In some parts of the world, cash-stuffed envelopes flow as freely as handshakes and smiles during business dealings. In Greece, bribes are so common they have a word for it: fakelaki, which literally means "little envelope."
Once considered "business as usual," bribes paid to foreign officials in exchange for business contracts have become primary enforcement targets in the United States and abroad. A growing number of companies are paying substantial fines to the U.S. Department of Justice and the Securities and Exchange Commission for violating the Foreign Corrupt Practices Act, or FCPA. The federal government stepped up oversight of the long-dormant law enacted in 1977 around 2004-2005.
In 2004 the federal government prosecuted three FCPA cases totaling $11 million in fines. That number steadily increased to 22 cases in 2010, accounting for more than $1 billion in penalties. During that period, several high-profile cases have changed the way manufacturers think about compliance and paved the way for more laws designed to prevent corruption.
A proposed provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act aims to encourage more reporting. The proposal calls for rewards of at least $100,000 to whistleblowers who voluntarily provide the SEC with original information about violations that result in sanctions exceeding $1 million.
If the provision becomes part of the Dodd-Frank law, manufacturers will have another reason to tighten compliance oversight. But the ability to monitor business dealings with foreign entities becomes more complex when you're a multibillion-dollar conglomerate with operations and subsidiaries all over the world. German engineering giant Siemens AG found this out the hard way when it set the record for FCPA fines in 2008. The company agreed to pay $1.6 billion to U.S. and European authorities for paying off foreign officials.
Siemens reached a nadir with its record-setting penalty, but the incident offered a host of lessons learned regarding corporate compliance and management.
