Operating Abroad: the International Employer and the FCPAOctober 26, 2016 – Articles
While 2015 saw a dip in Foreign Corrupt Practices Act (FCPA) enforcement actions, this year the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have picked up the pace with numerous actions surfacing.
In April 2016, the DOJ also announced that it had increased the size of its FCPA unit by more than 50 percent, and that the Federal Bureau of Investigation established three new squads of special agents devoted to FCPA investigations. The DOJ warned: “This should send a powerful message that FCPA violations that might have gone uncovered in the past are now more likely to come to light.”
With the uptick in enforcement actions this year, the time for companies with operations abroad to look at their approach to FCPA compliance is now. Undoubtedly, all FCPA prosecutions have one thing in common: improper employee activity. As such, the involvement of human resources is imperative to an international employer’s implementation and administration of an FCPA compliance policy. We previously explored the importance of a company’s human resources team in FCPA compliance, here.
In addition to taking the lead on FCPA training, there are several other areas where human resources personnel can (and should) play an active role in FCPA risk avoidance and assessment:
- Hiring – Keeping an eye on who is hired at international operations, and for what reasons, can be critical in FCPA compliance. Recent activity makes it clear that the government considers employment opportunities (including unpaid internships) a "thing of value" that can trigger FCPA liability. In March of this year, an international telecommunications company agreed to pay $7.5 million to settle FCPA prosecution, in part, for hiring relatives of Chinese foreign officials to gain favorable positioning for its wireless communication technologies.
In its Order resolving the matter, the government highlighted that the company’s “employees who worked in Human Resources did not receive FCPA training,” and “several important business functions such as human resources…were not considered in [the company’s] FCPA compliance program.” Seemingly, at the hiring phase, human resources at the telecommunications company mentioned above might have flagged the offending new hires as not having adequate skills or background for the available positions. At that point, the company could have explored the true motivation for the hires.
First, employers operating abroad should be sure that human resources personnel are properly trained in FCPA compliance themselves. In turn, those assisting in the hiring process should see to it that all applicants go through the company’s standard hiring process and are qualified for their positions. Efforts aimed at pushing an applicant through, despite company procedures or applicant qualifications, should be questioned and reported to management/compliance right away.
- Investigations - This year the DOJ instituted its one-year pilot program (the “Pilot Program”) to encourage companies to self-report potential FCPA offenses. Under the Pilot Program, if companies self-report ahead of a DOJ investigation, FCPA penalties could be significantly reduced. Since announcing the initiative, the DOJ has publicly declined FCPA prosecution in five cases.
With this in mind, human resources personnel should be able to recognize activity that might run afoul of the FCPA. When such conduct is identified, thorough investigations are paramount. With the help of counsel, the process to determine relevant facts and involved parties should start immediately.
Once a company has properly identified the issues, self-reporting under the Pilot Program can be considered. Regardless of whether the decision to self disclose is ultimately made, human resources can help position the company at the initial stages of an investigation.
- Firing/Discipline – In each of the five instances that the DOJ did not prosecute under the Pilot Program, it commented on the consequences for the employees who engaged in the triggering misconduct. In the declination letters, the DOJ specifically acknowledged terminations, suspensions, pay freezes, bonus suspensions and reductions of responsibilities of these offending employees. Remediation for wrongdoing by company employees seems highly valued by the DOJ in its decision not to move forward on FCPA violations. Accordingly, human resources personnel should play a part in making meaningful recommendations when it comes to disciplining (and perhaps terminating) employees whose conduct violates FCPA principles.
As the FCPA enforcement trend continues, companies operating abroad should be prepared to monitor international employee activity closely. As we have seen, the government takes note of both weak and strong compliance programs, and the inclusion of human resources in the latter. In a year of heightened enforcement, an FCPA compliance program, along with consistency in hiring, investigations and disciplinary actions can minimize the risk of violations and potential prosecution.
For more information, please contact your Dinsmore attorney.