For a long time before 1977, it was unfortunately common for domestic businesses operating partly overseas to pay regular bribes to foreign officials to advance their own interests. If you had a supplier or distributor in another country, bribing its government would gain you access to new contracts and speed up legal proceedings.
However, this clearly unethical practice needed to change. That’s where the Foreign Corrupt Practices Act (FCPA) comes into play. This compliance regulation applies to all industries, though the healthcare sector needs to pay attention to it for reasons we’ll discuss later.
But first, let’s go over what the FCPA is, how it applies to companies like yours, and what red flags to look out for that could point to non-compliance with this ruling.
What Is the FCPA?
The Foreign Corrupt Practices Act was established in 1977 by the United States federal government to address foreign bribery and corruption produced by domestic organizations. It essentially required more comprehensive bookkeeping practices to detect bribery and internal controls to hold businesses accountable for their own actions overseas.
Today, it’s jointly run by two agencies: the Securities and Exchange Commission and the Department of Justice.
What Does FCPA Compliance and Enforcement Look Like in the Context of Healthcare?
The FCPA, as mentioned, applies to almost all industries, but it’s of note to medical organizations in particular. That’s because healthcare is a prime target for FCPA compliance violations. Why?
• Medical law is already stringent by itself as the government aims to protect public health and patient safety.
• Hospitals and companies in this space work with foreign third-parties a lot, such as through distributors in a different region or suppliers from across the border.
• Clinical trials are often held in developing nations with little infrastructure to prevent corruption.
For these reasons, the opportunity for bribery is rather high in the healthcare space. FCPA compliance rules address professional conduct for both public and private institutions in the United States whenever they work and interact with other entities abroad.
What Did the FCPA Do?
Beyond the basic definition given above, American businesses working with foreign third-party organizations, groups, and individuals will have several new responsibilities now in order to be in compliance with the FCPA.
• Their directors, shareholders, consultants, and employees must record and disclose their activities to prevent bribery and other corrupt practices.
• Accurate and detailed financial records must be kept to enable proper transparency.
• Companies must have internal controls in place to manage how money is moving across borders and what it’s being used for.
One major benefit for everyone involved is making competition consistent in foreign regions. American businesses generally embraced the FCPA when it was announced largely because it made competing abroad fairer and more equitable.
Red Flags That Might Point Out FCPA Non-Compliance
Breaking FCPA compliance guidelines, even accidentally, can have substantial consequences for your company. Penalties have ranged from major fines to government sanctions, not to mention the loss in trust your clients and partners will have of you.
Bribery and corruption are always worth avoiding, so the question now remains: what red flags should I look out for that are signs of a non-compliant business?
Reputation of the Business
Market reputation plays a significant role in the general trustworthiness of a company. The less trustworthy a company, the more challenging it is to achieve FCPA compliance. Some examples of bad signs in this regard are:
• Multiple reports of suspicious activity from investigators and law enforcement.
• Allegations of paying bribes to government officials in the past.
• No serious attempts were made to establish a compliance program internally or to ensure that bribery does not happen.
• The business refuses or cannot prove its compliance to you objectively.
• The business is located in a country known for corruption.
Relationship with the State Might Hinder FCPA Compliance
You’ll also want to look at how the company works with the government of its region. What does it do, and how deep-rooted is the connection?
• Too many close connections to public officials is a red flag.
• Having officials on the business’s board of directors or group of shareholders is a problem.
• A long history of buying and selling products and services to and from the government is suspicious, especially if the amounts listed are unusually high or the nature of the transaction is ambiguous.
Unusual policies in terms of accounting and financial bookkeeping represent another FCPA compliance red flag. These are often a symptom of an untrustworthy business. Look for signs like:
• Unusually high demands for commissions, fees, and upfront payments.
• Strange payment terms, such as requiring payment through an unknown third party, putting a P.O box as a payment address, not having a payment address, or requiring a payment method like cash that’s difficult to trace.
• Refusing to keep detailed financial records and invoices.
Other circumstances that could point to non-compliance with the FCPA can be detected just by looking at how the business runs. If the company was only recently established or does not seem to contain enough resources and staff to do any substantial work, then the alarm bells in your head should start going off.
Of course, don’t treat these red flags as hard evidence. But do keep in mind that businesses become more risky when they bring up multiple of these red flags at the same time.
Streamline FCPA Compliance with Descartes Visual Compliance
The FCPA is not the only consideration modern organizations need to take into account. In fact, compliance today is more complicated than it ever has been, and businesses are looking for more efficient approaches to preventing costly sanctions and fines.
In an age where manual business processes are no longer sufficient, the search for automated solutions to industry compliance starts with finding a platform to handle all your needs, from denied party screening to global trade intelligence and everything in between.
Talk with an expert at Descartes if you’re interested in a smarter approach to compliance (be it the FCPA or anything else), to see how you can empower legal compliance in your organization.