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Proactive FCPA compliance program essential

The unfortunate truth regarding violations of the Foreign Corrupt Practices Act, experts say, is there is no feasible way to completely prevent them from happening.

However, that inevitability is all the more reason mid-market companies should take proactive steps to minimize their exposure to potential fines and sanctions for violation of the law, beginning with implementing an in-house FCPA compliance program.

While not necessarily required by the letter of the law, experts said federal regulators all but expect any U.S. company to have developed some system of ensuring compliance with the FCPA, as well as any applicable local anti-bribery laws in the countries in which they plan to do business.

The Justice Department—the main prosecutor of FCPA violations by private and nonprofit firms—allows firms accused of bribery to assert as a defense that the payment was permitted under the laws of the foreign country, or that the money was spent to demonstrate a product or perform a contractual obligation.

However, experts said either claim would be difficult to support without internal compliance controls already in place.

“The smaller and midsized companies need to recognize that the U.S. government views doing business abroad as inherently risky, and that compliance is a cost of doing business,” said Greg Husisian, a Washington-based attorney at Foley & Lardner L.L.P. “It's true that there's nothing in the law that says you have to do this, but the government clearly expects that you're going to have it set aside in your budget from the start if you are contemplating doing business overseas.”

Last year, in conjunction with the Organization for Economic Co-operation and Development, the Justice Department issued an outline of its recommendations for compliance protocols. It urged companies to build compliance programs based on the individual circumstances that inform their foreign bribery risks, particularly geographical (see chart) and industrial sectors of operation.

The recommendations to ensure effective internal controls, ethics and compliance included a clear corporate policy prohibiting foreign bribery, explicit support from senior management and granting one or more senior officers the authority to report potential violations directly to independent monitors without interference from top management.

Beyond direct cash exchanges, expenditures and activities likely to draw attention from investigators include gifts, hospitality and entertainment expenses, customer travel expenses, political contributions, charitable donations and sponsorships, and excessive facilitation payments.

The Justice Department also recommended installing a system of internal and external accounting controls to ensure accurate tracking of expenditures, as well as periodic communication and documented training on compliance standards for all employees.

“Having an organizational compliance program that's been folded into the company's contracts, periodic meetings, sales literature, etc., is critical,” said Dana Kopper, a Los Angeles-based senior vp and director at Lockton Cos. L.L.C. “There's no way that a company, even with 100 or 250 employees, is going to be able to watch everything that goes on if it's operating on an international scale. They're going to have to rely on how they go about officially documenting and communicating what it is that they will and won't do.”

Experts said mid-market companies should expect to invest at least some capital and personnel resources into developing a comprehensive program.

“It takes a lot of time and effort, but in the end you're on the hook,” said Coleen Friel Middleton, a White Plains, N.Y.-based attorney at Wilson Elser Moskowitz Edelman & Dicker L.L.P. “Especially in the economy we're in, mid-market companies are probably going to look at FCPA compliance efforts as an area that they can cut costs, but that's a real mistake. The government is definitely going in a different direction.”

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