David M. Katz is deputy editor of CFO.com, where this article originally appeared in somewhat different form.
New federal sentencing guidelines approved last November 1 for bribery offenses also give corporations a way out. Or, as the U.S. Sentencing Commission puts it: “Establishing an effective compliance and ethics program is essential for an organization seeking to mitigate its punishment.”
When the government considers filing a case under the Foreign Corrupt Practices Act, “the compliance department is a measure of management’s effort to prevent violations,” according to Charles Grice, director of anti-money-laundering and financial services at New York-based Kroll Inc. “If it’s weak, it looks as if it was intentionally created that way.”
The new guidelines require companies to identify how vulnerable they are to internal crime, to train staffers, and to provide company compliance officers with sufficient resources. The board of directors is responsible for oversight and management of the company’s compliance and ethics programs.
Because of the guidelines, says Warren Malmquist, director of audit services at Coors Brewing Co., senior managers and boards are beefing up compliance with the antibribery laws. At Coors, that means increased reporting to the audit committee. Previously, internal auditors would report to the committee only if they discovered compliance violations. Now, says Malmquist, they must also report in detail on the effectiveness of compliance programs.
Among the potential problem areas for companies: signing bonuses for foreign government officials. In considering the legitimacy of such bonuses, standard in the oil industry, for example, “you need to look at the facts and circumstances,” says Peter Sprung, director of litigation and fraud-investigation services at BDO Seidman LLP in New York. “If the government official is telling you to pay it into a personal bank account offshore, you should be scratching your head.”
Be on the lookout, too, for large travel and entertainment expenses booked by foreign employees. Sprung notes that special attention should be paid if the payments are going into offshore accounts and take “more than a couple of sentences to explain.”
Antibribery compliance programs also should track company payments to third-party agents or consultants. “Are you in a country where there’s a $10,000 [annual] per capita income and you’re paying $500,000 to agents? That raises red flags,” says Paul Berger, associate director of enforcement at the Securities and Exchange Commission. “That’s the kind of circumstantial evidence we look for. What payments were made, to whom, and to what purpose?” —D.M.K.