Don't Do as Wal-Mart Does

Companies that have not paid enough attention to their obligation to comply with the Foreign Corrupt Practices Act (FCPA) got a wake up call when they opened The New York Times this past weekend. The front-page story focused on allegations that Wal-Mart Stores Inc. knew about and covered up bribes to paid Mexican officials by the company's Mexican subsidiary Wal-Mart de Mexico.

If that isn't enough to make you sit up and take notice, back in December, eight former executives and agents of Siemens AG were charged in a criminal case surrounding bribes paid to Argentina government officials. The company itself had already paid out $800 million to settle FCPA charges in the U.S. and another $800 million to settle charges in Germany.

The FCPA was passed in 1977 and amended in 1998 and the Dodd-Frank Wall Street Reform and Consumer Protection Act added a whistleblower incentive to support FCPA enforcement. In addition to the law's provisions and amendments, two forces make rigorous FCPA compliance more important than ever.

First, FCPA enforcement has increased significantly over the past several years. Federal agencies have larger enforcement budgets and are funneling those funds to FCPA-related matters and Dodd-Frank.

Second, companies of all sizes are increasingly looking for and finding new opportunities and growth in global markets. If a company is new to global operations, it needs to make sure its senior executives and employees understand FCPA requirements and the penalties for noncompliance. Companies with existing global operations cannot get complacent about FCPA compliance.

So why are we talking about the FCPA in an HR and Finance blog? Quite simply, a company's ability to comply with the FCPA will depend heavily on the conduct of its people -- all of them -- and the foundation of effective compliance efforts must include actions to keep those people educated and engaged about the law. Companies need to make sure everyone in the organization from the executive suite to front-line employees and managers in all locations understands what the law requires. Although it is true that many companies have been stepping up FCPA compliance, it is also true that a number of companies continue to get into trouble with the law.

In some ways, FCPA violations are not surprising. If local ways of doing business involve greasing the palms of various officials and business partners, it can be easy for individuals to get caught up in these local practices. In some locations, local custom might involve so-called grease payments for everything from getting garbage picked up or mail delivered to significant bribes to government buyers to make a sale or to local or high-ranking government officials to obtain business permits. All of these activities are prohibited by the FCPA.

"It can be very difficult to compete when local competition is playing different rules," says Robert A. McTamaney, a partner with law firm Carter Ledyard & Milburn LLP in New York. However, "the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) do not care and expect American companies to comply with the FCPA."

In our next post, we will discuss specific ways companies can use their people-strategies to reinforce FCPA compliance.