An Examination of Cases and Enforcement Actions
Recently, two American companies came into conflict with the Foreign Corrupt Practices Act (FCPA). The first, Avon Products Inc., began an internal investigation in 2008 regarding possible bribery payments, including travel and entertainment expenses, to officials in China. Now, Avon's investigation is widening to uncover possible payments to officials in Argentina, Brazil, India, Japan, and Mexico from 2004 to 2010. Avon is also performing compliance reviews in various markets. It disclosed the investigation and is cooperating with the SEC and the U.S. Department of Justice (Ellen Byron, "Avon Bribe Investigation Widens," Wall Street Journal, May 5, 2011, pp. B1-B2). The second company, Eindsey Manufacturing Co., was recently convicted in a bribery case for violating the FCPA. Eindsey Manufacturing and two of its executives used Mexican sales agents to pay bribes to officials at the Comisión Federal de Electricidad (CFE), a Mexican state-owned utility from which Eindsey Manufacturing sought business. This conviction marks the "first time a company has been convicted at a U.S. trial in a foreign bribery case" (Samuel Rubenfeld, "Conviction in Foreign Bribery Case Is First in U.S. Trial," Wall Street Journal, May 11, 2011, p. B4). Prior to this, companies either pleaded guilty or signed a deferred prosecution agreement.
These two cases point to the increased attention to enforcement of the FCPA by the Department of Justice and the SEC. leaders from both the accounting and legal professions suggest that some reasons for this increased attention to FCPA enforcement are intolerance of fraud and corruption, the Sarbanes-Oxley Act of 2002 (SOX), and growth into remote areas of the world where bribes are accepted business practices.
This article examines the court cases filed by the Department of Justice against individuals and corporations involving violations of the FCPA from 1998 through 2010. An analysis of these cases provides useful information for the auditors of international clients as well as the management of such organizations.
A Historical Perspective
In the mid-1970s, the SEC performed investigations that resulted in more than 400 American companies admitting to making payments that were illegal, or possibly illegal, to foreign government officials, politicians, and political parties. These payments totaled more than $300 million. The findings from this investigation diminished public confidence in the integrity of American corporations.
These investigations spurred the SEC to pass the FCPA in 1977. It was enacted to put an end to payments being made to bribe foreign officials and to restore public confidence in American businesses. The provisions of the FCPA "make it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person." This antibribery provision applies to both privately held and publicly traded companies. The FCPA also requires companies whose securities are listed in the United States to meet certain accounting provisions, which require corporations covered by the antibribery provisions "to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls" (www.justice.gov/criminal/ fiaud/fcpa/docs/lay-persons-guide.pdf). In 1998, the FCPA was amended by the International Antibribery and Fair Competition Act. The 1998 amendments extended antibribery provisions to also apply to foreign firms and persons who participate in corrupt payments while in the United States.
There are five elements to be met in order for a violation of the FCPA to occur. First, the person making the payment can be either a firm or an individual. Individuals include officers, directors, and employees. …