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Hot Topics in Global Ethics & Compliance

2015 - A Record Breaking Year?

February 18, 2015

By Erica Salmon-Byrne

FCPA violation fines reached nearly $1.5B in 2014, a higher total than any other year besides 2010. Current trends suggest that, like the works of Oyzmandias, 2010’s record amount won’t stand for much longer. Regulatory agencies around the globe are increasingly eager to hit offending organizations – and individuals - with big fines and penalties (see, for example, Brazil’s arrest last week of a third former executive of Petrobras. Or the Alstom manager indicted this week in the UK). The two big fines that capped 2014, including the record-breaker against Alstom, exemplify the type of newsworthy enforcement actions that regulatory agencies continue to actively pursue.

To avoid becoming the next SEC or DOJ trophy, companies need to return to fundamental ethics and compliance principles. Organizations with good internal controls and high levels of transparency won’t be punished with exorbitant, headline-worthy fines, even in the event of employee misconduct. In fact, Q4 of 2014 saw Layne Christensen reduce its FCPA penalty by half. Train your people with tailored education initiatives that actually work, monitor their activities, including those of third parties, identify issues and self-disclose; if you follow that path you will minimize the corporate pain associated with employee misconduct.

At this point in the FCPA enforcement trajectory, cooperation seems an obvious best practice, but some organizations still need to embrace the rules. Those that don’t face more risks and larger fines. If you missed it, Mike Volkov’s Batman-inspired blog post helps illustrate that the Avon and Alstom fines were exacerbated by each company’s lack of transparency and disregard for internal controls. Avon’s $135M fine owes greatly to circumvention of internal controls. When the company learned that its Chinese subsidiary had routinely given improper gifts to Chinese officials, its senior management had an opportunity to correct the problem. Instead of curtailing the misconduct, Avon’s leadership concealed the improper gifts by helping Avon China falsify its books. The DOJ case notes seem to denounce this complicity more vigorously than the actual misconduct; they explicitly state that Avon’s proper course should have been “ensuring the practice was halted, disciplining the culpable individuals, and implementing appropriate controls”. In other words, it’s not the crime, it’s the cover-up. Are we really still learning this lesson?

Alstom’s $772M fine, the second-largest FCPA enforcement action ever, reflects the company’s brazen disregard for regulatory authority. Alstom’s massive bribery network warranted a hefty penalty in itself, but the company’s lack of transparency pushed the fine to an astronomical amount. In the press release announcing the settlement, the DOJ clearly bristles at Alstom’s dismissive attitude toward regulation. The release notes that Alstom began fully cooperating only “after the department publically charged several Alstom executives.” Prior to that, the company had failed to voluntary disclose known misconduct, neglected to maintain an effective ethics and compliance program, and generally gave investigators the cold shoulder.

The SEC and DOJ are already gearing up for a busy 2015. The FCPA Professor names 107 companies that have publicly disclosed they are the subjects of ongoing, unresolved FCPA investigations; since private companies have no disclosure obligations, that number is likely much higher. We should see some high-profile settlements in 2015, including possibly in the long-standing Wal-Mart investigation; the amount of credit the company gets for the significant improvements made in their compliance program will be a solid barometer of how seriously the regulators take the notion of a credit-worthy program. In an equally telling piece of news, the Wall Street Journal says the FBI plans to triple its staff of foreign bribery investigators, countering the criticism of many that the government relies too much on cooperating companies to identify corrupt actors. These developments clearly show that regulators are conducting FCPA investigations with increased tenacity, and companies are going to need to adjust accordingly. Prioritizing transparency and sound internal controls in 2015 will help make that adjustment. If that’s not part of your 2015 plan yet, it’s time to revisit the plan. It’s going to be a record-breaking year.