The Legal Intelligencer Blog

Creating an Effective FCPA/UKBA Compliance Program

By David A. Anderson
Special to the Legal

Last month I discussed the potential risks that a company faces under the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) and the U.K. Bribery Act of 2010 (UKBA) when conducting business in foreign countries. This month, I'll present the key components of an effective FCPA/UKBA compliance program.

There are seven key components to an effective FCPA/UKBA compliance program. They are the following:

1) Establish standards and procedures to prevent and detect criminal conduct and ensure compliance with government regulations and industry standards.

2) Create a culture of compliance led by the company's senior management. This means that senior management must:

- Be knowledgeable about the content and operation of the compliance program;
- Exercise reasonable oversight of the implementation and ongoing review of the effectiveness of the compliance program;
- Assign specific senior level manager(s) overall and day-to-day operational responsibility for the program; and
- Provide the necessary authority and resources to enable successful implementation and ongoing review of the program.

3) Use reasonable efforts to exclude known violators from activities that could lead to program violations. This also requires that the company exercise due diligence in the screening of current and prospective employees for past illegal or improper conduct.

4) Provide reasonable ongoing communication and training to senior management, employees and third-party agents regarding the standards and procedures of the compliance program.

5) Monitor, audit and evaluate the effectiveness of the compliance program on a regular basis. Included within this component are:

- The establishment of a monitoring/auditing program to verify that the compliance program is being followed, which will necessitate the use of internal audit staff or external forensic auditors;
- Evaluation of the effectiveness of the compliance program at regular intervals, including analysis of monitoring/auditing results as well as use of feedback from senior management, employees, third-party agents and others; and
- The use of hotlines to enable employees, third-party agents and others to anonymously or confidentially report or seek guidance about potential criminal conduct without fear of retaliation. 

6) Establish of appropriate performance incentives and disciplinary measures that are promoted and enforced consistently within the company to support the compliance program.

7) Establish appropriate response to detected criminal conduct, and subsequent reassessment of the compliance program to reduce the risk of the same conduct occurring again. This requires that the company take the appropriate steps to report detected criminal conduct and cooperate with law enforcement. In addition, the company must take reasonable steps to modify, if necessary, its compliance program to prevent similar conduct in the future.

Of course, no program can prevent rogue employees or agents from violating the FCPA or UKBA, but a well-designed and implemented compliance program -- with effective communication and training as well as regular monitoring and evaluation -- can minimize the risk of a company and/or its employees violating the FCPA or UKBA. In addition, the existence of such a program can mitigate punishment of the company in event of violation of either statute.

David A. Anderson, CPA, CFE, is a director in the Valuation & Forensic Services Group of Citrin Cooperman, an accounting, tax and business-consulting firm in Philadelphia. He has more than 30 years combined experience in public accounting and consulting as well as service at the CFO and COO level in private and public companies. Anderson specializes in business valuations, insolvency and reorganization, and litigation support including commercial and matrimonial litigation. He can be reached at [email protected] or 215-545-4800.

Are Your Clients at Risk Under the Foreign Corrupt Practices Act or the U.K. Bribery Act?

By David A. Anderson
Special to the Legal

If any of your clients conduct or plan to conduct business in any foreign country, then you should read this blog.

The U.S. Foreign Corrupt Practices Act of 1977 (FCPA) makes it a crime for a business or any of its officers, directors, employees, agents or shareholders to bribe a foreign official, foreign political party or candidate for political office, for the purpose of influencing a foreign official in order to obtain or retain business.

The U.K. Bribery Act of 2010 (UKBA), which is due to take effect on July 1 and has been described as "the FCPA on steroids," takes this further by giving the U.K. jurisdiction over any commercial organization that conducts operations in the U.K., regardless of where the bribe is paid.

This means, for example, that if an agent of a U.S. company with operations in multiple countries, including at least one U.K. country, pays a bribe to a foreign official in any of those countries (U.K. or not), the U.S. company could be convicted under the UKBA. The UKBA also prohibits facilitation payments and certain entertainment and promotional expenditures permitted under the FCPA.

Recently, the Securities & Exchange Commission, U.S. Justice Department and FBI have aggressively investigated and prosecuted companies for FCPA violations. In 2010, the top eight FCPA settlements (with either the SEC or DOJ) totaled more than $1.5 billion. As of December 2010, the U.S. Justice Department had about 150 ongoing investigations and prosecutions.

