Coming Clean about Bribery

Because of their need to comply with Sarbox internal-controls rules, companies are spotting and reporting more violations of the Foreign Corrupt Practices Act.

Spurred by the Sarbanes-Oxley Act and the increasing likelihood of being caught bribing foreign officials, managers at increasing numbers of U.S. companies are voluntarily disclosing breaches of the Foreign Corrupt Practices Act, a Department of Justice official says.

Since the beginning of March, the Department of Justice has received 11 voluntary disclosures of either clear or potential violations of the Foreign Corrupt Practices Act (FCPA). The law bars people working at publicly traded companies from bribing foreign government officials or taking bribes from them.

The handful of companies that have recently stepped forward amounts to a “boom” in deliberate disclosures, according to Mark Mendelsohn, deputy chief of DOJ’s Fraud Section.

Sarbox is a prime mover behind the disclosure surge, he said at a confab about FCPA held last week in New York by the American Conference Institute. Most of the voluntary bribery disclosures mention inadequate internal controls, for example—an issue under Section 404 of the act.

To be sure, the FCPA’s own internal control requirements, pre-date those of Sarbox 404 by five years. Because of their need to comply with the controls rules and other Sarbox recordkeeping requirements, however, companies are spotting and reporting more violations, Bruce Karpati, an assistant regional director at the Securities and Exchange Commission, said during the conference.

Voluntary disclosures aren’t required by law, nor are they standard business practice. Instead, they’re usually made on a one-off basis depending on business, legal, and reputational-risk considerations, Martin Weinstein, an attorney with Willkie, Farr, and Gallagher LLP, told attendees.

Other than the effect of Sarbox, the motivation behind the disclosures is unclear. After all, as Weinstein notes, the disclosures don’t seem to provide assurance that penalties will be reduced. What they may be offering is a way of lowering the probability that a company will get caught by government investigators, receive harsher handling, and have its name dragged through the mud.

Indeed, the likelihood of being nabbed for bribery is on the rise. Mendelsohn says there’s a new vigilance at DOJ in terms of identifying and prosecuting FCPA violators. Citing nine FCPA charges—both corporate and individual—that have been resolved since 2004, and the DOJ’s public commitment to fight bribery more vigorously, he notes that prosecutors will be homing in on FCPA violators.

Overall, the DOJ is likely to hike the number of individuals it will prosecute under FCPA in the coming year, rather than focusing so heavily on corporations, according to Mendelsohn. He refused to elaborate on the number of prosecutions in the pipeline or why more people would be targeted. The DOJ official noted, however, that the department is ramping up hiring efforts to boost the number of attorneys specializing in FCPA issues.

When it comes to DOJ, executives should especially heed two FCPA-related events that could affect cases going forward. One, a March 23 arrest, marked the first time that Justice used the act’s nationality-jurisdiction provision to charge an individual. Added to the law in 1998, 21 years after its enactment, the amendment enables DOJ to charge U.S. citizens with bribery even though the crime wasn’t committed on U.S. soil or in a U.S. jurisdiction.


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