‘Look Before You Leap’: FCPA, Anti-corruption Issues Straining Business Relationships

Lucas Gilmore, “Big 4″ observer
February 07, 2011 /

Business consultancy and accounting firm Deloitte has warned financial services firm to be cautious in initiating business relationships as recent economic and trade regulations by the USA, including sanctions against FCPA violations and corruption, have made the “task of compliance increasingly challenging.”

According to its latest survey of corporate executives, investment bankers, private equity executives and hedge fund managers, “Look Before You Leap”, Foreign Corrupt Practices Act (FCPA) and anti-corruption issues have strained business relationships among 63 percent of respondents in the last three years.

Of the respondents reporting the drastic impact of economic and trade sanctions to business relationships, financial services firms were higher at 64 percent.

Wendy Schmidt, leader of Deloitte’s business intelligence services practice, said respondents to the survey seemed to place much importance on integrity and reputation when considering the prospect of merging with another firm.

“In today’s environment where word travels quickly, maintaining one’s reputation, and engaging in business deals with upstanding organizations, is of utmost importance,” Schmidt added.

When considering compliance and integrity-related issues, 61 percent of respondents renegotiated or junked potential acquisitions due to lack of transparency or unusual payment structures in contracts in one organization while 60 percent adjusted price of the deal.

Concerns over the use of agents, consultants, distributors, or third parties by the target company in facilitating business relationships have reflected 18 percent of the respondents.

“Over the next few years, it is unlikely that these concerns on the part of the financial industry will diminish, especially as banks, for example, seek new clients in the rapidly expanding emerging markets,” said Clint Stinger, a leader in Deloitte’s anti-money laundering and economic & trade sanctions practice.

It can be noted also that at the start of 2011, the Securities and Exchange Commission has handed its first lawsuit over FCPA violation against Maxwell Technologies Inc. for bribing Chinese officials to close business deals with stated-owned firms in China.

The SEC said Maxwell paid more than $2.5 million to certain Chinese authorities from 2002 to May 2009 to obtain contracts that generated $15 million in revenues and $5.6 million in profits.

The defendant settled the SEC’s charges of FCPA violation without admitting or denying the allegations.

Overall, Deloitte’s report showed that almost two out of three respondents see FCPA or anti-corruption issues as main considerations in business relationships.

 

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