Key issues: Bribery and corruption

Bribery and corruption risk continues to be a big issue for companies despite the fact the number of reported incidents and regulatory enforcement declined year over year in 2012. 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.

In 2013, there were more than $635 million in FCPA penalties, with an average penalty of $74 million, according to a Ropes and Gray LLP FCPA activity report.

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.

With recent allegations of fraud at high-profile companies, the introduction of the UK Bribery Act, and new SEC whistleblower rules, directors are increasingly concerned about deterring illegal behavior. According to PwC’s 2014 Annual Corporate Directors Survey1:

  • Boards have taken substantive steps to oversee the reduction of fraud risk, with seven-in-ten directors saying there was a change to their approach in 2014.
  • Just more than half of directors 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, an 8-percentage point decrease from 2012.
  • Thirty-seven percent increased the time spent on discussing risks embedded in compensation plans.
  • Half have interacted more frequently with members of management below the executive level, a 19-percentage point increase from 2012.

 


Other key issues

Learn what PwC has to say about bribery and corruption:

Additional information about bribery and corruption:


1PwC’s 2013 Annual Corporate Directors Survey, Board composition, structure and performance.