The High Cost of an FCPA Violation

Violations of the Foreign Corrupt Practices Act (“FCPA”) can lead to hefty penalties. Indeed, individuals who violate the FCPA, and their employers, could be on the hook for a variety of penalties described below. Companies need to be aware of these potential consequences in order to appropriately perform risk-based analyses and determine what level of compliance program to utilize. The FCPA’s penalties make it clear that manufacturers conducting international business cannot afford to ignore FCPA compliance.

For example, earlier this year, BHP Billiton paid $25 million to settle alleged FCPA violations based on improper payments to foreign officials totaling, at most, a few hundred thousand dollars. Specifically, BHP provided a number of foreign officials with trips to the 2008 Summer Olympics. BHP, however, failed to identify or address the increased risk of FCPA violations presented by offering these trips. That failure to identify and address the higher risk substantially augmented BHP’s exposure. Put simply, failing to employ safeguards against FCPA violations severely increases the penalties associated with an FCPA violation.

Within certain ranges, FCPA penalties are based on the federal sentencing guidelines. Under that system, each offense carries a base level, which is adjusted depending on mitigating and aggravating factors.

Businesses

For businesses, upward and downward adjustments to the sentencing guidelines are based on specific offense characteristics, such as the number and amount of bribes and the level of the official bribed and organizational characteristics, such as size, prior misconduct, level at which the violation occurred, and cooperation with investigators.

• Criminal Penalties – Enforced by the Department of Justice
  • Up to a $2,000,000 fine per violation of anti-bribery provisions; and
  • Up to a $25,000,000 fine per violation of the accounting provisions.
• Civil Penalties – Enforced by the Securities and Exchange Commission
  • $16,000 fine per violation of anti-bribery provisions; and
  • $75,000 to $725,000 fine per violation of the accounting provisions.

Courts may even increase those fines. Specifically, under the Alternative Fines Act, companies may be liable for twice the benefit received. Imagine a company that obtained a $500 million contract, but an FCPA violation occurred in the process of obtaining the contract. Theoretically, a court could impose a $1 billion penalty on the company.

Individuals

Individuals, ranging from low-level employees to top management, who violate the FPCA are also subject to fines and even imprisonment.

• Criminal Penalties – Enforced by the Department of Justice
  • Up to a $250,000 fine and five years in prison per violation of the anti-bribery provisions; and
  • Up to a $5,000,000 fine and twenty years in prison per violation of the accounting provisions.
• Civil Penalties – Enforced by the Securities and Exchange Commission
  • $16,000 per violation of anti-bribery provisions; and
  • $7,500 to $150,000 per violation of the accounting provisions.

FCPA enforcement against individuals has been on the rise in recent years. However, individuals cannot count on their employers to bail them out, i.e., to pay the penalties imposed on the individuals. This is so because employers may not pay FCPA penalties imposed on individuals. In other words, individuals should be prepared to face individual criminal and/or civil liability for any violations of the FCPA.

Other Consequences

In addition to the above-described penalties, companies and individuals may suffer additional “collateral consequences,” such as the following.

• Debarment. Companies or individuals found to have violated the FCPA may be barred from conducting business with the federal government. (This is not a way to avoid paying federal income taxes.) Multilateral development banks may also stop conducting business with FCPA violators.
• Loss of export privileges. FCPA violators may be prohibited from conducting further international business.

The foregoing does not include the sizeable amounts companies spend in legal fees to investigate and/or defend itself against FCPA allegations. Benjamin Franklin’s quote, “An ounce of prevention is worth a pound of cure,” certainly fits in the realm of the FCPA.

To better understand the FCPA and how to avoid violations, check out what the FCPA prohibits and potential defenses. Also, look forward to the final post in our FCPA series, which provide some best practices in dealing with two of the FCPA’s most common and difficult issues—third parties and travel, meals, and entertainment.