How Not Adhering to FCPA and Trade Compliance in the Supply Chain Will Hurt You

In 1977, the US Congress enacted the US Foreign Corrupt Practices Act (FCPA) for the purposes of reducing and eliminating instances of bribery between foreign officials and US companies. The FCPA contains specific provisions for anti-bribery and false accounting information. Due to enforcement action by the Securities and Exchange Commission and Department of Justice, the implications for violations of the Act include many civil and criminal penalties against the accused organization. If your business fails to adhere to the FCPA and maintain trade compliance, you could face multiple punishments, including per-violation-based assessment of penalties, and this does take public opinion into account. To help stay within compliance of the FCPA, you need to know a few things about the Act, its possible penalties, and how it affects your responsibility in the global supply chain.

Why Was the Act Created?

Charges of corruption in the global supply chain became evident in the early 1970s, and consumers around the world began to distrust companies, their suppliers, and coordinating agencies. Much of this corruption-identifying efforts stemmed from Watergate. Global corruption deals a devastating blow to federal, state, and local economies as one conglomerate gains a competitive advantage without a valid reason. Unfortunately, this corruption leads to additional criminal activity across international borders, such as the trafficking of weapons, people, drugs, and unsafe products. Ultimately, corruption in the global supply chain is tantamount to extortion and blackmail on a massive scale.

Congress understood the need to ensure the validity and ethics business practices in all companies with whom US-based companies do business. Furthermore, foreign companies needed to be monitored to ensure bribes were not being given to US politicians in exchange for power in the House or Senate. Additionally, the implications of the FCPA include transactions between foreign companies and the political parties of third-party countries.

In 1988, Congress made minimal changes to the FCPA to add a local law defense and a defense for reasonable, promotional expenses. However, these changes were not implied to allow violations of the FCPA’s rules.

What Happens When a Violation Occurs?

Across the SEC and DOJ, monitoring and auditing programs exist to ensure compliance with FCPA rules and regulations. The DOJ is charged with the monitoring of all domestic concerns with the law, US businesses, and third-party intermediaries or agencies between businesses and political entities. The investigations of a violation are the joint-effort of the DOJ’s Fraud Section of the Criminal Division, the FBI, Department of Homeland Security, Internal Revenue Service-Criminal Investigation, and US Attorneys’ Offices. If criminal penalties are assessed, the appropriate punishment is handled by the appropriate jurisdiction and law enforcement officers.

Criminal Penalties for Violations of the FCPA and Trade Compliance

Criminal penalties depending on the nature and scope of the violating-transaction. FCPA anti-bribery penalties may include prison sentences of five to 20 years, revocation of ability to export products to the US, and disbarment from legitimate trade practices. Furthermore, criminal fines may be assessed of up to $1 million: $250,000 per violation or double the transactions amount, whichever is greater. Effectively, these criminal punishments can severely harm a company’s ability to maintain operations and survive.

Civil Penalties for Violations of FCPA Rules and Regulations

Civil penalties, most commonly assessed by the SEC, are defined as an assessment of restitution due for failing to abide by FCPA trade practice requirements. These penalties may include stringent fines of up to $100,000 per individual, $2 million per company, and additional penalties under other portions of the FCPA. Furthermore, inclusion on the Denied Parties List and loss of export privileges are considered civil penalties as well, depending on the enforcing agency who assesses the penalty, the DOJ or SEC.

An Example of Assessed Penalties

Recently, Hitachi, Ltd. of Tokyo felt the sting of penalties and punishment for violating the FCPA. Hitachi was ordered to pay $19 million, a combination of penalties on a cumulative transaction-based bribery and corruption charge, to the SEC. Some businesses may have difficulty understanding how these charges and accusations led to such penalties as both parties were outside of US jurisdiction. To investigate the full scope of the bribery, the SEC’s enforcement division parted with anti-corruption agencies of respective countries. As a result, more businesses should understand how operating outside of the US fails to equal exclusion of FCPA practices.

What Is Your Responsibility?

As a business owner, franchisee, manager, or other party in the global supply chain, you have a duty to ensure compliance with FCPA regulations. According to David Garner, Director of Global Trade Compliance for Flash Global, “FCPA programs are an essential requirement for any company that conducts global business. Many companies have very strong FCPA laws and regulatory requirements. […] Regardless of a company being publically traded or privately held, an FCPA violation can be costly and in some cases, detrimental to the business.”

Fortunately, selecting a qualified, experienced partner, such as Flash Global, in dealing with, maintaining, and monitoring FCPA compliance is key to ensuring the success of your business in the global supply chain.


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