The Foreign Corrupt Practices Act, otherwise known as the FCPA, is a federal law in the United States that is designed to prevent the bribery of foreign government officials by companies that are trying to either obtain or retain business in a particular area. Originally passed into law in 1977, it prohibits any firm or individual based in the U.S. from acting in this manner within the context of a business deal for any reason. The FCPA is notable for two key factors. First, it has very specific required accounting transparency guidelines to which all businesses must adhere. Second, there is no minimum amount for punishment of a bribery payment, underlining just how seriously the U.S. takes the ideas of global corruption and abuses of power—and businesses that are in the process of expanding globally are obliged to comply with the FCPA for a number of key reasons.
FCPA Compliance During Global Expansion
Setting aside the fact that combating corruption on the global stage is the right thing to do from an ethical perspective, perhaps the number one reason why FCPA compliance is essential comes down to the competitive advantage businesses try to establish. If an organization is expanding into a market where corruption is rare or virtually non-existent, it and its competitors can each differentiate themselves based on the quality of their product or service, business models, the efficiency of logistics, and other key factors essential to success. Conversely, competitive advantage is dictated by which company can bribe its way into the most work or the highest number of contracts—hardly a level playing field for all involved.
Life before the FCPA was not only expensive for businesses, but also incredibly risky. Therefore, it's beneficial for businesses to operate under the guidelines of a law that seeks to ensure that all businesses around the globe are operating on a relatively similar regulatory plane.
Along the same lines, FCPA compliance is also hugely important thanks to the wide range of different, secondary benefits businesses may enjoy. This compliance infrastructure allows businesses to achieve advantages like a significantly improved level of quality control, stronger internal controls regarding how they're able to operate in these areas, and even a general efficiency level that would be difficult to replicate through other means. However, the verdict is still out on whether or not the Trump Administration will take steps to kill the FCPA; President Trump has called it a "horrible law" in the past.
Mitigating Risk During Global Expansion
Most businesses—whether SMEs or large corporations—avoid risk whenever possible; for as important as disruptive technologies are in the modern era, an organization’s success is less about embracing risk and more about looking for opportunities to mitigate that risk whenever possible. Most businesses are willing to take risks only when reasonably sure it is going to pay off whether in the short or long term.
Because of this, companies that are in the process of expanding need to find ways to protect their reputational exposure at all costs. This is especially true when navigating cultural and social differences in new markets, especially when already dealing with local businesses or local authorities on a regular basis.
One of the easiest way to destroy a brand's reputation these days is for it to find itself on the receiving end of an FCPA investigation or lawsuit or, in a worst-case scenario, both. Because of that, following the rules laid out in the FCPA better positions businesses to both manage outsized risk and protect reputations when making crucial "first impressions” in new international markets.
Expand Globally, Compliantly—And Take an Experienced Partner with You
Issues such as FCPA compliance serve as a reminder that working with the right, experienced expansion partner is crucial when establishing a presence overseas. Velocity Global’s International PEO (Professional Employer Organization) solution can have your business up and running in your new international market quickly—and in compliance with all applicable laws and regulations.
If you’re ready to take your business overseas at a fraction of the cost of entity establishment, reach out to Velocity Global today to take the first step in widening your global footprint. Ready to think beyond borders? Let’s talk.