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Businesses operating internationally must  avoid corrupt payments to foreign officials to gain commercial advantage, and to perform due diligence to assure that deposits have legitimate origins.


The Foreign Corrupt Practices Act (FCPA) requires that banks and other financial institutions implement controls to prevent bribery and corruption of foreign government officials for commercial advantage. The FCPA has had a great impact on U.S. firms in the US and overseas.


Enacted by the U.S. Congress in 1998 after the United States and thirty-three other countries signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the law makes it unlawful for a U.S. person, and certain issuers of securities, to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. It also applies to foreign firms and persons who make such a corrupt payment while in the United States or its jurisdictions.


Since its passage, hundreds of U.S. companies have admitted to the U.S. Securities and Exchange Commission that they had made over $300 million in questionable or illegal payments to foreign government officials, politicians, and political parties. In doing so, some of the U.S. firms that have been convicted of crimes for bribing foreign officials have been levied large fines and have been banned from federal procurement programs. Individual company officers can also be prosecuted.


To protect themselves, firms need to have robust controls to ensure that they know who their customers and contractors are (KYC)—especially if they are “Politically Exposed Persons.”  Part of the information that the KYC process identifies are:


   > Details of the management and ownership of the entities the firm does business with


   > That the business is not associated with criminals


In conjunction with the FCPA, the Sarbanes-Oxley legislation also imposes requirements on firms to disclose instances of fraud as well as reporting annually on its systems of internal control, so compliance with the Foreign Corrupt Practices Act helps ensure SOX compliance too.


Many firms have implemented robust compliance programs to prevent and detect improper payments by employees or agents. Keep in mind that competition, and the pressure for results, may encourage managers and subordinates in the field in emerging markets to circumvent company controls, which should include:


   > Due diligence checks on third parties to establish their bona fides at the outset of the

      relationship and, as importantly, as the relationship continues;


   > Oversight committees with senior executive representation to evaluate the risks of bribery and

      corruption, and to receive periodic management information;


   > Training for staff; and,


   > Monitoring of processes and controls by independent risk or audit functions.

As a preventive measure, Inquesta can institute a due diligence program that satisfies the regulatory requirements of the FCPA. And, if your need is to investigate a possible foreign corrupt practice in your organization, Inquesta has the experience and the resources in the U.S. and abroad to help you establish the facts and mitigate such an event.


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