To control or to compromise? The prominence of chief compliance officer and foreign corrupt practices act violation

• Published date: 01 April 2021
• Author: Chenyong Liu,Chunhao Xu,Zhenfeng Liu
• Date: 01 April 2021
• DOI: http://doi.org/10.1002/jcaf.22491

Received: D ecember Accepted:  February 

DOI: ./jcaf.

BLIND PEER REVIEW

To control or to compromise? The prominence of chief

compliance officer and foreign corrupt practices

act violation

Chenyong Liu1Chunhao Xu3Zhenfeng Liu2

College of Business, TexasTech

University, Lubbock, Texas,USA

School of Management, The University

of Michigan-Flint, Flint, Michigan, USA

College of Business, University of Texas

of the Permian Basin, Odessa, Texas,USA

Correspondence

ChunhaoXu, Department of Accounting,

TheUniversity of Texas of the Permian

Basin, E. University, Odessa, TX

-,USA.

Email:xu_c@utpb.edu

Abstract

We investigate the influence of chief compliance office (CCO) prominence in

the corporate management team on FCPA violation and audit fees. Based on

the compliance function leader’s position seniority, we find that a CCO’s posi-

tion rank is positively associated with the propensity of FCPA violation. It indi-

cates that promoting CCO in the firm can facilitate more aggressive compliance

policies—it is a “compromise” instead of a “control.” We also find that CCO

prominence is positively associated with audit fees even without an FCPA vio-

lation happening, which implies that auditors could fully perceive the potential

risks embedded in the compliance chief’s promotion. The results of this study

can be of interest to audit practitioners as well as regulators to bettermonitor the

firms with higher FCPA violation risks.

KEYWORDS

audit fees, chief compliance officer, foreign corrupt practices act

“There is a growing consensus, across all indus-

tries, regarding the key areas organizations

need to focus on and enhance, not only in ethics

and investigations, but also on the maturity of

ethics and compliance programs.”

Amy Matsuo, National Leader, Regulatory

Insights, KPMG U.S.

1 INTRODUCTION

In order to reduce the unfair business obtained through

briberies, the U.S. Congress enacted the Foreign Cor-

rupt Practices Act (FCPA)in , which prohibits U.S.

organizations and their agents from making certain pay-

ments to foreign officials and business professionals (Lin

et al., ; Lawson et al., ; U.S. Congress, ). How-

ever, firms often gain significant economic profits with

special tax discount, secure licenses, and larger market

share via corruption activities (Karpoff et al., ), thus

making the risk of FCPA compliance concern for regu-

lators (e.g., the U.S. Securities and Exchange Commis-

sion [SEC]; the U.S. Department of Justice [DOJ]). Other

than regulatory authorities, a rapidly growing group of in-

house business ethics and compliance personnel is tak-

ing more responsibilities to enhance corporate compliance

programs (Deloitte, ). Serving as the leader of the com-

pliance function, a Chief Compliance Officer (CCO) plays

a unique role in protecting the firm from compliance risks

(PricewaterhouseCoopers [PwC], ), including FCPA-

related issues. Different from the Head of Internal Audit

who broadly supports operational and financial activities

(KPMG, ), a CCOisdedicated to detecting compliance

misconducts and providing solutions to solve the prob-

lem (Tabuena, ). Therefore, CCOscould exert a direct

114 ©  Wiley Periodicals LLCJ Corp Account Finance. ;:–.wileyonlinelibrary.com/journal/jcaf