Key issues: Bribery and corruption

Bribery and corruption risk continues to be a big issue for companies, with the number of reported incidents and regulatory enforcement increasing in 2011. The US Department of Justice has noted that staffing for Foreign Corrupt Practices Act (FCPA) prosecutions is at the highest level ever. Also, the Securities and Exchange Commission (SEC) now has an FCPA unit.

With recent allegations of fraud at high-profile companies as governments emphasize enforcement of bribery and corruption laws, the introduction of the UK Bribery Act, and new SEC whistleblower rules, directors are increasingly concerned about fraud. According to PwC’s 2012 Annual Corporate Directors Survey:

  • Forty-one percent of directors have increased concern about fraud, particularly about bribery and corruption.
  • Nearly half of directors (46%) say their boards have held additional discussions about the “tone at the top” of the company as part of their focus on mitigating fraud risks.
  • Thirty-eight percent increased the time spent on discussing risks embedded in compensation plans.
  • Thirty-one percent have interacted more frequently with members of management below the executive level.

The FCPA anti-bribery provisions prohibit US companies and citizens -- and certain foreign issuers of securities -- from making corrupt payments to foreign government officials to help obtain or retain business. They also apply to foreign firms and people acting in furtherance of such payments while in the US.

The enforcement framework of the FCPA is derived from the Federal Sentencing Guidelines, which require companies to exercise due diligence to prevent and detect criminal conduct and to promote a culture that encourages ethical conduct and a commitment to comply with the law.

Regulators not only pursue violators but have also been targeting personnel within a company who are responsible for internal controls related to the prevention of bribery and corruption. Directors are not necessarily immune from scrutiny, as the Federal Sentencing Guidelines state that a board must "exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program."

In 2012, the SEC and the DOJ issued a Resource Guide to the US Foreign Corrupt Practices Act that addresses a wide variety of topics covered by the act, including the definition of a foreign official, what constitutes proper and improper gifts, travel and entertainment expenses, facilitating payments and how successor liability applies in mergers and acquisitions.

Directors will want to be sure to understand the basics of the related laws and their reach, as well as the scope of their responsibility and that of management. They will also want to understand their company's compliance and deterrence programs. In particular, the companies’ ongoing processes to monitor compliance with the laws are important.

 

PwC perspective

Don Keller “The prevention of bribery and corruption presents a huge challenge for companies and their boards in today's environment. The issue is exacerbated in several ways -- materiality doesn't apply, so a crime could involve amounts that are immaterial to reported financial results. Gift-giving is also accepted as an inherent part of doing business in many local cultures. Another difficulty for companies is that they can be held responsible for the behavior of any third party they do business with, such as distributors, agents and resellers.”
— Don Keller, Partner, Center for Board Governance

Other key issues

Learn what PwC has to say about bribery and corruption:

Additional information about bribery and corruption: