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Payables and FCPA Compliance

The arm of the law is not only long but patient and painstaking. This month, the U.S. Department of Justice charged a former account manager for Swedish telecom giant Ericsson with conspiracy to violate the Foreign Corrupt Practices Act (FCPA). The one-time Ericsson employee facilitated the payment of $2 million to two high-ranking officials in Djibouti between 2010 and 2014.

The charges come 21 months after a subsidiary of LM Ericsson pleaded guilty on a charge of conspiracy to violate the anti-bribery provisions of the FCPA, and Ericsson itself paid more than $1 billion for this and other violations. So what exactly is the FCPA, and what does it have to do with accounts payable?

The Foreign Corrupt Practices Act of 1977 (FCPA) is a federal law against bribery and false accounting. And bribes, like every other payment outside of payroll, exit the organization through accounts payable (AP).

It is illegal for U.S. citizens and companies to offer a foreign official anything of value to gain an unfair advantage or influence business decisions. And FCPA’s accounting provisions make it a criminal offense to falsify books and records and fail to maintain internal controls.

False Contract and Invoices

In the Djibouti case, an Ericsson account manager participated in a scheme to bribe two government officials and a high-level executive in the state-owned telecommunications company. The plan involved a phony consulting contract and fake invoices. The aim was to obtain a contract with the local telecom worth nearly $24 million.

That was a violation of the FCPA. Not only did the company pay fines, but the DOJ is going after the individual involved. The DOJ has jurisdiction in criminal acts, whereas the SEC is authorized to investigate civil matters under the law. Thus, violators face criminal or civil penalties. The DOJ and the SEC have assessed massive fines against companies convicted under FCPA and sentenced executives to jail.

The AP Department’s Responsibility

AP pays the bills and handles expense reimbursements. Business courtesies, such as gifts, meals, entertainment and travel, are common and legitimate in doing business at home and overseas. But there are, or should be, limits on such courtesies. According to Foley & Lardner LLP, a survey of Fortune 500 companies found gift and entertainment limits are standard policy, typically being less than $250. And while paying for certain travel can be legitimate, say, flying clients to visit a plant or project site, paying for clients’ and spouses’ all-expense-paid weekend in Las Vegas or Monte Carlo is not.

AP staff should be made aware through training of all compliance responsibilities, including the FCPA. An AP staffer should know that if she receives an expense reimbursement request or series of requests that look suspect, she should flag it for the manager’s review. The AP manager should escalate to the controller as necessary. And if asked to ignore concerns or “just pay it,” by senior management, ask that those instructions be put in writing, at least in an email.

Besides T&E, there is the possibility of phony contracts or vendors, as in the Ericsson case, which is why internal controls are essential, whether at vendor onboarding or invoice processing and approval. Vendor validation (including of consultants) should be part of the onboarding process prior to entering an entity into vendor master file. If there are concerns about a vendor or more often an invoice that shows up from a new vendor for “services” that seems suspect, question it. Particularly in a “rush” scenario, AP should not circumvent controls unless it has compensatory controls. Controls are there for a reason.

AP has a fiduciary responsibility to the organization. It is the final set of eyes on payments before they go out the door, the last line of defense against fraud. AP has a significant role in compliance, whether with the IRS, OFAC or the FCPA. Be vigilant about unusual T&E or vendor invoices.

Click here for a Resource Guide to the U.S. Foreign Corrupt Practices Act.

For help with Vendor Onboarding, contact us.

 

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