Quinn Forensics

What is scarier, the FCPA or U.K’s new Bribery Act?

admin — Wed, 20 Oct 2010 20:59:51 +0000

Not only must U.S. corporations be cognizant of the FCPA, the significant scope of U.K.’s Bribery Act of 2010 is yet another concern for U.S. corporations. In April 2011 the Bribery Act will replace U.K.’s current anti-bribery laws. The Act is quite broad and can be enforced against a U.S. corporation that has a British office even if that office was not involved in the alleged transgression. For example, if HP takes part in bribery in Africa, then, because of HP’s presence in the U.K., it is subject to the Bribery Act. Furthermore, the Act encompasses employees, sub-contractors, agents, and third party business partners in a joint venture.

The Bribery Act creates four new criminal offenses. Three of these offenses relate to giving or receiving bribes with penalties running to ten years in prison. The fourth offense concerns the failure of the entity to prevent bribery. Here the penalty can result in an unlimited fine. The only defense open to a corporation charged with a violation of this fourth offense will be to show that it had “adequate procedures” in place to prevent the bribery. Clearly, the definition of “adequate” will be heavily debated and litigated. But ultimately, the question posed to corporations with a presence in U.K. is - in the words of Clint Eastwood - do you feel lucky? If not, take the time now to implement the controls necessary before it is too late.

Returning to the above example involving HP, not only is HP subject to the FCPA, it would also be subject to the Bribery Act with its potentially unlimited fine. If your company does business in the U.K. and it hasn’t been scared straight by the FCPA, it will be by the Bribery Act. Talk about double whammies.

Truly No Limits to FCPA Actions

admin — Tue, 20 Jul 2010 00:54:50 +0000

While there have recently been cases involving the FCPA that have been surprising in the magnitude of the fines assessed, a case in June was surprising for the opposite reason. Late last month the SEC announced the settlement of its action against Veraz Networks Inc. (Veraz) out of California. The Complaint is here. The SEC asserted that Veraz resellers, consultants, and employees made payments to government-controlled telecommunications companies in China and Vietnam to influence them to continue doing business with Veraz. Specifically, a Veraz consultant allegedly gave approximately $4,500 worth of gifts to a Chinese-owned company. Further, a Veraz reseller made or offered gifts to Vietnamese officials of a state-owned company. The one gift identified by the SEC was flowers purchased for the wife of an official. This payment was done to secure a contract worth less than $250,000. As a result of these actions, Veraz was fined $300,000. More significantly, Veraz incurred approximately $2.5 million in investigating and defending this matter.

There are three matters of import to be learned from this case. First, and most significantly, there is no de minimus exception to the FCPA. Flowers and gifts worth about $4,500 resulted in a fine of $300,000. Second, the fine of only $300,000 is a fraction of the size of the fine assessed in other actions. Clearly, the SEC is not after just the big boys but is open to all comers. Third, the value of the “bad actions” pales in comparison to the costs of the investigation.

With the growth in the size of the SEC staff assigned to FCPA matters, companies need to be ever vigilant in assuring compliance with the FCPA. Since size really doesn’t matter, as evidenced by the Veraz case, all companies should take a second look at their international actions.

The 2011 Budget: DOJ is Stepping Up Its Prosecution of Financial Fraud

admin — Fri, 05 Feb 2010 02:48:36 +0000

While fiscal constraint maybe the tune that the majority of the Federal Government is striving to sing, the Dept. of Justice is clearly marching to a different drummer. Under President Obama’s 2011 proposed budget, the DOJ would receive a 5.4% increase over the prior year’s budget to over $29 billion. Furthermore, there would be an increase of almost 3,000 new positions within the DOJ. Most significantly for readers of this blog, over 700 of these new positions will be used to pursue financial fraud and other economic crimes.

The increase in the budget which is dedicated to the prosecution and investigation of financial fraud is $96.8 million, a 23% increase from 2010. In this economic climate, an increase of this size is truly noteworthy. Clearly, the Obama administration is making this area one of its priorities.

In addition to the items noted above, the DOJ is also going after health care fraud. However, here DOJ’s efforts are funded out of the Dept. of Health and Human Services’ budget. All in all, the funding being allocated towards the prosecution of economic crime is quite impressive.