Companies Charged with Bribery & Fraud Under FCPA Suffer Disproportionately High Losses
Earlier this month, George Mason University’s Searle Civil Justice Institute published a research report examining the financial impact of Foreign Corrupt Practices Act (FCPA) investigations on corporations. The report, The Foreign Corrupt Practices Act: Economic Impact on Targeted Firms, studied 139 FCPA enforcement actions since the law was first enacted in 1977 through 2014.
One of the most dramatic findings in the report was the stark difference in economic damage suffered by companies guilty of bribery and fraud under the statute, compared to companies found guilty of only bribery. Combined, the 139 firms saw an average loss of 2.9 percent of market capitalization as a result of an FCPA investigation. However, the companies that committed fraud and bribery saw an average of 16.3 percent loss in market capitalization. Over the long-term, these companies lost an average of 54.9 percent in value, compared to 2.7 percent at companies found guilty of bribery. These findings clearly demonstrate how severe certain FCPA violations can be for the long-term health of a company and should encourage corporate counsel to avoid and/or resolve investigations into FCPA-related fraud.
The report came to several additional conclusions regarding aggregate trends in FCPA enforcement. Enforcement actions tended to be concentrated within the manufacturing, pharmaceutical/healthcare and oil/gas industries. According to the report, in 85 percent of the cases companies expected increased sales, not political influence, in exchange for bribes. On average, bribes increased sales by 4.52 percent over the life of the relationship. As many industry stakeholders and corporate counsel already understand, the report also found that the reputational losses resulting from an FCPA investigation, although not necessarily quantifiable, often overwhelm the tangible and physical losses incurred.
Searle Civil Justice Institute Report on FCPA – http://masonlec.org/site/rte_uploads/files/FCPA%20II%20Final%20%286.4%29.pdf