FCPA - Foreign Corrupt Practices Act
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In 1998 the United States Congress and 33 other countries acted against the bribery of foreign officials, essentially government officials in an attempt to reduce corruption and money laundering through the global financial system. Corrupt political officials and those in high army office were targeted with a view to preventing government officials from exploiting their positions to gain unfair commercial advantage. The FCPA has and will continue to have a profound impact on the way US firms undertake business in at home and abroad.
Financial institutions are the most impacted group under the legislation as they are required to meet stringent requirements relating to the use of the global financial system by criminals. Essentially financial institutions must show that they have robust controls in place to understand their customers. Due diligence of both customer and transaction is a requirement of the Act and particular care must be taken with Politically Exposed Persons (PEPs). Financial firms must be comfortable with the clients they are dealing with, but beyond that they must be in a position to prove to regulators that they have undertaken the necessary level of due diligence and care when transacting business on behalf of customers.
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The detail within the FCPA is such that it is an offence for a US person, entity and certain applicable foreign entities (mainly issuers of securities on a US exchange) to make bribes or offer any inducement for the purpose of obtaining or retaining business with a US firm. The Act extends to anyone transacting business while in the USA.
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The purpose of the FCPA is to crackdown on the bribery of foreign officials – official statistics show that 400 American firms have collectively paid $300 million in bribes and other questionable payments to foreign governments, political parties and also directly to the accounts of government officials.
Any breach of the FCPA is taken as a serious offence. The penalties for breaking the Act extend to being barred from tendering for US government contracts, large fines in some cases criminal convictions for prosecuted company executives. Some of these convictions have resulted in jail time for the guilty.
The Act is not merely restricted to the United States, although their signatory clearly adds weight. USA is a joint signatory along with 33 other OECD member governments in the application of FCPA. Substantial fines for the lack of effective controls to prevent the bribing of overseas officials have been levied in several signatory countries including the UK.
Financial firms need to ensure they operate effective controls – often referred to as a solid Know Your Customer regime to understand their customers and particularly Politically Exposed Persons. It is clear that the law requires firms to understand the details of the management structure, group ownership and financial dealings of the firms they do business with in order to ensure that they have no dealings with criminals or their money.
The Foreign Corrupt Practices Act complements other legislation in this area such as the USA Sarbanes Oxley Act which also requires firms to operate effective systems of control and come clean about instances of fraud. For the Risk Management and Compliance functions of financial firms there is no getting away from these pieces of legislation indeed compliance with one assists the other.
Prevention is better than cure.
Effective controls to ensure adherence to the Act (and more importantly to prevent your institution from doing business with criminals) would include:
- Due diligence on customers and the business they undertake. Does your organisation understand the nature its customers the financial transactions they effect.
- Conducting Senior Management meetings where the risks of bribery and corruption are reviewed, discussed and minuted.
- Staff Training
- Independent Monitoring
Ensuring the above is in place is the role of any professional compliance function, particularly for businesses with operations in emerging markets.
Given the stakes for firms in the post FCPA and Sarbanes Oxley environment, the risks of non-compliance are too great to ignore. www.FCPA.us gives you access to the largest database of PEPs as provided by www.world-check.com which will assist with your efforts to comply with both the spirit and letter of the law. World-check.com products are an essential tool in both the fight against crime and also in demonstrating compliance with these regulatory requirements. They offer guidance, expertise, and database solutions to help you effectively mitigate these risks within your organisation.
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