American buyers beware! Beware of foreign or US clients that have significant foreign operations. Be mindful of the Foreign Corrupt Practices Act. Better known as the FCPA. The Department of Justice alongside with the Securities Exchange Commission (SEC) in 2002, significantly began enforcing the FCPA very aggressively. The FCPA lay dormant since its inception in 1977. The intention of the Act is to prevent the bribery of foreign officials. It strictly prohibits and punishes the explicit actions of giving any official of a foreign country anything of inherit value. Especially if the giver’s intentions were to influence the placing and retaining of a business.
FCPA requires all companies to maintain accurate controls with their bookkeeping and records of all dealings with foreign countries and to adhere to FCPA’s regulations by creating internal controls designed to detect and stop any illicit payments. Any violations of these regulations will be punishable with a very exacting civil penalty or criminal penalty, maybe even both. Plus, there will be a greater penalty for a company who is dependent of the US government awarding contracts and they will forever become ineligible to enter into them.
It’s important to recognize the warning signs or the red flags of a potential FCPA violation. A company now needs to have due-diligence and know how to negotiate tactics to lessen the risks of doing business globally. A good example of this is a client of a company is operating in a country that lacks in compliance to FCPA regulations or that only recently has passed a comparable statute, or this client operates in a country that is known for its corrupt practices, or the client once ran afoul of the FCPA in the past and has corrected their issues, but poorly due to the misconduct of an employee and the employee is still employed. These are all red flags.
Other warning signs, which have nothing to do with the FCPA, would be the absence of a code of ethics, a reluctance to work with due diligence or a refusal to comply with future statutes. It is of extreme importance that all US companies dealing internationally understand and implement all FCPA regulations or the consequences will be grave, starting with the directors all the way down to the individual employees.
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