Don't let U.S. focus crimp oversight abroad: with increased SEC and DOJ scrutiny on U.S. companies' business practices in foreign countries, a myopic focus on U.S. policies and procedures can detract from oversight of FCPA violations.

• Author: Olsen, William
• Position: Regulation - Securities and Exchange Commission - Department of Justice - Foreign Corrupt Practices Act

In the wake of the Sarbanes-Oxley Act of 2002, companies have invested significant time and money to ensure compliance with U.S. laws and regulations. However, these laws and regulations are the Achilles' heel of many U.S. companies with foreign operations. A myopic focus on home office policies and procedures can detract from oversight of overseas operations. In particular, significant risks exist when companies neglect to monitor for violations of the Foreign Corrupt Practices Act (FCPA).

[ILLUSTRATION OMITTED]

While the FCPA has been in place since the 1970s, there has been a recent spike in investigations by both the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). This current trend is the result of companies moving more aggressively into emerging markets like India and China, where anti-bribery laws tend to be somewhat lax.

Provisions of Sarbanes-Oxley itself are another reason why scrutiny of FCPA violations has increased. Not only is there overall concern with corporate governance, prompting regulators to increase their watchfulness, but an important Sarbanes-Oxley provision encourages companies to set up whistleblower programs to facilitate the reporting of fraud and other illegal activity. Whistleblower programs have been proven to increase the reporting of suspicious activity.

And, because FCPA violations such as bribes and money laundering are often associated with terrorism, the DOJ has stepped up its vigilance.

Penalties for violating the FCPA can be harsh. Companies that pay off foreign officials are liable for up to $2 million, or twice the gross gain or loss derived from the bribe. Individuals can be fined up to $250,000, or twice the gross gain or loss derived, and can incur a prison sentence of up to five years. Companies found guilty of improper and misleading record-keeping can pay up to $2.5 million in fines. The repercussions for individuals are even more severe; these include a maximum $1 million fine and up to 10 years in prison.

Pitfalls of Emerging Markets

Many companies fail to evaluate the risks before entering a new market. Often, poorly trained employees assume a "when-in-Rome" attitude, not realizing that the local way of doing business may be a direct violation of U.S. laws and regulations. It does not help that U.S. companies that abide by these laws and regulations tend to face an uneven playing field, sometimes losing out to competitors from countries that do not adhere to such practices. Even when companies do have similar legislation, it is not necessarily enforced with...