On April 22, the U.S. Securities and Exchange Commission (SEC) announced its first non-prosecution agreement (NPA) with a company in a matter involving alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA). [1] The SEC entered into the agreement with Ralph Lauren Corporation (Lauren), resolving allegations that Lauren violated the FCPA when its Argentine subsidiary allegedly paid bribes to government and customs officials to improperly secure the importation of Lauren’s products into Argentina. The NPA in this case resulted from Lauren’s prompt self-reporting and extensive cooperation. Prior to the Lauren NPA, the SEC seemed to provide limited credit to public companies for cooperation in FCPA investigations.
Time will tell whether the Lauren NPA is a harbinger of a new approach.

…continue reading: SEC Announces First Non-Prosecution Agreement in an FCPA Matter

Cross-border mergers and acquisitions can provide tremendous business opportunities for companies looking to expand globally. Reduced labor and operational costs, new technology and vast new markets for existing products are just some of the benefits companies look to take advantage of when considering entering new geographical areas. However, in analyzing cross-border deals M&A professionals must be conversant with the risk factors associated with the vigorous and cooperative anti-corruption efforts being taken by regulators around the world. While these anti-corruption efforts are increasingly legislated through many jurisdictions, the most significant attention remains focused on the efforts undertaken by the United States in this area.

…continue reading: Cross Border Mergers & Acquisitions: Anti-Corruption Issues

Ethics is in origin the art of recommending to others the sacrifices required for cooperation with oneself.” Bertrand Russell

Since the publication of its Statement and Guidance on Anti-Corruption Practices in 2009, the ICGN has actively advocated the fight against bribery and corruption as a fundamental component of the corporate governance agenda. The Statement and Guidance takes a global perspective, making clear that anticorruption is a priority in all markets.

But is it appropriate to set the same standards for anticorruption in all jurisdictions, particularly in emerging markets, where many underlying conditions are different and where bribery and corruption are particularly acute in both the public and private sectors? This was the question posed as the main discussion point at ICGN’s “Town Hall” meeting on business ethics in its June 2012 conference in Rio de Janeiro. Meeting participants, from a range of developed and emerging markets, expressed a resounding consensus that investors should not compromise their standards on anticorruption in emerging markets, even if corruption may be a more deep-rooted problem. However, while absolute standards on anticorruption should remain undiluted — beginning with a “zero tolerance” position — there may be different anticorruption strategies to apply in emerging markets, reflecting economic, cultural and legal differences.

…continue reading: Business Ethics in Emerging Markets and Investors’ Expectations Standards

The last ten years have seen a continuous increase in white collar criminal and regulatory enforcement activity. 2011 was no exception, and we expect the trend to continue in 2012.

While not an entirely new phenomenon, the world of white collar and regulatory enforcement appears more politicized than ever. Corporations facing investigations in 2012 can expect extensive press scrutiny, serial leaks about the investigation, and, on occasion, parallel involvement of Congress and others at any stage of the matter. The credit a company can expect to receive for providing cooperation seems ever more uncertain, especially in cases receiving a high level of public focus, notwithstanding government protestations that cooperation will be rewarded. And, it is likely to get harder going forward to shepherd corporate resolutions of these kinds of cases through this politicized landscape. There is no simple solution to these challenges. But, as we discuss below, it remains critical for companies responding to multipronged investigations to keep clear lines of communication open with government investigators, to address questions candidly and with integrity, to correct identified problems promptly, and to build upon and strengthen investments made before the inquiry began in establishing a culture of compliance.

…continue reading: White Collar and Regulatory Enforcement

In the paper, Which firms benefit from bribes, and by how much? Evidence from corruption cases worldwide, which was recently made publicly available on SSRN, we analyze a hand-collected sample of 166 prominent bribery cases, involving 107 publicly listed firms from 20 stock markets that have been reported to have bribed government officials in 52 countries worldwide during 1971-2007. Prior papers have focused on the date of the revelation of the bribe on the firm’s stock price.

Our research questions are different from this literature. We try to answer three questions. First, who bribes? Second, how much do they pay? Third, what benefits do they get? In contrast to prior literature, to answer our research questions, we focus on the initial date of award of the contract for which the bribe was paid. At that time, the market was unaware that the firm obtained a particular contract by paying a bribe. So the change in market capitalization of the firm on the bribe paying date (which is only available ex-post) provides the magnitude of benefits firms get from the bribe. By subtracting the value of the bribe from the benefits, we get a measure of the NPV for the bribe.

…continue reading: Bribes and Benefits

Earlier this year, following an internal investigation into allegations of industrial espionage, Renault SA (“Renault”), the giant French car maker, fired three senior employees with great public fanfare. But this week, after an inquiry by French officials reportedly found no evidence substantiating Renault’s findings, Renault issued a public apology to these employees and conceded it had made a mistake. Based on published accounts, it appears that Renault might have been the victim of a hoax involving an unfounded whistleblower allegation designed to prompt the car maker to spend money pursuing a wayward internal investigation.

…continue reading: Renault Case Illustrates Dangers of Misleading Whistleblower Claims

In March 2010, a working group of the Organization of Economic Cooperation and Development (“OECD”), representing the thirty OECD member nations and eight other countries (the “Working Group”), issued its much-awaited Good Practice Guidance for anti-bribery compliance programs. For global companies, this represents what could well be the most significant set of compliance and ethics (“C&E”) program expectations ever promulgated, as we briefly describe in this memorandum.

Background: the “how” and “why” of good C&E programs

Nearly nineteen years ago, the U.S. government established an original and compelling model for promoting legal compliance by businesses. This new approach was set forth in the Federal Sentencing Guidelines for Organization (the “Sentencing Guidelines”), which offered companies both strong incentives for implementing C&E programs and meaningful guidance on how to do so.

