The Hydra-Headed Monster of International Business

Allegations of bribery and corruption are a deadly threat to any company regardless of size, and knowing the reach of the law and how it can affect your business is a must. Unfortunately, the Foreign Corrupt Practices Act (FCPA) is not on the radar of many companies who do business overseas, and the authorities can relentlessly prosecuting at even the slightest hint of violation. Simply having a formal policy will not protect CEOs and business owners from prosecution or absolve them of their employees’ actions. Companies must take the FCPA serious and company leaders must actively involve themselves in complying with the law.

Bruce Alan Johnson is the foremost expert when it comes to spotting FCPA violations and when recently asked, he said that FCPA is especially tricky, for two reasons. First (as if this is going to surprise you), lawyers have leapt forward to claim the territory and convince companies that they need to hire them for FCPA protection. This is like hiring an arsonist to teach you fire safety. With very few exceptions, lawyers have little experience in the international arena, and they usually do not have the required first-hand experience to understand how foreign business operations lead to FCPA violations.

Just as it takes a very skilled diagnostician to find a small tumor, it takes someone who has decades of on-the-ground experience in the international arena to know what to look for in terms of FCPA violations or how to even spot the yellow flags when present. Mr. Johnson calls FCPA a “hydra-headed monster,” and most lawyers do not know how to spot a phony invoice or a ‘referred’ consulting fee—or a quiet relationship between the CEO’s driver and the daughter of the Minister of Defense (a red flag if there ever was one).

The second reason that the FCPA violations can seek up on companies is because most companies are thoroughly self-deluded when it comes to compliance. When speaking of FCPA compliance the most common responses Mr. Johnson hears from a CEO is “Our VP of international business assures me we’re compliant…” or “Our general counsel says we’re covered…”  I’m sure Mr. Johnson would love telling them how many CEOs have gone to prison in the past 24 months or had their companies fined into insolvency after making those statements!

Let’s add one more common response from CEOs: “Oh, we’re fine—we’ve got a compliance policy, and we’ve made every employee sign it.” Just ask the Department of Justice and the SEC about that line! A case in point is the recent indictment of ITT (once the world’s largest conglomerate) who were fined for numerous FCPA violations. The comments from the SEC during prosecution included, “ITT has one of the finest, most comprehensive FCPA compliance policies we have ever seen.” I’m sure it was a wonderful ‘policy’ that lawyers and HR professionals put together, but it did not save the company from FCPA prosecution.

Just as none of us are qualified to diagnose our own bodily crises, most executives from inside a company are not equipped to diagnose their own FCPA compliance issues.

The only way for a company today to know if it is complying thoroughly with the FCPA is to have a seasoned expert with carte blanche authority from the CEO or board to examine, roam through, and probe everything from supply chains to billings. That may not seem easy to swallow, but neither is prison or a hundred-million-dollar fine, not to mention the destroyed reputations that are now crippling companies like Eli Lily, Pfizer, Avon, and Smith & Wesson. Just ask those companies how they feel for deciding that everything was “just fine…”