FCPAméricas Blog
Adding It Up: Why FCPA Investigations Are So Expensive
11.27.2013
When considering FCPA liability, companies need to factor in not only the potential fines and penalties associated with a violation. They also need to consider the costs associated with a government investigation, costs that are often overlooked but can be considerable.
FCPA investigation costs regularly climb into the millions of dollars. While Stryker paid just over $13 million in its settlement with U.S. authorities, it also spent a reported $75 million on its investigation. (That matter included transactions in Argentina and Mexico, among other countries, described by FCPAméricas here.) Avon has spent $340 million on its investigation that has involved Argentina, Brazil, and Mexico, among other countries. Willbros spent more than $10 million on an investigation that involved Ecuador and Nicaragua. Compliance Week provides a good overview of other recent and ongoing investigations here.
So, why are FCPA investigations so expensive? There are several reasons.
Broad scopes. When a company conducts an internal investigation, it will usually focus on the country or countries implicated in the initial allegations. After it vets those issues, it is not uncommon for authorities to ask the question – how do you know the issues do not exist elsewhere in the company’s operations throughout the world? How do you know that the problem is isolated and not systemic? All of a sudden, a limited investigation becomes full blown.
Drawn out timeframes. It has been three years since Embraer received its subpoena from the SEC, discussed here. Based on recent reports, the company is still investigating the matter. Avon started its investigation in June 2008, more than five years ago, and it has not yet reached a settlement. These timeframes are not abnormal. Internal investigations are rarely quick. Even after facts are collected and analyzed, the company still has to negotiate a settlement with authorities. And each step usually comes with more costs … on lawyers, investigators, forensic accountants, computer analysts, and all of the other types of service providers needed to conduct and settle a government investigation.
Document review, interviews, etc. When presented with an allegation of foreign bribery, the U.S. government will generally require a company to conduct a thorough internal investigation. The time and effort needed to do this is significant. Each company unit and individual implicated in a scheme can trigger its own set of interviews and document review. The more people involved, the more email custodians that have to be included in a computer forensic search. This means more emails that must eventually be reviewed by attorneys. Companies often will use outside resources to perform many of these tasks to ensure that the investigation is credible and independent, generally more expensive than relying on in-house resources. The Siemens investigation, that ended in the most expensive FCPA settlement to date, provides a startling example. Its investigation cost the company an estimated $1 billion and is reported to have included roughly 1,750 interviews, over 1,000 informational briefings, 82 million documents electronically searched and 14 million documents reviewed, 38 million financial transactions analyzed, and 10 million bank records reviewed.
Responding to other authorities. More and more, companies have to interact with enforcement authorities in other countries too. For example, recent reports show that Brazilian authorities are now investigating Embraer, piggy backing off of the DOJ and SEC’s investigation (described here). This requires companies to hire more sets of outside lawyers in multiple countries and make additional efforts to ensure that activity in numerous jurisdictions has been reviewed.
Individuals investigated. When the government investigates company individuals, the company often pays the individuals’ legal fees, meaning additional expenses. To mount the best defense, individuals often hire top-notch criminal defense lawyers. For example, reports indicate that executives at Embraer have retained legal counsel from reputable U.S. white-collar firms, including Shearman & Sterling LLP, Williams & Connolly LLP, and Zuckerman Spaeder LLP (it is not clear whether Embraer itself is paying their expenses). There are non-monetary costs to these investigations too. They create a significant burden on upper management and distract comply leadership from its normal responsibilities.
Considering these costs, modest investments in robust anti-corruption compliance programs up front begin to make more economic sense. For one, with a program in place, wrongdoing is often identified before it causes too much damage. In the event that an internal investigation is required, its scope is generally more controlled. With a compliance infrastructure already in place, companies can more effectively determine the extent of wrongdoing without a full-blown review. They can look to their regular compliance audit reports to get a sense of how many countries or divisions might be implicated. They can rely on records of third party due diligence and monitoring, and training of company officials and vetting of business partners, to help isolate activity under review.
Without a compliance program in place, however, companies risk the alternative … the potential for a widespread investigation.
The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
© 2013 FCPAméricas, LLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
Comments
January 10th, 2014 at 2:05 pm
[…] million in the next two quarters on the same, according to Richard Cassin of the FCPA Blog. See “Adding it Up: Why FCPA Investigations Are So Expensive,” and, “Walmart’s Whopping FCPA tab – $300 Million and Climbing.” Importantly, the […]
January 13th, 2014 at 1:34 pm
[…] million in the next two quarters on the same, according to Richard Cassin of the FCPA Blog. See “Adding it Up: Why FCPA Investigations Are So Expensive,” and, “Walmart’s Whopping FCPA tab – $300 Million and Climbing.” Importantly, the […]
January 13th, 2014 at 1:36 pm
[…] million in the next two quarters on the same, according to Richard Cassin of the FCPA Blog. See “Adding it Up: Why FCPA Investigations Are So Expensive,” and, “Walmart’s Whopping FCPA tab – $300 Million and Climbing.” Importantly, the […]
January 13th, 2014 at 1:49 pm
[…] million in the next two quarters on the same, according to Richard Cassin of the FCPA Blog. See “Adding it Up: Why FCPA Investigations Are So Expensive,” and, “Walmart’s Whopping FCPA tab – $300 Million and Climbing.” Importantly, the […]
January 22nd, 2014 at 7:55 pm
[…] million in the next two quarters on the same, according to Richard Cassin of the FCPA Blog. See “Adding it Up: Why FCPA Investigations Are So Expensive,” and, “Walmart’s Whopping FCPA tab – $300 Million and Climbing.” According to Gibson […]