actions have been initiated within the last decade, together with corresponding increases in the amount of penalties imposed for violations.

Businesses are responding to this surge in FCPA enforcement by spending significant sums to implement anti-bribery compliance programs, conduct internal investigations of potential violations and perform due diligence on third-party business partners.

Companies targeted for FCPA investigations experience the economic impact in direct costs — legal fees, forensic accounting, etc. — and indirect costs — diminished reputation, loss in share value and decreased sales.

In an effort to gauge the financial impact of FCPA penalties on targeted companies, the Searle Civil Justice Institute (SCJI) at the Law & Economics Center at George Mason University School of Law compiled data on FCPA actions focused on foreign bribery. The report analyzed FCPA investigations at 139 publicly traded firms from January 1, 1978 through April 5, 2013.

The report serves as a reminder to firms that regardless of whether bribery is carried out alone, or combined with other forms of financial fraud, corruption can be extremely costly.

Key Findings

  • Firms targeted by authorities tend to have a high equity value. Firms in the heavy manufacturing, pharmaceutical, healthcare and oil and gas industries are most frequently targeted by the SEC and DOJ for bribery investigations.
  • Bribes to foreign officials are made because they yield substantial returns if undetected, with 85.6% of bribes paid to secure important contracts and increase sales; only 7.2% are given in exchange for political and regulatory favors.
  • When caught, being connected to an FCPA investigation decreases a firm's value by an average of 2.9%.
  • The extent of financial losses to firms depends on the specific FCPA charge. Bribery charges alone resulted in the smallest decrease in a company’s market value (2.7%), while charges of both bribery and financial fraud caused the biggest drop in value (54.9%). The trend holds across industries.

Businesses can ensure FCPA compliance and avoid the economic impact of corruption by implementing a robust anti-corruption training program. Thomson Reuters' online Foreign Corrupt Practices Act and Global Anti-Corruption training courses help companies maintain successful compliance programs by empowering employees with the practical knowledge they need to understand anti-corruption laws and how to spot and avoid violations before they occur.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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