The FCPA and Insurance Coverage: Five Strategies for Protecting Against the Financial Costs of an FCPA Claim

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In an era of high profile Wall Street prosecutions and shareholder derivative suits, the phrase “Foreign Corruption Practices Act” (“FCPA”) surely should have corporate officers and executives deeply concerned and vigilant. Not so, according to a new survey in which 80% of public company executives and their directors said that it was unlikely they would be sued this year. This lack of concern is despite the fact that 25% of those same surveyed companies have already been sued, and that 2011 brought a record number of settlements for FCPA violations as well as a record number of enforcement actions against non-US individuals charged in the U.S. And, it is despite the fact that costs related to FCPA enforcement can be enormous—both in fines and penalties, investigation expenses, and in related civil suits. With the growing use of the FCPA in prosecutions and civil suits, companies should take steps to protect themselves and their directors and officers from FCPA-related risks using insurance and other risk-transfer tools. This article describes five strategies to help protect companies against the financial consequences of FCPA-related claims.

The FCPA and FCPA-Related Claims -

In the wake of Watergate and bribery scandals that rocked the country in the 1970s, Congress enacted the FCPA in 1977. The law contains two parts: it prohibits bribing a foreign official for the purpose of “obtaining or retaining business,” and it requires that public companies file proper financial statements and maintain a system of internal controls. Until recently, the U.S. Department of Justice and U.S. Securities and Exchange Commission (SEC), as the FCPA’s main enforcers, only prosecuted a handful of cases every year. In 2010, however, the SEC created a specialized unit to further enhance enforcement of the FCPA, and brought fifteen cases that year, followed by another fifteen in 2011. The Justice Department similarly increased its enforcement efforts, bringing thirty-three FCPA-related enforcement actions in 2010, and twelve in 2011.

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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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