Edited by Sarah Mejia
The Foreign Corrupt Practices Act (FCPA) was amended in 1977 to prevent individuals or entities from paying foreign government officials money or giving them anything of monetary value that would aid in procuring or maintaining business for that person or entity; in other words, bribing. The FCPA has applied to all U.S. citizens and various issuers of securities since 1977 and to foreign firms and individuals who commit bribery in U.S. territory since 1998, collectively all companies listed on the U.S. Stock Exchange or that are based in the U.S.
Through my course Managerial Ethics and Stakeholder Management, I learned the purpose and importance of corporate ethical governance and accountability. Fiascos wherein both individuals and firms were found having severe conflicts of interest (such as the Subprime Crisis, the Enron scandal, and Bernard Madoff’s Ponzi Scheme) led to corrupt, self-interested actions. Corporate governance systems such as codes of conduct and codes of ethics, along with compliance programs and a reinforced comprehensive ethical culture, prove to be part of the necessary measures taken to prevent further corrupt practices in the future (Brooks 245).
Since its inception, the SEC and Department of Justice have become increasingly stricter in making sure all firms that do business in the U.S. are in full compliance with the FCPA (Deloitte). The U.S. is not apprehensive about conducting investigations or about indicting and taking firms that have been found to not be in compliance with the FCPA to court, and therefore many U.S. firms have decided to finally take some initiative towards the prevention of these unlawful actions before they occur (Palazzolo). Whether companies are investigating themselves in the hope that they can avoid indictment, court, and harsher punishments or the SEC and Department of Justice are discovering these discrepancies first, the firms are losing in both scenarios.
These firms are not just losing money and resources, but also top executives, members of management, and reputation (Deloitte). Trying to find inconsistencies through internal probes may be seen as one affordable way to take a smaller monetary loss, but what many of these firms are realizing is that it is best to try to stop these problems before they begin. Companies such as Avon Products Inc. have suffered the consequences of huge self-inflicted payouts to law firms for internal probes ($280M since 2008 on its investigation in regards to dealing out bribes in China) and the loss of several top executives and senior management. Even with these efforts, Avon is still cooperating in ongoing investigations by U.S. government (Palazzolo; Rubenfeld).
However, Avon has made it apparent in their securities filings to the Department of Justice and SEC that it is trying to make changes for the better. In an effort to enhance compliance, Avon is now implementing new programs and training along with making resources available to help its employees and members of its management become more aware of the Act (Rubenfeld). Although these are essential first steps, it is important to realize that these corporate governance systems and compliance programs are only the part of the changes individuals and firms need to make to ensure better, long term ethical practices. They are not sufficient to singly deter self-interest, short-term thinking, or corrupt practices, but they are an important move in the right direction (Brooks 576, Deloitte). An ethical corporate culture needs to be informed, know what is and is not acceptable, develop a culture of integrity, perform monitoring and surveillance, and participate in risk assessment, due diligence, and transparency along with enforcing corporate governance policies and compliance programs (Brooks 237; Brooks 575-576; Deloitte). While codes of conduct, codes of ethics, and compliance programs alone are not enough to stop corrupt acts, these proactive measures aid in prevention of future fiascos and help establish a more ethical corporate culture.
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Brooks, Leonard J., and Paul Dunn. Businesses and Professional Ethics for Directors 6th Edition, Executives, and Accountants. Canada: South-Western Cengage Learning, 2010. Print.
Deloitte. “Foreign Corrupt Practices Act: Proactive Compliance Advised.” CFO Journal. 16 June 2011. n. paf. 27 November 2012.
“Foreign Corrupt Practices Act.” justive.gov. United States Department of Justice, n.d. Web. 1 November 2012.
Palazzolo, Joe. “FCPA Inc.: The Business of Bribery Corruption Probes Become Profit Center for Big Law Firms.” Wall Street Journal. (1 October 2012). n. pag. 1 November 2012.
Rubenfeld, Samuel. “Avon Warns of Further Firings Amid FCPA Probe.” Wall Street Journal. (1 November 2012). n. pag. 1 November 2012.