4 Questions to Ask When You Learn of Potential FCPA Violation

by Michael Volkov
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4qYou can add this blog posting to my tagged category – “profound grasps of the obvious.”  If you are brave and willing to succumb to yet another in this series, please read on.

Much has been written about how to conduct an internal investigation. Not as much has been written about the steps leading to an internal investigation. There can be very difficult judgment calls and issues when determining whether to launch an internal investigation. I analogize it to a preliminary inquiry to determine if to launch a  formal investigation.

In keeping with the profound grasp concept, here are the four questions that need to be asked (and re-asked) once you learn about a potential FCPA violation in your company.

  • What is the conduct?
  • Who knows about the conduct?
  • What are the external risks?
  • What should we do about it?

I know the questions are simple but bear with me as we flesh them out and navigate the early steps before a formal internal investigation.

The first step requires answering what occurred, who is involved, how pervasive is the conduct, the potential legal (and code of conduct) violation at issue, and how and from whom the company learned about the conduct?  In this inquiry, the nature of the conduct can be categorized by:4q3

  • Type of conduct: Potential bribe for sales, regulatory benefits or approvals, gifts or hospitality, or other source of payments or benefits (e.g. charitable contribution, internship or job placement);
  • Who is involved: Headquarters, regions, divisions, product/service lines, country, senior executives, management, employees, third-party intermediaries (agents, consultants);
  • How pervasive was/is conduct: Amount of bribe(s) and frequency; location of bribery: global, regional, limited to country or part of country;
  • Potential legal violation: bribery, books and records, application of affirmative defense, facilitation exemption; and
  • Source of information: internal discovery (e.g. audit, compliance), whistleblower, anonymous communication, or government action (subpoena, search warrant, inquiry).

The second question — who knows about the conduct? —  is a more limited inquiry and focuses on the people in the company or outside the company who may know about the conduct. The question seeks to determine if the government is likely to learn about the conduct. If not, the company has to take steps to ensure that the conduct remains confidential so that it can investigate and react appropriately. As part of this effort, the company has to quickly identify who in the company knows about the conduct and take steps to make sure it remains known to only a few people.

The third question — what are the external risks? — seeks to determine if the government or external stakeholders (media, consumers, suppliers, shareholders) know about the conduct and the legal and reputational risks the company would face. These are two separate but related inquiries that focus on financial and intangible consequences to the company.

Fourth, the company has to decide how to handle the specific issue.  All of the initial three questions are factored into the analysis of how to handle the issue.

4q2For example, if there is a significant question whether the conduct is illegal, the company will choose a particular course to secure the information needed to make that legal determination. On the other hand, if the conduct is clearly illegal and pervasive, the company may face a different set of factors to analyze, weigh and decide on a course of action.

No two companies are alike in weighing all of these factors. Each has a different risk tolerance and a culture that will influence how they analyze and weigh the issues identified above.

Companies have to move quickly when presented with a need for a preliminary inquiry. Time is of the essence and quick decisions have to be made based on accurate information. A misstep in these preliminary circumstances can have devastating consequences if handled incorrectly.

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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