In the early 20th century, bribery of foreign countries was not uncommon for domestic businesses operating internationally. Those with suppliers, distributors, and other partners overseas would often pay bribes and even record them on official invoices as regular business expenses. Doing so would allow them to gain access to new contracts and speed up certain legal processes unethically.
These practices changed with the implementation of the FCPA, which all industries (not just healthcare) must follow to this day. What exactly is the FCPA, what does compliance look like, and what are some red flags to indicate potential non-compliance?
What Is the FCPA?
The FCPA, which stands for Foreign Corrupt Practices Act, is a federal law of the United States instituted in 1977 designed to prevent American individuals and organizations from bribing foreign officials to advance their own business interests.
It does so by requiring domestic companies to implement internal controls and boost recordkeeping procedures to hold everybody accountable.
The FCPA is run jointly by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ).
Does FCPA Compliance Enforcement Apply to Healthcare?
FCPA compliance is not specific to medical organizations but certainly applies to them. In fact, this industry is primarily susceptible to FCPA compliance violations for a few reasons:
- Healthcare is already extensively regulated and involves much licensing and approvals, resulting in many opportunities for bribes and corruption.
- Institutions today are also relying heavily on materials and services provided by foreign third parties. Foreign vendors and distributors are also an area where bribery may occur.
- Clinical trials are often held in developing regions where it’s far less likely that illegal activities will be caught.
Of course, the Foreign Corrupt Practices Act does apply to all companies in the United States, from publicly traded ones to private ones, whenever they conduct business anywhere in the world.
What Did the FCPA Implement?
Several new responsibilities are now required of American businesses operating internationally. Those include:
- Regulations that directly address bribery: The actions of various individuals in a publicly traded company are inspected for the potential of bribery. The people involved include directors, shareholders, employees, and any third-party consultants and advisors.
- Bookkeeping procedures: The FCPA emphasizes transparency, especially when it comes to accounting. Financial records must be detailed and honest to the point where bribery is difficult to hide.
- Internal controls: Businesses need a way to control the way money is being spent within the organization. This way, potentially fraudulent purchases are easily noticed whenever business transactions are being conducted.
It’s worth noting that American businesses largely supported the passing of the FCPA, mainly because it leveled the playing field for domestic organizations abroad. It was difficult to compete in less developed regions where bribery and corruption are more common.
FCPA Compliance Red Flags to Look Out For
Getting caught in violation of the Foreign Corrupt Practices Act can have substantial consequences for the business in question, from costly sanctions and penalties to a loss of trust in the market to even criminal charges. It should be obvious, but the potential losses associated with non-compliance entirely negate the temporary benefit of bribery.
For that reason, it’s important to understand what some red flags look like for a company committing FCPA non-compliance.
The first signs you should look out for include the reputation of the business in the market:
- There are many reports of suspicious or illegal business activities for this company. For example, poor payment services might get the attention of investigators and law enforcement.
- Poor conduct, such as having many allegations of paying bribes to government officials.
- The business operates within a country notorious for corruption. Consult international indices and records to check this figure.
- The organization does not even bother to have a formal compliance program or department in place.
- Any information the business tells you about its own compliance posture cannot be verified objectively.
You’ll also need to look at how the company works with the government in its own country:
- The business has too many close connections with public officials, who themselves might recommend the company. This particular FCPA compliance red flag applies especially if a government official serves on the business’s board or acts as a shareholder.
- The company makes donations to political causes often or contributes to political movements.
- The company purchases government services that are either priced at suspiciously high amounts or ambiguously described in official accounting documents. Terms like “services rendered” should be considered a red flag.
- Likewise, selling products and services too often to the government is a red flag.
Strange accounting practices can be another major red flag of FCPA non-compliance:
- Commissions and fees are unusually high compared to market benchmarks.
- Up-front or advance payments are unusually high as well.
- Payments are made through third parties for no discernable reason.
- Addresses for payments are located on a P.O box or do not exist.
- Payments are accepted only in non-traceable formats such as cash.
- Generally poor accounting procedures, such as refusing to keep detailed records of transactions.
And don’t forget to check for other miscellaneous circumstances like:
- Not having the staff, resources, experience, or general means to do any substantial work.
- The company was established only recently.
- The business merely acts as a shell company to a foreign entity.
Red flags are merely potential symptoms of FCPA non-compliance and not perfect evidence. However, the next time you work with a foreign party, take note and be cautious should many of these red flags be raised at the same time.
Prevent Breaches of FCPA Compliance with Descartes
The FCPA is only one of many international regulations to keep track of. Preventing the costly sanctions and fines associated with non-compliance is a complicated practice, especially if you’re still using dated manual processes.
If you’re in the market for your industry’s best compliance solutions, you can streamline your approach to regulatory mandates with a partner like Descartes. From denied party screening to global trade intelligence, you’ll find what you need from our automated compliance processes.
Look For Automated Screening Tools From Descartes
FCPA Compliance doesn’t have to be an expensive hassle. Being a data and analytics-heavy process, denied party screening is naturally a field where technology can be leveraged effectively. Healthcare compliance, with so many best practices and individual agencies involved, is too complicated to entrust to a manual business process.
That’s why Descartes has been working with some of the world’s most prominent hospitals to support their work on customs and regulatory compliance. Contact us to learn more about how our tools help boost global trade intelligence and empower denied party screening departments across the country.