Since then, a small number of other nations have followed this lead, at least in limited ways. But until recently, there had been no true global acceptance of the Sentencing Guidelines’ strategy of providing business organizations with incentives (the “how”) and methodologies (the “why”) for adopting strong C&E programs.

…continue reading: OECD Provides Guidance for Anti-Bribery Compliance Programs

Last Fall, we noted that countries other than the United States were stepping up their efforts to combat international bribery and corruption. (See International Anti-Corruption Enforcement on the Rise – October 19, 2009.) Consistent with that trend, earlier this week the U.K. Serious Fraud Office in conjunction with the U.S. Department of Justice settled corruption charges with BAE Systems PLC, one of Europe’s largest defense contractors (learn more here). The charges relate to illegal payments to government officials in various countries. Under the terms of the settlements BAE will plead guilty to charges in both countries and pay $400 million to resolve U.S. charges, and a fine of £30 million – a record criminal fine for a company in the U.K. – to resolve the SFO investigation. The BAE settlement marks the first time that the SFO and DOJ have cooperated to jointly resolve an investigation and the SFO has called it a “groundbreaking global agreement.”

In another illustration of this trend, 22 executives and employees of 16 different companies in the military and law enforcement products industry based in the U.S., the U.K. and Israel were arrested on January 18, 2010 and charged with FCPA violations as a result of an undercover operation conducted by the FBI and DOJ, with assistance from the U.K.’s City of London Police (learn more here). According to the indictments, the defendants attempted to make improper payments to FBI agents posing as foreign procurement officials. The case represents the largest single investigation and prosecution in the history of DOJ’s enforcement of the FCPA. It also represents the first large-scale use of undercover law enforcement techniques, previously seen only in organized crime cases, to uncover FCPA violations.

…continue reading: Increasing International Cooperation and Other Key Trends in Anti-Corruption Investigations

The bribery scandal involving Siemens AG, Europe’s largest engineering company, is the latest evidence that corruption of public officials remains a pernicious problem as globalization intensifies. Accepting or extorting bribes and misappropriating public funds erodes judicial institutions and the rule of law, distorts competition and injures the poor.

Anti-corruption rhetoric exceeds commitment and accomplishment, especially in emerging-market nations. Building durable, transparent and accountable institutions in the highly diverse developing world — with failed, failing, fragile and rising states — is key, though complex and time-consuming.

One part of the solution can be tackled immediately: vigorous enforcement of the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The goal of the effort — part of Paris-based Organization for Economic Co-Operation and Development – is to stop, or significantly minimize, bribes made by multinational corporations headquartered in industrialized nations.

The need for such action was underscored last month, when Siemens agreed to pay a record $1.3 billion to U.S. and German authorities for accounting and conspiracy offences, resulting from probes that the Munich-based company allegedly paid more than $1.4 billion in bribes around the world.

‘Unprecedented’ Misconduct
This followed resignations by Siemens’s board chairman and chief executive; the payment of more than $300 million in other penalties; restatements of more than $500 million for expenses subsequently disallowed as improper payments; and outlays of more than $850 million for lawyers and forensic accountants used in the company’s internal inquiry.

U.S. authorities said Siemens’s improper payments were “unprecedented in scale and geographic reach” as well as “systematic” and “standard operating procedures.” If bribery was so pervasive, involving employees at all levels, in such an iconic multinational company, then similar behavior almost certainly exists within major exporters elsewhere in Germany and in other industrialized nations.

Currently, 37 nations belonging to the OECD have ratified the anti-bribery convention and have enacted laws such as the U.S. Foreign Corrupt Practices Act (FCPA), prohibiting foreign bribery by U.S.-based transnational companies. These nations account for more than two-thirds of world exports.

Unfortunately, efforts to implement the convention at the national level have been inadequate. (The OECD itself has no enforcement powers; it can only monitor national efforts through its highly professional Working Group on Bribery.)

…continue reading: Bribery Warrants Global War

Ernst & Young recently released its 10th Global Fraud Survey “Corruption or Compliance – Weighing the Costs“.

As the US Foreign Corrupt Practices Act (FCPA) becomes the de facto anti-corruption standard worldwide, over 50% of US executives — and 84% globally — still know little to nothing of its key provisions, according to the survey. Another survey finding with governance implications suggests that companies increasingly rely on internal audit to find and address fraud and compliance risk—but internal audit departments may not have the tools, techniques, or resources to do so. Only 28% of US respondents say their internal audit departments are highly successful at detecting bribery and other corrupt practices.

The results show a marked lack of knowledge and preparedness on the part of C-suite executives and other risk management personnel, including internal auditors, about FCPA, which prohibits bribery of government officials by US companies and US-traded foreign companies. More than two-fifths of survey respondents (43%) say their companies do not have specific provisions in place for dealing with government officials—presenting an enormous risk of FCPA non-compliance.

Another key finding is that companies engaged in M&A may not be conducting necessary due diligence on target companies. Nearly half of FCPA prosecutions in 2007 arose during mergers or acquisitions. But fewer than half of survey respondents report that their companies routinely review the risk of bribery in advance of an acquisition—presenting significant risk of so-called “successor liabilities” that expose the buyer to unnecessary risk.

In sum, Ernst & Young’s 10th Global Fraud Survey demonstrates that corruption and bribery remain a significant exposure for US companies, especially as they conduct business across borders. The survey included senior in-house counsel and chief risk officers, along with other corporate executives from the C-suite to internal audit, and surveyed 1,186 respondents in 33 countries from November 2007 to February 2008.

The survey is available here.