FCPA Compliance

Feds Encouraging FCPA Self-Reporting

The government is offering companies lower fines if they disclose Foreign Corrupt Practices Act violations.
By: | June 14, 2016 • 5 min read

Companies can take a more proactive role in managing their Foreign Corrupt Practices Act (FCPA) exposures since the federal government launched a new program in April to encourage self-disclosure of misconduct.

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The government’s focus on this area is much more robust now than it has been for many years. The good news is if companies voluntarily disclose a violation, they face much more lenient penalties.

The U.S. Department of Justice increased its FCPA unit this year by more than 50 percent by adding 10 new prosecutors, according to the Washington-based law firm Wiley Rein LLP.

In the spring of 2015, the FBI also began an effort to increase its presence in this area. That agency invested an additional $15 million for FCPA investigations and set up three new fraud squads, increasing the number of agents working on FCPA matters to 23 agents from five.

The FCPA bans U.S. companies and individuals from offering bribes or anything of value to a foreign official in an attempt to get or keep business.

Ralph J. Caccia, attorney, Wiley Rein LLP

Ralph J. Caccia, attorney, Wiley Rein LLP

“The government is putting their money where their mouth is in terms of their intention to aggressively investigate and prosecute these cases,” said Ralph J. Caccia, an attorney with Wiley Rein.

Caccia is a former federal prosecutor, who now defends companies and their executives in cases involving the FCPA.

The law firm hosted a conference call on June 9 to share trends and information on FCPA enforcement with other attorneys and corporate executives.

On the call, speakers said there are about 79 FCPA investigations underway, and about 80 percent of thoses cases have roots in China.

The industries that seem to “catch the eye” of investigators include pharmaceutical, health care, telecommunications and increasingly, financial services companies, Caccia said.

$133 Million in Fines

Government investigators are not looking at small cases where, for example, there’s a one-time bribe to get a shipment in early.  They are focusing on the large cases that may result in big settlements, he said.

Larger targets result in increased settlements. In 2015, there were 11 corporate enforcement actions, with $133 million collected in fines.

So far this year, the SEC reached 11 corporate resolutions for settlements amounting to more than $506 million, according to Wiley Rein.

“They handled it the right way and got expeditious resolutions as a result.” — Kara Brockmeyer, chief, FCPA unit, Securities and Exchange Commission

This year’s settlement includes two non-prosecution agreements. In each case the companies self-reported the misconduct promptly, and they cooperated extensively with investigators, the SEC announced on June 7.

As a result, the companies were not charged with violations of FCPA and did not face extra penalties.

One company, Akamai Technologies, agreed to pay $671,885 after it found employees at a foreign subsidiary violated company policies by giving gift cards, meals and entertainment to foreign officials to build business relationships.

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Nortek Inc. agreed to pay $322,058 after disclosing that a subsidiary made improper payments and gifts to Chinese officials to gain preferential treatment, relaxed regulatory oversight or reduced customs duties, taxes and fees.

“When companies self-report and lay all their cards on the table, non-prosecution agreements are an effective way to get the money back and save the government substantial time and resources while crediting extensive cooperation,” said Andrew Ceresney, director of the SEC enforcement division.

Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said in a statement that “Akamai and Nortek each promptly tightened their internal controls after discovering the bribes and took swift remedial measures to eliminate the problems. They handled it the right way and got expeditious resolutions as a result.”

Increase in Global Cooperation

To snare larger violators, federal agents are increasingly working alongside law enforcement and regulatory authorities in all corners of the globe to share leads, documents and even, witnesses.

The pilot program is designed to investigate and prosecute FCPA violations, while offering companies that voluntarily disclose violations up to 50 percent below the low end of the fine range, based on U.S. sentencing guidelines.

At the end of the one-year pilot period on April 5, 2017, the DOJ will determine whether to extend or modify the program.

In addition to voluntarily disclosing misconduct and fully cooperating with the DOJ investigation, companies also must take all appropriate actions to remediate the offense and surrender all profits from the violation.

Additionally, voluntarily disclosed cases may be acted upon and closed within one year from start of the investigation and the DOJ may not appoint a monitor afterward.

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“If a company opts not to self-disclose, it should do so understanding that in any eventual investigation that decision will result in a significantly different outcome than if the company had voluntarily disclosed the conduct to us and cooperated in our investigation” said Assistant Attorney General Leslie R. Caldwell of the Justice Department’s criminal division, when the pilot program was announced.

At the end of the one-year pilot period on April 5, 2017, the DOJ will determine whether to extend or modify the program.

“The government is upping the ante in terms of what they expect to see in the way of cooperation in these cases,” Wiley Rein’s Caccia said. “They want companies to realize these violations can’t be viewed as simply the cost of doing business anymore, but that individuals could possibly go to jail.”

Appropriate Compliance Programs

Increased FCPA activity should compel changes in the way corporations conduct and document internal investigations.

Corporation should increase internal documentation to include not just what they are doing right, but also what has gone wrong and how it’s been addressed, said Daniel B. Pickard, an attorney with Wiley Rein.

Daniel B. Pickard, attorney, Wiley Rein LLP

Daniel B. Pickard, attorney, Wiley Rein LLP


“The Department of Justice continues to deputize private industry to investigate itself,” Caccia said.

