Creating a strong FCPA compliance program — performing due diligence, knowing your customer, partners and suppliers and implementing ongoing monitoring procedures — protects your business and is a smart, ethical business strategy.
Grease the wheels. Under the table. Kickback, payola or hush money. It’s telling that we have so many terms for bribery; whatever name it goes by, it’s a serious issue. One of the modern hallmarks of a modern successful society is the ability to limit corruption and, conversely, one of the major constraints on progress is a culture of widespread corruption.
For US individuals and companies, no matter where they operate, it’s not only an ethical imperative, it falls under the Foreign Corrupt Practices Act (FCPA). The law also applies to foreign individuals and entities who operate in the US. It is “unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.”
While the law has been around since 1977, it is in the evolving battle against terrorism that is driving its increasing enforcement. US officials, and their counterparts around the world, are noting the connection between corruption and terrorist funding. If an official accepts bribes, their lax ethical standards are open to a multitude of other criminal activities, amongst them terrorism funding or even support.
For compliance departments of US companies that do business internationally, a FCPA compliance program should now be a standard operating procedure. They need to understand:
- Who they are doing business with (due diligence),
- Ensure that they are not owned (in part, or in whole) or controlled by a public official (beneficial ownership).
This is a bottom-line issue; fines for non-compliance are potentially severe. For example, in a recent (Oct. 31, 2016) settlement, Embraer agreed to a $205 million fine.
Having a robust FCPA compliance program is also a way to reduce exposure to corrupt third parties and a vital step to protect reputation. Can you imagine the fallout from an US firm being caught up in a terrorist funding scandal? The damage is irreversible.
FCPA compliance is also a finance issue. Banks and other financial institutions have their AML (Anti-Money Laundering) laws to comply with. Thus, any loans or financing will come under scrutiny by their compliance team. Having a FCPA compliance program in place will streamline that process, as it gives one less access point for illicit funds, as well as reducing the risk profile.
There are other business advantages to having an effective anti-corruption program in place. Just as banks and other financial firms will want to check your compliance programs, other firms will have self-interest, as well as ethical reasons, for running a similar check.
Consider the US energy industry; it has a complex weave of companies, suppliers and sub-contractors operating globally. To make sure the whole supply chain operates in a compliant manner, a multitude of entities have provisions baked into contracts that require adherence to the FCPA. If you want to do business with any of them, you too will need these clauses in your contracts.
These third-party codes of conduct (P2P Codes) are a growing trend. Purchasers don’t want to have any issues with tainted funds of companies; they also want to ensure that their money goes into the actual product or service, not some hidden bank account. Implementing a proper anti-bribery program demonstrates that you will deliver value, operate ethically and appreciate the co-dependence of the modern business environment.
Steps to FCPA Compliance
So, how do you setup an effective FCPA compliance program? Look to the banks, as they have strict standards for AML and KYC (Know Your Customer) laws and have deep experience in the field. Forward thinking banks, that need compliance but don’t want to get bogged down with massive amounts of paperwork and manual processing, are looking to advancements in RegTech (regulation technology).
RegTech offers the promise of automating many, rote compliance tasks and allowing compliance staff to focus on more complex scenarios. Specifically, when doing business with foreign nationals or entities:
- Identify the beneficial owner. You need to know who the beneficial owner is, both for entities you are directly doing business with and their third-party suppliers. Either it’s on the paperwork or you need to dig deeper. Ensure that is the actual person, using modern identity verification.
- Perform due diligence. Where are they receiving funds from? What is the nature of their business? Are they a PEP (politically exposed person) or otherwise on a watchlist?
- Establish third-party codes of conduct. Enshrine clauses in your contracts that outline exactly what you expect of the individuals and companies doing business with you in regards to compliance practices. Ensure that third-parties that work with them follow the same procedures prescribed here.
- Monitor on an ongoing basis. It’s not enough to just check once and be done with it. Ownership can change, people can become exposed, or supply chains transform to include new, unwanted agents.
Here at Trulioo, we’re helping hundreds of financial institutions with their AML and KYC compliance needs. We help them cut the risk of fraud and reduce the costs of compliance by using comprehensive ID verification and watchlist monitoring technology with the highest security standards.
Instead of wasting time and money implementing a cumbersome, inefficient manual system for FCPA compliance, integrate the same automation technologies that leading financial institutions and fintech companies are using. Contact Trulioo today and learn how you too can reduce fraud, mitigate risk and satisfy compliance obligations across borders in seconds.