jpInvestment dollars continue to pour into Latin America. In terms of political stability, Central and South America is a mixed bag. Even with countries and regimes considered stable, however, corruption is rampant. And where there is corruption, there is always the possibility of a U.S. based prosecution for a violation of the Foreign Corrupt Practices Act (FCPA). If reported by a concerned insider, those violations can lead to huge whistleblower awards.
The Foreign Corrupt Practices Act prohibits bribing foreign officials in the hopes of gaining some type of business advantage. Even though bribes are considered a way of life in some countries, it is against the law for countries here to bribe foreign officials in the hopes of securing permits, expediting applications or avoiding custom duties.
The FCPA has a second lesser known component that requires U.S. businesses and companies who securities are sold here to keep accurate books and records and to have good accounting controls.
Believe it or not, good accounting controls and anti-bribery measures go hand-in-hand. It is hard to hide a bribe if companies have strong internal controls, a robust due diligence program and good books and records.
Most companies know this and will often use shell companies or third party intermediaries to disguise illegal payments.
FCPA – Misreported Payments
One of the biggest red flags for would-be whistleblowers to watch for are misreported payments. Misclassifying payments to foreign officials as “marketing”, commissions or payments to third parties is a common way to skirt the law.
Earlier this year, Reuters reported that aircraft manufacturer Embraer SA was under investigation for reportedly bribing officials in the Dominican Republic. The company allegedly booked the bribe payments as “consulting fees.” The company secured a $92 million aircraft contract after reportedly paying a $3.4 million bribe.
Media reports claim that the money was booked as consulting fee to a sales consultant although that consultant did no work.
Novartis recently settled FCPA foreign bribery charges with the SEC. The company paid $25 million to settle a charge that the pharmaceutical giant had bribed foreign Chinese officials to dispense more of its products in Chinese hospitals. (The Pharmaceutical Integrity Coalition also reports that Novartis is under investigation for $85 million in bribes to Turkish officials.)
FCPA – Management “Override” of Internal Controls
We sometimes see companies that have robust internal controls and due diligence provisions. Those controls and safeguards are only effective, however, if followed. While there are sometimes legitimate reasons to override those controls, management override is often a sure sign of trouble. We see situations where the farther from home base one gets, the more controls are ignored.
The Embraer SA example above is also an example of ignored internal controls. When Embraer’s compliance department caught wind of the scheme, senior company management were forced to book the payments as a consulting fee related to an alleged sale of planes to Jordan. No planes were ever sold there. According to the Wall Street Journal, “Emails… show Embraer executives attempting to make direct payments to three shell companies allegedly designated by Mr. Piccini. But Embraer’s compliance department prevented the full transfer in 2009, forcing the sales team to devise a new plan, the complaint says.”
Another red flag is the use of shell companies. As the recent Panama Papers scandal indicates, shell companies are a favored way of laundering money and hiding transactions from regulators. If there is no valid business purpose for a shell or if the shell company has no employees or history, it is probably a scam.
Whistleblower Awards and the FCPA
The FCPA is jointly enforced by the SEC and U.S. Department of Justice. Although the Act itself does not have a whistleblower award provision, the SEC has the authority to pay awards if an insider comes forward with information.
Under the SEC Whistleblower Program, whistleblowers can receive an award of between 10% and 30% of what the government collects. The government must assess at least 41 million in penalties before an award becomes payable. That may sound like a lot, but in the world of FCPA penalties, million dollar plus fines are the norm.
Unfortunately, the SEC only acts on a very small percentage of the tips it receives. (Less than 1% of SEC whistleblowers get an award.) If you want to have any real chance of getting an award, having a good whistleblower lawyer is essential. He or she can help investigate the case and present it to prosecutors in a manner that it becomes easy to prosecute.
MahanyLaw and Whistleblower Awards
Attorney Brian Mahany is both a former agent and assistant attorney general. As a former prosecutor, he knows how to build a case and how to present that case so it goes to the top of the list. Brian’s firm, Mahany Law, also has three former SEC Enforcement Division lawyers to help in building and presenting cases. To date, the whistleblower lawyers at MahanyLaw have helped clients collect over $100 million in awards.
MahanyLaw – America’s FCPA Whistleblower Lawyers
Want even more information? See Part One of this two part series, Bribery & Corruption = FCPA Whistleblower Awards, here.