SMEs in the FCPA Spotlight

May 20, 2015
Categories: Anti-corruption, Bribery, Compliance, Corruption, Due Diligence, FCPA

Over the past several years, there has been an increase in the number of Foreign Corrupt Practices Act (FCPA) enforcement actions targeting small and medium-sized enterprises (SMEs). With most annual revenues hovering around roughly $1 billion and below, these companies are much smaller than those topping the list of FCPA enforcement penalties.

Both the DOJ and the SEC have been clear that this enforcement trend is likely to continue. The SEC’s FCPA Unit Chief Kara Brockmeyer recently stated, “This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales. When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

All SMEs face risk no matter the size of the business. Some companies like Bio-Rad or Bruker hover around the $2 billion mark in terms of annual revenue. Bio-Rad settled with the DOJ and SEC, paying $55 million in fines while Bruker paid only $2.4 million. According to the SEC, Bruker’s penalty was lower due to self-disclosure and cooperation with the SEC.

While those may seem like big numbers, comparing them to larger companies that have also settled FCPA cases puts these numbers in perspective. Siemens AG, a German company that settled FCPA charges in 2008 with the DOJ and SEC for $800 million, reported nearly $72 billion in annual revenue this year. Alstom, a French company that settled with the DOJ for $772 million in 2014, reported nearly $21 billion.

Other SMEs such as PBSJ Corp. or Layne Christensen report annual revenue around $1 billion. Many of the remaining companies, however, are substantially smaller, with barely more than $100 million in annual revenue, including Dallas Airmotive, Maxwell Technologies, Armor Holdings and AGA Medical. Penalties in these cases varied, but often amounted to nearly 10% of annual revenue for these smaller companies.

The focus on smaller companies doesn’t appear to be going away anytime soon either. The DOJ’s FCPA Unit Chief Patrick Stokes recently pointed out that small-and medium-size companies are just beginning to enter the global market, and while they may not have the same resources to conduct an expansive risk assessment, these companies should be prepared to conduct a risk assessment appropriate for their location,  industry and other risk factors, and then create a compliance program to meet those risks.

In a May 28th webinar, CREATe experts will outline how small and mid-sized companies can manage corruption risk with limited resources. The session addresses the elements of an effective program, how to do a tiered due diligence and other topics. Sign up for CREATe’s webinar now.

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