Intelligize, Inc., a corporate compliance resource provider, recently released a report titled “Managing Risk Better in 2013.” The report tracks public company disclosures filed with SEC between January and June of 2013 and compares such disclosures to those filed in the second half of 2012.
Under the heading “Foreign Corrupt Practices Act,” the report states as follows.
“A continuing concern to corporations is the extent to which they discover possible FCPA violations and the timing and extent of their disclosure of FCPA violations in their SEC filings. According to Intelligize’s analysis there have been over 2,000 references to the FCPA in companies’ SEC filings in the past six months. This represents a 33% increased compared to FCPA references in the previous six-month period.”
An eye-popping number right?
Not really, it is important to understand what these FCPA references represent and what they do not represent. The vast, vast majority of these disclosures do not represent disclosure of FCPA inquiries, investigations or scrutiny. Rather, FCPA risk has come to be included in the generic risks companies disclosure to investors pursuant to Item 1A (Risk Factors) required in most SEC filings.
Consider the recent SEC filing of pharmaceutical company Actavis Inc. as a random, yet representative, example. Under Item 1A, the company disclosed approximately 45 risk factors (such as the loss of key personnel could cause the business to suffer, global economic conditions could harm the business, and currency fluctuations could negatively impact the company).
One of the risk factors disclosed under the heading “our global operations expose us to risks and challenges associated with conducting business internationally” stated as follows.
“We operate on a global basis with offices or activities in Europe, Iceland, Africa, Asia, South America, Australasia and North America. We face several risks inherent in conducting business internationally, including compliance with international and U.S. laws and regulations that apply to our international operations. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the Foreign Corrupt Practices Act, and other U.S. federal laws and regulations established by the office of Foreign Asset Control, local laws such as the UK Bribery Act 2010 or other local laws which prohibit corrupt payments to governmental officials or certain payments or remunerations to customers. Given the high level of complexity of these laws, however, there is a risk that some provisions may be inadvertently breached by us, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements, or otherwise. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate these risks and manage these challenges. These factors or any combination of these factors may adversely affect our revenue or our overall financial performance. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties.”
