NEW YORK, July 27, 2009 (GLOBE NEWSWIRE) -- According to a new report released today by PricewaterhouseCoopers LLP (PwC), Foreign Corrupt Practices Act (FCPA) investigations and enforcement actions spiked over the last several years while investigation backlogs piled up and criminal prosecutions led to executives serving prison sentences. At the end of 2008 there were approximately 100 companies involved in open FCPA investigations. Over the 2002-2008 period, FCPA proceedings brought against individuals averaged six per year, compared with 14 per year over the 2006-2008 period. So far during the first half of 2009, 19 enforcement reforms have been initiated. PwC's report, "Corruption crackdown: How the FCPA is changing the way the world does business" outlines the major developments affecting this new anticorruption era.
"Companies must learn to change their behaviors in order to adapt to greater compliance and reputational risks," said Manny A. Alas, PricewaterhouseCoopers' Advisory partner and co-leader of the firm's FCPA practice. "Business leaders and board members must be aware that the level at which their companies prepare for geopolitical risk and anticorruption compliance could make or break the viability of doing business in a desired region."
The PwC report notes that an aspiration exists among most developed nations to establish a level playing field for business competitors regardless of their home country. Although there is greater recognition by governments that corruption of any type is a destabilizing factor within the international community, some countries still lag and send mixed messages with inadequate records on antibribery legislation, policing and investigative rigor.
According to the report, the following FCPA trends are likely to intensify in the near future:
* The number of FCPA cases and severity of penalties will likely continue to increase as the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) work through a backlog that is now an estimated combined 120 cases. The year 2008 saw its first billion-dollar settlement, with a global company agreeing to pay over $1.6 billion in penalties to several governments. * FCPA compliance will become a top corporate governance issue leading to more rigorous FCPA compliance and self-monitoring programs. The onus -- and the expense -- will continue to be placed upon companies to dedicate the necessary resources to anticorruption initiatives, including due diligence, during mergers and acquisitions. * International harmonization of antifraud and anticorruption regulation will lead to more parallel investigations, with the likely consequence of increased penalties. * FCPA investigations will likely continue to trigger other actions such as shareholder litigation, tax investigations and money-laundering probes.
The number of FCPA-related prosecutions has risen in lockstep with an increase in voluntary disclosures, according to the report. Over half of FCPA investigations from 2005 to 2008 and roughly half of the open cases in 2008 resulted from voluntary disclosures. "Companies should be alert to voluntary disclosures in their industries and to disclosures by companies engaged in similar activities in other countries," said Alas. "A single voluntary disclosure can flag corrupt practices that are prevalent in an industry, business process or region."
Disgorgement of profits in FCPA settlements has risen dramatically, another example of heightened stringency carried out by regulators. In the 2004-2008 period, disgorgement of profits totaled roughly $480 million, with $376 million in 2008 alone. Investigations have clustered around industries, countries or common suppliers and activities according to PwC's findings. In 2007 and 2008, for example, eight companies and eight individuals from the energy sector were named in FCPA proceedings, resulting in a total of $64.2 million in criminal penalties and $81.2 million in total penalties, including disgorged profits. In the 2002-2008 period, 25 enforcement actions involving telecommunications companies totaled $1.6 billion in FCPA-related settlements and penalties.
The report points to a confluence of factors that has led to the rise in the number of U.S.-led FCPA investigations as well as anticorruption enforcement initiatives globally, particularly in countries where bribery has been both rampant and a standard business practice. The dual forces of increased global penetration of U.S. companies into such markets as China, India, Brazil and Russia along with the USA PATRIOT Act of 2001 and the Sarbanes-Oxley Act of 2002 ushered in an era of heightened regulatory standards. Additionally, federal sentencing guidelines require companies to implement, update, communicate and monitor clear and concise compliance standards.
The World Economic Forum has waged an anticorruption campaign. Its Partnering Against Corruption Initiative (PACI), a global anticorruption initiative comprising private companies, was instituted in 2004 and now has 140 signatory companies with total annual revenues of over $800 billion.
Despite the gathering momentum of anticorruption campaigns, PwC suggests there still exists a gap between company executives' acknowledgment of the need for anticorruption programs and the strength and/or confidence in those programs. A 2008 PricewaterhouseCoopers survey of 390 senior executives globally found that while 80 percent said their companies had such a program in place, just 22 percent were confident of the program's efficacy.
The study also points to the importance of the FCPA when conducting mergers and acquisitions. Increasingly, FCPA compliance is becoming an integral element of pre-deal M&A due diligence. "Searching and evaluating for potential FCPA-related red flags is crucial to cross-border deals," said Alas.
The PwC report suggests that companies focus on the following areas when implementing a strong, effective anticorruption program:
* Instill an anticorruption culture throughout all levels of the company. * Devote more resources to pre-acquisition due diligence and install post deal measures. * Monitor FCPA compliance program regulations. * Know whom you're dealing with. * Have a system in place to identify questionable or unusual payments. * Test your program effectiveness. * Know when and how to self-disclose.
"This new era of corruption crackdown will continue to reveal the stubbornly entrenched and endemic nature of corruption -- that it does not discriminate based on company size and is blind to borders," added Alas. "While it's hard to generalize, there is undoubtedly more focus on FCPA compliance. Nevertheless, it is essential to note that a compliance program is only as good as the sustained discipline with which it is monitored and enforced. Considering the negative effects of the current economic conditions and related pressure to reduce corporate budgets, anti-corruption compliance programs should maintain their funding. An ounce of prevention is worth a pound of cure."
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