The Securities and Exchange Commission (SEC) Enforcement Division has launched an investigative initiative targeting the use of contractors and distributors by public technology companies operating internationally.
The Enforcement Division’s Foreign Corrupt Practices Act (FCPA) Unit is issuing inquiries to assess compliance with the FCPA. The staff is seeking to uncover improper relationships that could signal bribery or corruption, particularly in high-risk regions such as Asia, Latin America, and Africa.
This move reflects an intensified SEC focus on the tech sector’s reliance on third parties for global sales and distribution. Such intermediaries, critical for market penetration in these territories, present some of the highest risks for corrupt practices, potentially implicating tech companies in violations of the FCPA.
The enforcement sweep has not yet led to public accusations of wrongdoing. However, this proactive step suggests that the SEC is casting a wide net, possibly prompted by recent high-profile settlements. Inquiries like these are fairly common and do not necessarily lead to enforcement actions, but they do signal the SEC's vigilance in enforcing the FCPA.
Preparing for Potential Inquiries: Proactive Measures
News of an initiative like this one presents a good opportunity for tech companies to review and refresh FCPA compliance programs, particularly those related to third-party onboarding and oversight. Companies should consider the following proactive measures, at a minimum, in the near term:
- Strengthen due diligence processes regarding intermediaries. Ensure thorough vetting of their business practices and reputations, as well as periodic monitoring of third-party relationships.
- Provide regular, comprehensive FCPA training to employees. Emphasize the risks associated with third-parties and the importance of scrutinizing such relationships closely – no matter how helpful they might be to business imperatives.
- Review anti-bribery provisions in contracts with third parties. Make sure they provide for expansive audit rights. The SEC will not view the mere existence of audit provisions as an effective compliance tool unless companies can show that they in fact exercise these rights in a risk-based fashion.
- Maintain meticulous records of all transactions and interactions with foreign officials and business partners. If the SEC inquires, contemporaneous records can substantiate what transpired.
In the event that a company receives an SEC inquiry regarding overseas intermediaries, the company and experienced outside FCPA counsel should engage with Commission staff while at the same time conducting timely and thorough internal reviews of any issues suggested by the specific third parties named. Such a review will be important to understand the scope of the relationships with the specified intermediaries to identify potential exposure, and to craft appropriate remedial actions.
Additionally, companies should bear in mind that SEC inquiries often come with parallel investigations by the U.S. Department of Justice of potential criminal violations. With any federal anticorruption initiative – civil or criminal – it is crucial to address compliance deficiencies early and get in front of potential issues that may come to the attention of government investigators.
