The United States Foreign Corrupt Practice Act (FCPA) was passed in 1977 and is now the most widely enforced anti-corruption law. The FCPA contains two main elements: (1) the anti-bribery provision, which prohibits U.S. firms, companies, and individuals from paying bribes to foreign officials for the advancement of a business deal; and (2) the accounting provision, which requires U.S. and foreign public companies to create, implement, and maintain accurate books, records, and internal accounting systems.
A recent case illustrates how companies face significant penalties for failing to comply with the FCPA. In March 2018, the Security and Exchange Commission (SEC) settled an action for $950,000 against Kinross Gold. The company was found to have violated the accounting provision of the FCPA by repeatedly failing to implement adequate accounting controls of two African subsidiaries. In 2010, when Kinross Gold acquired the African subsidiaries, Kinross Gold knew at the time that the companies lacked sufficient anti-corruption compliance programs and internal accounting controls. Despite multiple internal audits identifying numerous deficiencies, Kinross Gold took approximately three years to implement adequate controls, which they subsequently failed to maintain.
According to the SEC’s order, Kinross Gold violated numerous internal policies. For example, Kinross Gold was found in breach of their bidding and tendering procedures for awarding a highly profitable contract to a Mauritanian government preferred company, despite concerns over the high cost of services and the company’s poor technical capabilities. Additionally, Kinross Gold failed to conduct necessary due diligence when contracting with a politically-connected consultant to facilitate contracts with high-level Mauritanian government officials.
Deputy Chief of the SEC Enforcement Division’s FCPA Unit, Tracy Price, commented on the violation noting that “companies should take particular care to remediate known accounting control issues when making acquisitions to mitigate the risk that company funds will be misused for unauthorized purposes.” Not only is it imperative for companies to have adequate internal accounting controls and to maintain accurate books and records, but it is also vital that a company engaging in cross-border transactions conduct proper due diligence under the FCPA. This includes, but is not limited to, conducting thorough due diligence on potential new business acquisitions, conducting an FCPA-specific audit on all newly acquired businesses, and disclosing any corrupt payments discovered upon acquisition of new entities.
As illustrated above, Kinross Gold failed to execute the necessary due diligence measures and failed at timely implementation and maintenance of proper internal accounting controls, ultimately subjecting the company to liability under the FCPA.
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