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Regulation Nations – Doing Business In A Global Economy

Feb 2, 2022

As global economies continue their recovery from the pandemic recession, the business world is developing into more of an interrelated and interdependent global economy. The days of trying to survive on economic isolationism are no longer a viable option for most businesses. However, alongside the increases in cross-border business relationships and joint ventures comes a new business risk: exposure to new laws and regulations.

The main thrust of U.S. and international regulatory authorities is currently focused in the areas of anti-corruption and anti-bribery. In the U.S., the Foreign Corrupt Practices Act (“FCPA”) of 1977 is the main piece of legislation used to initiate corruption and bribery investigations of companies and businesses. In addition, the U.S. passed the Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act” or “Dodd-Frank”), another massive piece of legislation that arms regulatory authorities in many areas including the often-used whistleblower provisions. Another Dodd-Frank provision now on the radar is the conflict minerals provision. The Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) are the main enforcement agencies responsible for investigating and prosecuting suspected Dodd-Frank violators.

In the United Kingdom, the U.K. Bribery Act (“UKBA”) was passed in July 2010. The main body for UKBA enforcement is the Serious Fraud Office (“SFO”). In the last couple of years, many other large world economic powers have become more aggressive in implementing laws and regulations to combat corruption and bribery. Most recently, Brazil implemented the Clean Companies Act, effective January 1, 2014. In addition, other countries—such as China, Russia and India and many European Union, Central and South American, and developing countries—are implementing and enforcing new anti-corruption and anti-bribery laws and regulations.

There is no denying that all these new laws and regulations, while intended to help fight global corruption, increase the risk of doing business in a global world. That’s because effective compliance is a daunting undertaking, and failure to comply is potentially very damaging. Many of the acts and regulations previously mentioned have a global reach. Companies and, in some cases, their executives can be held criminally liable for violations of these laws and regulations, even if they occurred in a foreign country and, in some cases, without their knowledge. The SEC and DOJ are constantly looking for violators of the FCPA and targeting companies worldwide. The SFO is also reaching out globally and attaches to companies that may not be domiciled U.K. firms but that are doing business with a U.K.-affiliated company. There are similar provisions in many of the other enforcing countries as well. Therefore, companies now must continually assess their compliance risk exposure if they operate or do business globally.

Corruption and bribery generally involve two or more people entering into a secret agreement. The agreement can be to pay a financial inducement to a public official for securing favors in return. The FCPA refers to it as “unlawful … payments to foreign government officials to assist in obtaining or retaining business. … This includes the willful use of the mail or any means or instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.”

Historically, the oil, gas and mining industries have faced more exposure to charges of foreign and domestic corruption and bribery. The reason? Many operations are in high-risk foreign jurisdictions where, to secure mining or extraction rights, paying bribes to public officials or landowners has been a way to secure exclusivity and preferential treatment. Not surprisingly, this sector is the target of many corruption enforcement actions. However, according to a new global anti-corruption report by TRACE International, other industries (e.g., retail, technology, pharmaceutical, entertainment) are also the focus of such actions.

Along with the trend to reform the global workplace, there is a lot of money to be made by regulators through enforcement. In fiscal 2021 alone, the SEC filed 697 enforcement actions and collected more than $1.4 billion in penalties. This was a 7% increase over fiscal 2020. In addition, the SEC set a record with $564 million in whistleblower awards. The DOJ also had increased enforcement activity relating to the Cares Act and PPP programs. According to the U.S. Secret Service, nearly $100 billion has been stolen from government pandemic relief programs. The official statistics for calendar year 2021 are still being compiled, and we will report once released. However, the DOJ is currently investigating billions of dollars of suspected fraud.

The rest of the world is following suit, and their enforcement efforts are yielding large fines as well as jail time for corporate executives. There is a lot of suspected pandemic-related fraud schemes worldwide currently being investigated.

What is clear is that attention to global corruption and bribery continues to grow. As it does, government regulators will continue to evolve and implement rules and regulation to keep up with and combat the crimes while prosecuting violators. What does this mean for businesses? It’s clear that corruption remains a significant issue for businesses worldwide and, as a result, global regulators will keep up their enforcement and investigation actions. Therefore, businesses must strive to manage their risk and exposure by constantly reviewing and redesigning their systems and controls and looking for weaknesses, with the goal of strengthening them to avoid noncompliance. In addition, organizations should develop and promote a culture of compliance that makes everyone a part of the global anti-corruption and anti-bribery team.

These types of efforts go a long way toward minimizing organizational exposure and noncompliance risk. As ever-changing technological advances are used to manage businesses and provide anti-fraud and anti-corruption controls, organizations must be aware that someone wanting to do harm will eventually attempt to circumvent the controls. This poses additional risks and threats to organizations subject to the growing global anti-corruption enforcement trend facing business. For now, businesses must adjust to the current environment and be ready and flexible enough to adapt as the rules, regulations and risks change. Fighting fraud has to be a proactive task for organizations.

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Hubert Klein

Hubert Klein a Partner, the Firmwide Valuation Services Leader, and the New Jersey Forensic, Litigation & Valuation Services (“FLVS”) Market Leader, is a nationally recognized expert witness and professional educator in forensic accounting, damages, and valuation topics.

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