What is the Real Risk of an FCPA Enforcement Action?

Michael Volkov
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When speaking to clients or potential clients, the question of risk of enforcement is the moose on the table. Sometimes, the question gets asked and other times, the subject is never discussed. To be fair, it is not an easy question to answer because of the variables.

When a company has to analyze whether to seek the benefits of the FCPA Pilot Program and agree to voluntarily disclose, cooperate with the government and remediate its compliance program, the company has to consider the alternative course – do not disclose the possible violations to the government, remediate and hope that the US government does not learn about the conduct.

On its own, the government is unlikely to learn about the conduct, especially if it is confined to one country or region. But there are a lot of assumptions in relying on such a view.

First, a company that may have violated the FCPA may have also violated anti-corruption laws in the foreign country that may lead to discovery by local law enforcement or prosecutors. A foreign investigation is likely to lead to a US investigation of the same conduct, especially if there are additional activities that may have occurred in the United States.

Second, an employment dispute with any officer or employee who may know or have heard about the possible FCPA violations could result in the Justice Department learning about such allegations as part of an employment claim.

Third, as the Justice Department’s investigation of FCPA, antitrust and other global white collar crimes increases, the Justice Departmenty’s access to cooperating witnesses who may know or have heard about FCPA violations also increases. As a consequence, white collar officers and employees may obtain or hear information about alleged FCPA violations and seek to trade on such information for sentencing leniency in other white collar prosecutions, especially antitrust cartel cases.

In a “perfect” world of no information sharing or communications about persons who may know or have heard about potential FCPA violations, it is possible that the risk of the Justice Department discovering FCPA violations on its own is very low. But this “perfect” world is not the “real world,” and company officials have to consider a number of factors relating to the potential risk and the harm to the company, especially if it is caught after deciding not to disclose the conduct to the government.

These risk factors are fairly well known but worth restating:

  • Prior FCPA enforcement investigations in the same (or related) industries;
  • Prior FCPA enforcement investigations involving the same third party agent(s) or distributor(s);
  • Prior antitrust, sanctions or fraud enforcement investigations involving competitors or companies competing in adjacent markets;
  • Extensive cooperation and information sharing between prosecutors and law enforcement in the United States and the foreign country in which the possible violations may have occurred;
  • Cooperation and information sharing between the Justice Department and the World Bank or other multi-lateral development banks involving related parties or projects.

Companies have to take these factors into account when weighing a decision to disclose or not to disclose potential violations to the US Department of Justice. This analysis, however, is a flat calculation of risk versus reward/damage, and does not take into account the reputational harm to the company if the conduct is discovered by the government despite the company’s attempt not to disclose the conduct. If added to the equation, reputational harm to the company can have a significant negative impact to corporate stakeholders and on the overall goodwill generated by the company as a result of its reputational value.

Wherever a company comes out, one thing is clear – the risk of detection in today’s global economy is much higher than ten years ago. Public interest watchdogs are now omnipresent looking to raise the specter of corruption against multinational companies, especially when such corruption is part of an overall corruption problem in a foreign country.

In this new enforcement world, companies have to take into account all of these factors and influences. It is not an easy choice but it is one that comes up in numerous contexts.

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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