According to a recent report in the Wall Street Journal, settlements with the government are not the only cost corporations must account for if they decide to engage in illegal bribery of foreign officials. The newspaper found that legal expenses for internal investigations associated with foreign bribery charges have cost several companies hundreds of millions of dollars.
Allegations of bribing overseas officials have cost Avon, Weatherford International, and Wal-Mart nearly half a billion dollars. Worst of all for the companies: they have not even been charged with anything yet. Avon is in the midst of its fifth year of going through an internal investigation about allegations that employees paid bribes overseas. The company has so far spent about $280 million on legal expenses conducting the investigation. Oil-services company Weatherford International has spent more than $125 million on its own six-year investigation into bribes that took place in Europe and the Middle East. Another whopper is the $51 million Wal-Mart has spent in less than a year on an investigation into bribery claims that took place in Mexico.
The Foreign Corrupt Practices Act, or FCPA, says that it is illegal to offer money or a gift to a foreign government official to gain a business advantage. The law applies to any company based in the U.S. or listed on a U.S. stock exchange. It has become commonplace for companies that suspect they may have engaged in illegal behavior to preemptively hire investigators to examine the issue internally. These investigations are often turned over to the government in the hope of getting lighter penalties or avoiding punishment altogether.
The costs associated with these internal investigations are so high that it can seem like punishment in itself. In some cases, the settlements paid by the companies to the government are substantially less than the amount they paid their own investigative team of attorneys and auditors.
Experts in the field say that a typical major, multinational company can expect to spend an average of about $2 million to investigate its operations in one country. The problem for many companies is that most investigations are not limited to only one country and can instead encompass whole regions of the world. Smaller investigations that center on a specific issue can cost less, between $100,000 and $200,000.
Despite the incredible expense associated with these investigations, law-enforcement officials say such internal probes are absolutely necessary to ensure fairness in such a large marketplace. Companies need to be able to police themselves given that the Justice Department is not large enough to conduct so many comprehensive investigations on its own. The DOJ instead relies on the information gathered by the companies when it begins an investigation of its own.
According to officials with the Justice Department, more than a hundred other companies are currently under investigation for possible FCPA violations. That means that millions of dollars will soon be spent by dozens of companies on law firms and auditors in an attempt to stay a step ahead of federal investigators and possibly save themselves from even costlier criminal or civil fines down the road.
FCPA Inc.: The Business of Bribery by Joe Palazzolo, published at WSJ.com, October 1, 2012
The High Cost of FCPA Investigations by Jaclyn Jaeger, published at ComplianceWeek.com, April 17, 2012