SOURCE: LockPath, Inc.

LockPath

May 14, 2015 00:00 ET

Why FCPA Will Be the Biggest Compliance Topic of 2015

OVERLAND PARK, KS--(Marketwired - May 14, 2015) - If you could make up your own rules, how strict would you make them and how likely would you be to actually follow them?

If you answered 'not very' and 'probably not at all,' you can start to understand why regulations and guidance around anti-bribery and foreign corruption efforts have been handicapped.

The Foreign Corrupt Practices Act (FCPA) was created in the mid-1970s following the revelation that companies were paying foreign government officials for business considerations. It started out as a push for accurate accounting in public companies. The theory was that transparent bookkeeping paired with the threat of fines for bribery would cut down on the amount of shady transactions from slush funds used for gaining corrupt advantages in the global marketplace. The law was later enhanced with anti-bribery measures.

Until a few years ago, the FCPA was an ostensibly toothless regulatory measure akin to Dodd-Frank's conflict minerals rule. All of that might change soon, however, because now the FBI is getting involved. The agency, in collaboration with the DOJ's Fraud Section, recently announced the formation of three dedicated international corruption squads in Los Angeles, New York City and Washington, DC. According to the FBI, the aim of these new squads is to target both foreign and domestic organizations suspected of criminal activity and bring them to justice in U.S. courts in a fashion similar to the Alstrom corruption case settled late last year. Add this to the repeated statements by the DOJ that investigating foreign bribery is second only to matters of terrorism, and one could see why there's such a great emphasis put on FCPA violations.

And it's not just the big boys hurting anymore. Last year, the head of the SEC's FCPA enforcement division, Kara Brockmeyer, announced during a $2 million settlement with Smith & Wesson that medium-sized businesses aren't under the regulatory radar. "This is a wake-up call for small and medium-size businesses that want to enter high-risk markets and expand their international sales," Brockmeyer said. Any corporation doing business overseas could be investigated, regardless of size.

In the last year alone, companies spent more than $700 million in settlements under FCPA. Recently, giant corporations like Avon, Walmart and News Corp. have each spent an excess of $100 million in fines and legal fees associated with corruption charges. The SEC and DOJ have collected over $3 billion in FCPA fines since 2010. Even though ramping up FBI involvement and fining large institutions are both clear signs that FCPA compliance will be a big issue this year, but perhaps the biggest indicator of change is to follow the fine money.

It's been speculated that the federal government is purposefully not helping in educating companies on guidelines for avoiding foreign corruption because it is more profitable to just audit and fine them. Due to this, some companies have taken a proactive approach to FCPA compliance, by implementing a compliance and audit management solution, like LockPath's Keylight platform. Keylight creates an auditable trail of compliance, greatly reducing potential fines an organization might face if audited.

As Thomas Kase of SpendMatters contends, the settlement agreements of companies investigated by the SEC for FCPA violations are akin to "speed trap cash cows" that state troopers and small town police departments use. One could argue that the ambiguity mentioned earlier plays a role in the SEC's and DOJ's ability to act as a bully; if they suspect your company of foreign corruption, you can either settle out of court or go to trial and spend exponentially more money to prove your organization's innocence.

For these reasons, FCPA compliance is set to be this year's new regulatory hot topic. It will be interesting to see how companies react as more are investigated and legal challenges are brought against the SEC and DOJ.

About LockPath
LockPath is a market leader in corporate governance, risk management, regulatory compliance (GRC) and information security (InfoSec) software. The company's flexible, scalable and fully integrated suite of applications is used by organizations to automate business processes, reduce enterprise risk and demonstrate regulatory compliance to achieve audit-ready status. LockPath serves a client base of global organizations ranging from small and midsize companies to Fortune 10 enterprises in more than 15 industries. The company is headquartered in Overland Park, Kansas.

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