Question

What is the importance of having an effective compliance and ethics program with respect to the FCPA? What is the role of confidential reporting and internal investigations in the compliance program?

Answer 1

-> Companies and the people responsible for taking management decisions face a variety of local and international regulations. Making a default in any of these regulations, whether intentional or unintentional can lead to corporate scandals which will hurt a firm's reputation in the market. This is where the compliance and ethics program comes into play.

Having an effective compliance and ethics program can help the company ensure that they always operate within the law and regulations and follow ethical practices that are necessary for the company's image and reputation. Having such a program also demonstrates to the society and its own employees that the company is committed to doing its business the right way. Since compliance and ethics program does not really entail any revenue for the company, many companies put it on the back door. However that is really just a short-sighted approach which might being heavy consequences on the company in the long run.

In this respect, the joint department of justice and SEC gave a FCPA (Foreign Corrupt Practices Act) guidance. While the guidance cautions that there is no "one-size-fits-all", however based on various factors such as type of business, nature of business environment, size etc., it provides ten hallmarks of an effective compliance program which provides certain insights which are very useful for the company.

-> One of the hallmarks provided in the guidance is "Confidential reporting and Internal Investigation" : The name might suggest that it's basically a hotline for anyone who wants to report any fraud in confidence, however, it is means more than just a hotline. The guidance suggests that the best way for employees to report corruption or violation of FCPA would be through implementing a forum for anonymous reporting. Now this is only the first stage which is reporting. What is equally important is what does company does after such an allegation has been made. As per the guidance, once an allegation has been made the company should not only place a reliable and efficient process for investigation but it should also be properly funded. Also it is important to maintain all documentation including allegation made and company's response to the same.