Do the Right Thing: Self-Report Potential FCPA Violations

A recent bribery case is a reminder of the importance of robust anti-corruption and FCPA compliance training to U.S. companies with foreign subsidiaries. Last week, Rockwell Automation, Inc., a manufacturer of industrial automation products, settled an enforcement action brought by the Securities and Exchange Commission (SEC) alleging violations of the Foreign Corrupt Practices Act (FCPA). The SEC had alleged that in 2003, a former subsidiary of Rockwell made over $1 million in payments to Chinese state-owned "design institutes" for the purpose of influencing contracts, and then inaccurately recorded these payments as "cost of sales."

• Good internal controls are critical. Ideally, internal reviews and audits will reveal accurate and transparent company records instead of erroneous or fraudulent ones. But the fact that Rockwell caught the potentially corrupt payments in the course of performing its normal internal review signaled that its internal-controls program was working properly.
• Self-reporting of potential violations may lead to smaller penalties. Rockwell's self-reporting of the violations it discovered, coupled with the relatively modest nature of those violations, may have convinced the Justice Department to drop the case. And it likely kept the civil penalty in check in the SEC action — the $400,000 penalty was modest in the current FCPA enforcement environment. 

Posted by Claudia Westin on May 10, 2011 Claudia Westin is Director of Content at WeComply, where she writes and edits a variety of interactive compliance training materials and courses. Before joining WeComply, Claudia practiced law for 15 years in the public and private sectors. She has experience as a litigator, as in-house counsel covering court administration matters for the State of California, and as an instructor and author of undergraduate business law and environmental law/policy courses. Claudia holds a J.D. from the University of Virginia School of Law.