FCPA Violations Reiterate Need for Anti-Corruption Programs

Dear Friends:

By now, many of you have probably heard about the recent settlement of alleged FCPA violations involving Ralph Lauren Corp. and its operations in Argentina.  While this case is interesting/important on several levels (e.g., it represents the first ever non-prosecution agreement entered into for alleged FCPA violations, how the parent became liable for the actions of a separately-incorporated subsidiary, the Argentine government’s request that the US government share the names of the individuals involved, etc.), it should also be of particular interest to all global trade/customs compliance personnel since the violations alleged to have occurred here involved fairly routine customs activity.

In short, it was alleged that, between 2005 and 2009, an employee at RLC’s Argentine subsidiary paid almost $600,000 in bribes through its customs broker to Argentine customs officials in order to import goods without required import permits/licenses and to avoid inspections.  The company ultimately discovered the conduct itself and disclosed the matter to the US government.  As part of the non-prosecution agreements, RLC agreed to pay approx. $735,000 in disgorgement and interest to the Securities & Exchange Commission and a $882,000 penalty to the U.S. Department of Justice.  More information on the case can be found here.

This case is another example of how important effective internal customs compliance programs can be.  Since many FCPA cases involve customs violations at their base, companies need to ensure that their internal controls over customs matters include effective oversight over brokers, and that the in-house trade compliance team understands the requirements that apply in the jurisdictions into which they are importing.  While much has been made about the fact that the Company discovered these issues in 2010 after it implemented a new FCPA policy, the activity alleged here involved fairly routine customs activity — failing to obtain required import licenses/permits, paying customs brokers for fictitious fees in order to disguise bribes, etc.  A meaningful customs compliance program could have prevented these issues from arising in the first place (or at least discovering them a lot sooner).

While implementing an effective anti-corruption program is certainly important, companies should also take steps to ensure that its customs compliance program is tailored to prevent issues like those involved here from occurring.  For example, when entering a new jurisdiction, the company should make sure that it understands upfront what import requirements apply to its goods (e.g., is an import license/permit required for the goods to be imported or not?) and what sort of duties & fees will be owed.  It should also take steps to vet any customs brokers or agents.  All companies should take steps to audit its brokers or agents against these requirements.  Implementing reasonable steps like these would go along way to preventing expensive FCPA actions from occurring.

We hope that this is helpful.  If you have any questions about ways to strengthen your customs compliance controls over ex-US activity, please let us know.

Best regards,

Ted

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