FCPA SEC 2019 Actions: What lessons can we learn

Updated: Jul 31

Having recently published their enforcement actions for 2019, and in scrutinizing the US Securities and Exchange Commission success it is interesting to note that not much has changed in the world of bribery and corruption.


Companies in attempting to obtain or retain high value international contracts continue to be susceptible to the high risk of bribe requests from government officials and politically exposed persons. The use of intermediaries to obtain business continues to be one of the key methods in developing international contracts and with it a high risk of corruption. Looking at company activities, some company's have been proactive in bribing officials in numerous countries and it appears to be part of their business model. If it works why change it and if the bribe model doesn’t work in a specific country or region adapt the model and method of bribery.


In looking at the type of bribe, its purpose, the method and bribery route and how the business documents these payments, there are consistent themes that highlight that the methodology hasn’t changed much over the past decade.


TYPE OF BRIBE

The limited nature of bribery and its methodology was described in the SEC Enforcement Actions. In the main the types can be collected into the following methods:

· Payment of cash

· Gifts, travel, tickets, hospitality, meals and entertainment

· Shares

· Employment to relatives, friends and associates of government officials

· Donations to foreign government agencies

· electronic payment via third party or offshore company


BRIBE PURPOSE

Although in the main the purpose of bribery is to obtain or retain business, in areas such as the telecommunication sector additional motives for the bribery is present. These include:

· Paid bribes to win sales and avoid penalties

· Purpose of gaining and retaining business

· Attempt to influence judicial outcome of tax dispute

· Influence regulation


METHOD OF BRIBERY

In their aim to hide the illicit nature of their covert relations with the government official or politically exposed person or the bribery purpose and payments, the bribery and routes taken were varied. They included:

· Storage contracts with a company owned by the son of the government official. No

items were ever stored.

· Sham consultancy agreements

· Use of third parties, agent and intermediaries to make payment

· Use of discounts to fund improper payments

· Use of off books slush funds

· Use of service providers


The use of consultants or sham consultancy contracts as a method of bribery or to hide the bribery payment appears to be the most common method of bribery.


INTERNAL RECORDS

In their attempts to hide the illicit nature of the bribery and create false records to conceal their activities, companies took a number of routes to hide the payments. Action taken by the SEC documented that companies failed to maintain accurate books and records. These activities included:

· Destruction of records

· Falsified contract change orders to hide the bribe payments

· Use of take invoices to create slush funds to hide bribe payments

· Creation of consultancy firm due diligence reports that missed out family links to

government official

· Commission payments to third parties, agents or intermediaries


The use of offshore companies and bank accounts continues to be a regular method of hiding the bribe payment including the government official having a financial interest or beneficial ownership of the offshore company.


The payment to third parties whether as agents or consultants is a common method of attempting to hide high value bribery. The lack of anti-corruption due diligence on third party intermediaries and insufficient ABC payment controls to intermediaries are also a common theme of control failures.


Deliberate action to hide their criminality highlights the level of coordination within companies to commit bribery. Any defence of bribery being a rogue individual within a company should not be accepted. Where bribery has gone on for many years and across many countries requires a significant amount of coordination between individuals and company departments.


Many companies have focussed on ethical standards within business that includes a positive and proactive stance on areas such as the Sustainable Development Goals. However, when the profits are high from organised bribery and there is little risk of individuals receiving imprisonment, the deterrent to unethical individuals and companies that bribe continues to be limited.