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Era of Intensified Enforcement: Reducing Regulatory Risk

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This white paper contains guidance and an overview of the new Government guidance on FCPA and the top ten hallmarks a business should observe in order to have an effective compliance program.

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Era of Intensified Enforcement: Reducing Regulatory Risk

  1. 1. March 2013WHITE PAPERReducing Regulatory Risk in anEra of Intensified EnforcementBest Practices for Building a ComprehensiveCompliance ProgramBy Kelvin DickensonCompliance is even more critical as governments have stepped up enforcementactions against corruption – and the impact on your business can be substantial.Help protect your company from significant fines or damage to your brand with acomprehensive compliance program.
  2. 2. March 2013Failure to comply can put your company at riskAggressive enforcement of the Foreign Corrupt Practices and services. However, as federal agencies have steppedAct (FCPA) and related laws has many companies up their investigations into bribery, money laundering,reevaluating their compliance controls and systems. The wire fraud, and other business crimes, many companiesU.S. Department of Justice has stepped up its enforcement have struggled to understand their responsibilities andof the FCPA and increased the number of attorneys comply with regulations governing business conduct.dedicated to enforcing it. In just the past two years, the Among their concerns:government has prosecuted approximately 50 executives • ow can we monitor a multitude of international Hwho have agreed to plead guilty to FCPA violations. Some financial transactions and third-party businessare serving prison sentences of up to 15 years. Significant relationships—many seemingly beyond ourfines amounting to hundreds of millions of dollars ability to see or control—to prevent violationshave been levied against companies, including one fine of anti-corruption laws?exceeding $1 billion. Other costs can be equally high: • f an infraction does occur, how can we demonstrate Idamaged corporate reputations and brands, mounting that we acted in good-faith to prevent it, and thuslegal fees, distracted leadership, and falling share prices. minimize the likelihood of prosecution and fines?The United Kingdom has initiated enforcement actionsunder its new Bribery Act as well, and several other • hat are the best practices for implementing an Wcountries have anti-corruption laws on the books or under effective compliance program?consideration. In the United States, federal prosecutors Even the companies and banks that already havehave approximately 150 open investigations of alleged established compliance and training programsFCPA violations across multiple industries. recognize the need to re-evaluate their activities in light of government’s enforcement efforts. They face A pharmaceutical company was fined greater scrutiny, and larger penalties if the law is $29 million for improper payments violated, particularly if prosecutors conclude that a that its subsidiaries made to foreign company lacked sufficient controls or failed to conduct government officials to win business adequate due diligence. As federal agencies ratchet up in Russia, Brazil, China, and Poland. enforcement of the FCPA, anti-money laundering, and other anti-corruption laws, many companies are looking for enhanced strategies and tools for cost-effectiveBusiness leaders understand the need to protect the compliance that reduces their exposure and risk inintegrity of international markets, and they support today’s strict regulatory climate.government efforts to create a level playing field forlaw-abiding companies to compete and win businessbased solely on the price and quality of their products 2
  3. 3. March 2013New Government Guidance on FCPA A Framework for ComprehensiveThe Department of Justice (DOJ) and Security ComplianceExchange Commission (SEC) provided the industry with There is no one-size-fits-all approach to compliance.comprehensive guidance on its enforcement of the FCPA Each company must establish compliance measures thatin November 2012 by issuing “A Resource Guide to the are tailored to its individual business needs, risks, andU.S. Foreign Corrupt Practices Act.” DOJ and SEC experts challenges, factors the DOJ and SEC take into account whencreated the guide to help businesses that compete evaluating a company’s program. One useful frameworkin foreign markets “maximize their ability to comply for understanding how the hallmarks might fit into awith the FCPA in the most effective and efficient way comprehensive compliance program is shown in Figure 1.suitable to their business and the markets in which This compliance framework has four basic components:they operate.” To this end, the guide spells out the 1 • General Compliance Oversight“Hallmarks of Effective Compliance Programs,” • Internal Controls and Behaviorsa detailed description of ten areas that companiesshould address to ensure that their programs are • Audit, Reporting, and Accountingthorough and robust (see graphic below).2 • Managing Third Parties Each of these components is essential for a program that addresses risks throughout the enterprise and on HALLMARKS OF EFFECTIVE COMPLIANCE PROGRAMS all fronts. As shown in Figure 1, each of the hallmark activities is contained within—that is, supports—one • ommitment from Senior Management and a Clearly Articulated C Policy Against Corruption of the four components. All of the activities within the • ode of Conduct and Compliance Policies and Procedures C framework work together in an integrated, reinforcing • versight, Autonomy, and Resources O manner to create a stronger, and more efficient • isk Assessment R compliance program. • raining and Continuing Advice T • ncentives and Disciplinary Measures I • hird-Party Due Diligence and Payments T A U.S. affiliate of a global bank was cited • onfidential Reporting and Internal Investigation C and fined for violating numerous statutes, • ontinuous Improvement: Periodic Testing and Review C including the Bank Secrecy Act, the • ergers and Acquisitions: Pre-Acquisition Due Diligence and M International Emergency Economic Powers Post-Acquisition Integration Act, and the Trading with the Enemy Act. DOJ officials also charged the bank with Source: DOJ-SEC “Resource Guide” willfully failing to maintain an effective anti-money laundering program and failing to conduct due diligence on its foreign correspondent affiliates.A Resource Guide to the Foreign Corrupt Practices Act Fact Sheet, p. 1.1A Resource Guide to the Foreign Corrupt Practices Act, “Hallmarks of Effective Compliance Programs,” pp. 57-62.2 To view/download the complete white paper, click here. 3