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Avoiding FCPA Liability by Tightening Internal Controls
In early May of this year, Avon Products, Inc. (Avon) announced that it expected to pay $135 million to end long-standing federal probes of alleged violations of Foreign Corrupt Practices Act (FCPA) provisions relating to books and records, and internal controls. According to its securities filing, the settlement requires the global beauty product company to pay $68 million to the U.S. Department of Justice (DOJ) and $67 million to the U.S. Securities and Exchange Commission (SEC). While this amount is larger than an earlier proposed $12 million settlement, it pales in comparison to the estimated $340 million already spent for an internal investigation and legal fees. Additional costs may arise, depending on the findings of a compliance monitor, who will be installed for at least 18 months.
Avon is not alone in paying big money to settle FCPA allegations with various federal regulatory organizations. This is just another example of a company paying out significant amounts to the DOJ and SEC as part of an FCPA settlement that arose out of lack of internal controls. In April 2014, Hewlett-Packard Company agreed to pay $108 million in fines, penalties, and disgorgements in an FCPA settlement regarding its subsidiaries in three countries allegedly making improper payments to government officials to obtain or retain lucrative public contracts. In January 2014, Alcoa agreed to pay $384 million to settle alleged violations of the FCPA relating to its subsidiaries purportedly paying bribes to government officials in Bahrain to maintain a key source of business.
Anyone expecting a diminution of activity is in for a rude surprise. In 2010, the SEC announced the creation of a specialized unit to police FCPA violations. In 2014 alone, the DOJ has initiated a number of new enforcement inquiries. Concern about illegal payments of bribes to non-U.S. government officials by businesses and fraudulent reporting practices is taking center stage in mergers and acquisitions as well. The last thing a buyer wants is to inherit an expensive FCPA problem that did not show up as part of deal due diligence.
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