A record year for penalties under the U.S. Foreign Corrupt Practices Act highlight a zero-tolerance approach to bribery and corruption risk. How can compliance teams close the due diligence gap to ensure they avoid financial and reputational damage?
- Enforcement action under the Foreign Corrupt Practices Act saw companies receive penalties totalling a record US$2.9 billion in 2019.
- Compliance teams must re-examine strategies that may inadvertently allow bribery and corruption risk to flourish within vast, often global networks and supply chains.
- Where heightened risk is suspected, enhanced due diligence can deliver detailed and targeted information on any entity or individual anywhere in the world.
Rooting out bribery and corruption risk remains a critical focus area for many organizations — and for good reason. Enforcement action under the U.S. Foreign Corrupt Practices Act (FCPA) continues to become more rigorous, and the magnitude of fines is rising every year.
Financial consequences aside, companies could face devastating reputational damage and may experience pronounced negative share price movements if an investigation is announced.
Other potential consequences include the withdrawal of lines of credit and a significant drop in staff morale, which can be difficult — if not impossible — to reverse.
Moreover, the risk of personal liability for directors and employees in key roles continues to rise.
Compliance gaps persist
Even though rooting out bribery and corruption risk is now seen as critical, a 2019 Refinitiv Report showed that 72 percent of organizations had been aware of financial crime in their global operations during the year preceding the survey.
Our research looked at how emerging technologies and new collaborations are helping to turn the tide against financial crime — the broad definition of which includes bribery and corruption.
Moreover, it discovered that 51 percent of external relationships had not had an initial formal due diligence check at the time of onboarding.
This was despite the fact that due diligence is regarded as an essential tool to protect against financial crime, by empowering compliance teams to pinpoint potential bribery and corruption risk early in the game.
Gaps such as these leave critical opportunities for financial criminals to perpetuate offences, and allow crimes such as bribery and corruption to continue undetected.
A record year for FCPA fines
Law enforcement bodies are increasingly adopting a zero-tolerance stance towards bribery and corruption, with ever-more-stringent action and hefty fines frequently appearing in global headlines.
The FCPA generated a record year for fines in 2019.
In terms of corporate enforcement, the FCPA blog reports that “units at the Department of Justice and SEC were hyperactive in 2019,” going on to say that more than a dozen companies were prosecuted over the course of the year and that penalties of US$2.9 billion were handed out.
Enforcement action did not end there. Over 30 individuals were also subject to “some type of FCPA criminal enforcement activity in 2019.”
And a new record was set with 2020 just a month old when “Airbus SE paid $4 billion (€3.6 billion) to settle global bribery and trade charges with French, UK, and U.S. authorities.”
As a further indication of the steady onward march of enforcement efforts, the top three FCPA fines of all time have been imposed in the last couple of years:
- Airbus SE (Netherlands/France): $2.09 billion in 2020
- Petroleo Brasileiro S.A. – Petrobras (Brazil): $1.78 billion in 2018
- Telefonaktiebolaget LM Ericsson (Sweden): $1.06 billion in 2019
Mitigate your bribery and corruption risk
In the face of fines and enforcement activity such as this, compliance teams need to relook at existing strategies that may inadvertently allow bribery and corruption to flourish within vast, often global networks and supply chains.
Considering that 96 percent of FCPA-related investigations from 2005 to 2016 involved third-parties, this is an area that organizations should focus on immediately.
Third-parties include suppliers, vendors and distributors, but due diligence investigations should extend to any new ventures or relationships, including the subsidiaries of such parties.
In line with the risk-based approach, these due diligence efforts should focus on areas of medium and high risk.
Where heightened risk is suspected, enhanced due diligence (EDD) can deliver detailed and targeted information on any entity or individual anywhere in the world. Being able to access this critical intelligence empowers organizations to make informed decisions.
Closing the due diligence gap
At Refinitiv, we only use ethical and non-intrusive research methods when preparing EDD reports. Subjects are not made aware of investigations, and we never misrepresent our activities.
We are able to conduct EDD across the globe, enhancing our findings with local, on-the-ground knowledge. We have trusted human expertise in all major markets, allowing us to understand regional nuances and details and augment our research accordingly.
As FCPA related and other regulatory scrutiny continues to grow, tackling financial crime, including bribery and corruption, can protect your organization from a host of financial and reputational risks.
By closing the due diligence gap and undertaking detailed reviews of new and existing customers and third-parties, compliance teams can pinpoint and mitigate bribery and corruption risk, comply with regulatory requirements, and make better decisions.