Is $24 billion a significant number? According to the U.S. Census Bureau, this figure represents the value of commodities exported by Georgia companies in 2009. Whether airplanes or turbines, medical supplies, wood pulp or chicken, Georgia products are playing an increasing role in the global export marketplace. With such a distinction comes an increased risk. For companies engaged in international trade, one of the most acute risks relates to bribery and corruption.
One example is that of Georgia agricultural equipment exporter, AGCO Corp. AGCO recently paid $18.3 million to settle charges by the Securities and Exchange Commission that it paid kickbacks to win business illegally under the Iraq Oil for Food program. The SEC complaint alleged AGCO attempted to hide payments by creating a fictional account on its books.
The primary foreign anti-bribery statute is found in the U.S. Foreign Corrupt Practices Act enacted in 1977. But prior to 2002 and the enactment of the Sarbanes-Oxley Act, many companies treated bribery as a necessary evil and a way to maintain competitive standing in the international marketplace.
Under the old “ostrich theory,” many executives relied on the head-in-the-sand approach, shielding themselves from knowledge of wrongdoing by failing to monitor bribery controls.
Focus on responsibility of principal executives over the effectiveness of internal controls was not heightened until Sarbanes-Oxley shifted the burden by requiring corporate officers to attest to the effectiveness of internal controls and sign personal certifications.
Current enforcement actions clearly place the burden directly on executives when controls are ineffective. In a case involving a company called Nature’s Sunshine Products Inc., the SEC took action against two former company executives without any allegation they participated in bribery, stating: “As control persons they failed to make and keep books, records and accounts, which in reasonable detail accurately and fairly reflected subject transactions.”
Notice the case does not allege direct involvement or even knowledge of the alleged illegal payment. Such cases heighten the threat of civil and even criminal prosecution of higher level executives responsible for financial reporting.
The U.S. Department of Justice, SEC and Federal Bureau of Investigation share primary regulatory enforcement responsibility over anti-bribery. All three agencies have made Foreign Corrupt Practices Act enforcement a major priority. In August 2009, the SEC announced the creation of a specialized FCPA unit that will have between 25 and 30 employees throughout the country.
The deputy chief of the DOJ’s criminal division fraud section recently indicated the agency was targeting certain types of individuals for FCPA-related prosecution, including third-party contractors, and mid to high-level executives.
The U.S. is no longer alone in its enforcement of bribery and corruption laws. Global regulators have also proven an aggressive stance toward enforcement of anti-bribery statutes. Thirty-eight countries have adopted the Anti-Bribery Convention developed by the Organization for Economic Cooperation and Development.
The OECD reports that within the last 10 years, 148 individuals and 77 entities have been sanctioned under criminal proceedings for foreign bribery. At least 40 of the sanctioned individuals were sentenced to prison for foreign bribery. At least 280 investigations are ongoing in 21 countries. At least 180 individuals and 20 business entities have faced criminal charges.
Within the top 20 recipients of Georgia’s exports, we see China, Mexico, India, Italy, Brazil and Turkey. The 2009 yearly survey of global corruption perception performed by Transparency International indicates each of these major trading partners ranks below a 3.7 on a scale of 0-10 with 10 being the least corrupt and 1 being the most corrupt.
Southeast U.S. companies are encouraged to become more aware of both the personal and corporate-level risks with both civil and criminal consequences arising when operating globally. On Sept. 2, attorneys, compliance officers and in-house counsel will convene at the State Bar of Georgia‘s Institute of Continuing Legal Education second annual conference on International Business and Crime focusing on the Foreign Corrupt Practices Act. The one-day conference will include panels designed to assist companies in combating bribery through discussion and awareness of enforcement trends, proactive and reactive compliance strategies, and other risk areas.
For more information on the conference, click here.
Marc L. Effron is director of investigative services at Atlanta-based Habif, Arogeti & Wynne LLP accounting firm