Fall 2015 Issue of Horizons

Management Responsibility So what should your company do to avoid costly penalties and potential imprisonment? There are three areas of management focus to ensure that you are complying with the FCPA: Maintain Accurate Books and Records Your accounting structure and IT system must be sufficiently robust to ensure that all transactions are recorded in reasonable detail, accurately and fairly. A complete and logical chart of accounts is necessary so that all employees, even those from different cultures, can easily understand where transactions should be posted. A modern IT system should be in place. You should not have a foreign subsidiary on an antiquated system while the home office is operating on SAP, Oracle or JD Edwards. Also, the consolidation process should be detailed enough to identify unusual transactions. Implement and Maintain a System of Internal Controls Checks and balances must be in place to ensure that management has control over the processing and recording of all assets. For example, a usually small asset in the U.S. is petty cash. In certain parts of the world, petty cash can be used as an “off the books” fund to entertain and pay government officials. Internal controls need to be in place that records each petty cash transaction in the general ledger and reconciles the petty cash balance as part of the month-end close.

A payment to these individuals or entities is illegal if it influences an official in his/her official capacity, secures any improper business advantage or induces someone to use his/her influence with a foreign government, political party or candidate. Payments can include cash, gifts, charitable donations, fees, travel/trips and training. Anything considered to be “of value” given to a prohibited person can be considered a violation of the FCPA. Examples of Prohibited Payments Many examples of prohibited payments are obvious. A Nigerian joint venture that paid $5 million in bribes to the local political party is definitely not in compliance with the FCPA. Paying for country club memberships, household repairs, cell phones and limousine services on behalf of a government official is also illegal. Trips to Las Vegas or other U.S. destinations for an influential friend or relative of a foreign official are out. However, some payments that can ultimately be considered illegal are not so black and white. In some cultures, it is traditional and expected to make small cash payments to government officials on certain holidays. In the minds of the local participants, this is not considered a payment for influence or returned favors. However, it is most likely considered in violation of FCPA. Another gray area might be the hiring of a relative of a local official. The relative hired could be well qualified for a position that is necessary for the continued operation of your business and could result in no influence on the official. However, this would also attract the attention of FCPA investigators.

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