This article originally appeared on Professor Koehler’s FCPA Professor website (www.fcpaprofessor.com) and is reprinted with his permission.
Previous articles have explored the FCPA’s long tentacles, collateral civil litigation resulting from FCPA scrutiny or enforcement actions, how FCPA scrutiny can impact mergers and how FCPA scrutiny can impact the cost of capital. Numerous prior pieces have highlighted professional fees and expenses in connection with FCPA inquiries.
In short, failure to comply with the FCPA has real business effects in addition to any ultimate fine and penalty amount announced on resolution day. This article summarizes several recent business effects associated with FCPA scrutiny.
As previously indicated in a Wall Street Journal Corruption Currents piece by Samuel Rubenfeld, S&P recently cut its debt rating on Avon Products Inc. Among the reasons cited for the downgrade was “expenses related to the ongoing investigation under the Foreign Corrupt Practices Act.” As noted in a recent New York Times White Collar Watch article by professor Peter Henning, professional fees and expenses incurred by Avon in connection with its internal FCPA review have approached $250 million – and there hasn’t even yet been an enforcement action.
During the past three years, Avon has spent approximately $225,000 per day on its FCPA inquiry. One can debate whether such expenses (as well as the other business effects noted in this post) should happen or are truly necessary, but the point remains such effects are happening.
Sticking with the investigative fees issue, Weaterford International recently stated in its March 15 annual report that since disclosure of its FCPA scrutiny (as well as Iraq Oil for Food and OFAC scrutiny), it has “incurred $123 million for legal and professional fees in connection with complying with and conducting” the ongoing investigations. According to the company, “This amount excludes the costs [the company has] incurred to augment and improve our compliance function.”
Diebold, which disclosed FCPA issues in July 2010, stated in March 14 proxy solicitation materials that the cash bonus of Thomas Swidarski (president and CEO) was reduced by the compensation committee. According to the materials, the committee concluded that ”given the CEO’s ultimate responsibility for the oversight of the company, as a result of the impact to the company of the global FCPA investigation it was appropriate that Mr. Swidarski’s cash bonus be reduced.”
Nevertheless, the materials indicate that Swidarski did receive a $1 million cash bonus (on top of his other compensation) … but it could have been more. Another component of the proxy materials that caught my eye was discussion of the board special committee set up to oversee the “global FCPA review.” The materials note, “This committee met in person or telephonically seven times in 2011.”
In other disclosure news, Dun & Bradstreet (the world’s leading source of commercial information and insight on businesses) announced earlier this week that it “has been reviewing certain allegations that local employees may have violated the Foreign Corrupt Practices Act and certain other laws in our China operations. D&B is cooperating with the local Chinese investigation, and has voluntarily reported these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission.”
D&B’s FCPA disclosure was contained in the same release in which the company stated it “has temporarily suspended its Shanghai Roadway D&B Marketing Services Co Ltd. operations in China, pending an investigation into allegations that its data collection practices may violate local Chinese consumer data privacy laws.”
D&B’s FCPA disclosure marks the third time in the last four weeks that a company has newly disclosed FCPA scrutiny.
About the Author
Mike Koehler is an assistant professor of business law at Butler University and is an expert FCPA columnist for Corporate Compliance Insights. He is a leading expert on FCPA and other anti-corruption laws and initiatives. Professor Koehler has testified before Congress on FCPA, and he is also frequently speaks about such topics before business and academic audiences.