Companies can stay FCPA compliant by conducting more sophisticated risk analysis and increasing periodic outside audits.

“It is undeniable we will see compliance changes matching enforcement trends,” said Pickard.

His firm sees corporations spending more money on compliance infrastructure, especially on the chief compliance officer, he said.

CCO salaries jumped in the past 12 months and those executives are getting more authority; frequently reporting to the CEO.

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

RIMS Conference Opens in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.
By: | April 21, 2017 • 4 min read

As RIMS begins its annual conference in Philadelphia, it’s worth remembering that the City of Brotherly Love is not just the birthplace of liberty, but it is the birthplace of insurance in the United States as well.

In 1751, Benjamin Franklin and members of Philadelphia’s first volunteer fire brigade conceived of an insurance company, eventually named The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.

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For the first time in America — but certainly not for the last time – insurers became instrumental in protecting businesses by requiring safety inspections before agreeing to issue policies.

“That included fire brigades and the knowledge that a brick house was less susceptible to fire than a wood house,” said Martin Frappolli, director of knowledge resources at The Institutes.

It also included good hygiene habits, such as not placing oily rags next to a furnace and having a trap door to the roof to help the fire brigade fight roof and chimney blazes.

Businesses with high risk of fire, such as apothecary shops and brewers, were either denied policies or insured at significantly higher rates, according to the Independence Hall Association.

Robert Hartwig, co-director, Center of Risk and Uncertainty Management at the Darla Moore School of Business, University of South Carolina

Before that, fire was generally “not considered an insurable risk because it was so common and so destructive,” Frappolli said.

“Over the years, we have developed a lot of really good hygiene habits regarding the risk of fire and a lot of those were prompted by the insurance considerations,” he said. “There are parallels in a lot of other areas.”

Insurance companies were instrumental in the creation of Underwriters Laboratories (UL), which helps create standards for electrical devices, and the Insurance Institute for Highway Safety, which works to improve the safety of vehicles and highways, said Robert Hartwig, co-director, Center of Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina and former president of the Insurance Information Institute.

Insurers have also been active through the years in strengthening building codes and promoting wiser land use and zoning rules, he said.

When shipping was the predominant mode of commercial transport, insurers were active in ports, making sure vessels were seaworthy, captains were experienced and cargoes were stored safety, particularly since it was the common, but hazardous, practice to transport oil in barrels, Hartwig said.

Some underwriters refused to insure ships that carried oil, he said.

When commercial enterprises engaged in hazardous activities and were charged more for insurance, “insurers were sending a message about risk,” he said.

In the industrial area, the common risk of boiler and machinery explosions led insurers to insist on inspections. “The idea was to prevent an accident from occurring,” Hartwig said. Insurers of the day – and some like FM Global and Hartford Steam Boiler continue to exist today — “took a very active and early role in prevention and risk management.”

Whenever insurance gets involved in business, the emphasis on safety, loss control and risk mitigation takes on a higher priority, Frappolli said.

“It’s a really good example of how consideration for insurance has driven the nature of what needs to be insured and leads to better and safer habits,” he said.

Workers’ compensation insurance prompted the same response, he said. When workers’ compensation laws were passed in the early 1900s, employee injuries were frequent and costly, especially in factories and for other physical types of work.

Because insurers wanted to reduce losses and employers wanted reduced insurance premiums, safety procedures were introduced.

“Employers knew insurance would cost a lot more if they didn’t do the things necessary to reduce employee injury,” Frappolli said.

Martin J. Frappolli, senior director of knowledge resources, The Institutes

Cyber risk, he said, is another example where insurance companies are helping employers reduce their risk of loss by increasing cyber hygiene.

Cyber risk is immature now, Frappolli said, but it’s similar in some ways to boiler and machinery explosions. “That was once horribly damaging, unpredictable and expensive,” he said. “With prompting from risk management and insurance, people were educated about it and learned how to mitigate that risk.

“Insurance is just one tool in the toolbox. A true risk manager appreciates and cares about mitigating the risk and not just securing a lower insurance rate.

“Someone looking at managing risk for the long term will take a longer view, and as a byproduct, that will lead to lower insurance rates.”

Whenever technology has evolved, Hartwig said, insurance has been instrumental in increasing safety, whether it was when railroads eclipsed sailing ships for commerce, or when trucking and aviation took precedence.

The risks of terrorism and cyber attacks have led insurance companies and brokers to partner with outside companies with expertise in prevention and reduction of potential losses, he said. That knowledge is transmitted to insureds, who are provided insurance coverage that results in financial resources even when the risk management methods fail to prevent a cyber attack.

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This year’s RIMS Conference in Philadelphia shares with risk managers much of the knowledge that has been developed on so many critical exposures. Interestingly enough, the opening reception is at The Franklin Institute, which celebrates some of Ben Franklin’s innovations.

But in-depth sessions on a variety of industry sectors as well as presentations on emerging risks, cyber risk management, risk finance, technology and claims management, as well as other issues of concern help risk managers prepare their organizations to face continuing disruption, and take advantage of successful mitigation techniques.

“This is just the next iteration of the insurance world,” Hartwig said. “The insurance industry constantly reinvents itself. It is always on the cutting edge of insuring new and different risks and that will never change.” &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]