Both the SEC and DOJ have also been focusing on prosecuting individuals, including company management, in addition to the financial settlements. In one recent case, the SEC brought claims against both the CEO and the CFO of a large nutritional/personal care products company for failing to adequately supervise the miscreant employees of a foreign subsidiary. The U.K. Justice Ministry, instead of providing specific written guidance regarding the key provisions of the UKBA and the applicability of the UKBA to non-U.K. companies, has decided to let the U.K. courts decide these issues.

All of this means that a company currently conducting or planning to conduct business in any foreign country could face a significant financial risk and a risk of prosecution of its management under either the FCPA or UKBA.

So, how does a company minimize this risk? The answer is to put in place an effective and robust FCPA/UKBA compliance program and to actively audit and/or monitor compliance, especially in high-risk locations. Having such a program will minimize the risk of violating the FCPA and UKBA and is the only acceptable mitigating factor to reducing the size of financial settlements and penalties if a company is convicted of violating either statute. Forensic accountants can assist you in this role.

In the next edition of this blog, I'll address the key components of an effective FCPA/UKBA compliance program. Stay tuned.

David A. Anderson, CPA, CFE, is a director in the Valuation & Forensic Services Group of Citrin Cooperman, an accounting, tax and business-consulting firm in Philadelphia. He has more than 30 years combined experience in public accounting and consulting as well as service at the CFO and COO level in private and public companies. Anderson specializes in business valuations, insolvency and reorganization, and litigation support including commercial and matrimonial litigation. He can be reached at [email protected] or 215-545-4800.

When Supreme Courts Collide

By Joshua D. Wolson
Special to the Legal

In the international realm, contractual arbitration is supposed to provide parties a modicum of certainty. They know the forum in which disputes will be heard and the procedural rules that will control. When coupled with a choice of law clause, an agreement to arbitrate should make clear the rules of the road for any future disputes. However, a recent decision from the U.S. District Court for the District of Columbia shows just how shaky that assumption might be. 

The case, filed by International Trading and Industrial Investment Company against DynCorp Aerospace, involves a petition to enforce an arbitration award. The arbitration took place in Paris before the International Chamber of Commerce and was decided under Qatari law, and the arbitrator issued an award in favor of International Trading. DynCorp challenged the award, and the Qatari Court of Cassation -- Qatar’s court of last resort -- held that the arbitrator exceeded his power and erred as a matter of Qatari law. 

Therefore, under Qatari law, the ICC’s award was not enforceable. Nonetheless, International Trading filed a petition in federal court in Washington, D.C., to enforce the ICC’s award, and the district court held that the ICC’s award should be enforced under U.S. law. In short, the court held that the Federal Arbitration Act and the Convention on Recognition and Enforcement of Foreign Arbitral Awards set forth exclusive bases for refusing to enforce an arbitrator’s award, and the Qatari court’s decision did not fall into one of those categories. 

If it stands, the district court’s decision demonstrates an inherent uncertainty to international arbitration and might encourage forum shopping in efforts to enforce an award. Although the initial arbitral process might be relatively certain, enforcement of an arbitral award is left to the vagaries of local courts.

The possibility of conflicting decisions raises significant hurdles. For example, if International Trading enforces its judgment, obtains assets from DynCorp in the United States and repatriates them to Qatar, could DynCorp then sue International Trading in Qatar, arguing that International Trading has no right to the assets under Qatari law? Superficially, it seems unlikely that a Qatari court could undo what has been done here. But that same Qatari court might think that the district court here did just that -- undo a Qatari judicial decision.

Similarly, what happens if a court in a third country is called on to resolve this conflict? For example, what if a decision orders specific performance, replevin, or some other non-pecuniary remedy that has to take place in Germany? If a court in Qatar holds the decision unenforceable but an American court holds it enforceable, what is a German court to do?  Should it resolve the dispute between the national courts of two countries? If so, how? And, does the outcome depend on what country’s courts must resolve the dispute? If so, more forum shopping. 

There do not seem to be easy answers to these questions -- a product of the international system in which these arbitrations take place.  Justice Robert Jackson famously said of the Supreme Court, “We're not last because we're right, we're right because we're last.” As the district court’s decision makes clear, though, one problem with international arbitration is that it is not clear who is last, and therefore it may not be clear who is right, either. 

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson.  He can be reached at 215-575-7295 or [email protected].