WEBINAR: Turbocharging Legal Contract Transformation in the Age of Generative AI

2017 Was the Most Active Year Ever for FCPA Investigations

In 2017, 45 new Foreign Corrupt Practices Act-related investigations were publicly disclosed, according to a tally just published by FCPA Blog, which monitors enforcement of the U.S. law. If that sounds like a lot, that's because it is: The investigations made for the most active year for new FCPA-related investigations since the law's passage in 1977.

"There are now 134 pending FCPA-related investigations that companies or agencies have disclosed," the blog reports. That's compared to just 78 in 2011.

Few industries have been spared from the rise in investigations. Companies in oil and gas, manufacturing, banking, healthcare and pharmaceuticals all had new investigations opened in 2017. Countries involved in the investigations span the globe, from Peru to China to Azerbaijan to Italy.

The increase in prosecutions have corporate counsels, compliance officers and financial officers asking what they can do to reduce the risk of an FCPA violation.

What is FCPA

Congress passed the FCPA to combat companies using bribes to foreign government officials to curry favor. The law doesn't just apply to U.S. firms; also liable is any corporation that sells securities in the United States, any officer, director, employee or agent of an Issuer of a domestic concern, as well as persons who violated the FCPA within the territory of the United States.

In September 2017, an international telecommunications company that had issued securities in the U.S. agreed to pay $965 million to resolve charges that one of its subsidiaries paid $331 million in bribes to Uzbek government leaders. Acting U.S. Attorney Joon H. Kim called it "one of the largest criminal corporate bribery and corruption resolutions ever."

With such crippling financial penalties hinging on FCPA compliance, the risk of being fined for foreign corrupt practices has become a focus of attention and concern by the C-suite as never before. Yet as the spike in new investigations show, companies continue to struggle to find ways to rein-in this rogue behavior in their organization.

Focus on Fundamentals

At first glance, bribery can seem like an issue that falls outside corporate controls. People who are willing to break federal corruption laws are also willing to violate corporate rules, right?

While it is true that the scruples of any given individual can be difficult to manage, the fact is that a focus on fundamental business functions can go a long way in giving companies control over their regulatory compliance.

For example, many companies have been investigated for corrupt practices carried out by their vendors. In these cases, the question becomes how well those vendors were vetted before coming under contract, and how closely their fulfillment of contract obligations was monitored for problematic behavior.

Also, in nearly all cases, bribes are paid with company money. For example, in 2016 a medical devices firm admitted that its distributor in Russia had made improper payments to third parties using fictitious invoices. Those fake invoices made their way up, undetected, to the parent company's books, and ultimately resulted in a heavy fine.

The Role of an Enterprise Contract Management system

In both cases, better control over and insight into contracts could have gone a long way in heading off risk.

Contracts control every dollar going in and out of an organization. However, if contracts are siloed away in local offices across the globe, it can be impossible for headquarters to audit them for discrepancies, suspicious payments, or problem vendors.

Leading firms in every industry have turned to enterprise-wide contract management to gain full visibility into their organization's contracts to improve compliance and protect against fines and reputational risk. With this software, executives can run high-level reports to see, for example, where in the globe it has contracts and what vendors it is using; and drill down on specifics by searching on contract language or metadata. Leading enterprise contract management solutions are even deploying AI-driven applications that proactively surface potentially problematic contract language.

Companies can also use the software to prevent bad contracts from being executed to begin with through robust clause and language libraries and customized workflows. If deviant language or questionable financials show up in a contract, it can be flagged for review. Vendors and suppliers can be run through automatic checks against third-party sources like Dun & Bradstreet and Thomson Reuters. In addition, companies can limit or escape culpability and suffer substantially reduced fines by demonstrating efforts to limit risk.

To further explore how enterprise contract management can help your company control risk, contact Icertis today.