Understanding Fraud in International Business
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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Danielle Supkis Cheek, a Director at PKF Texas and one of our Certified Fraud Examiners. Danielle, welcome back to the Playbook.
Danielle: Thanks for having me.
Jen: So, Houston’s an international city—we’ve had Frank Landreneau, one of our international tax directors on the program. There’s a lot of opportunity for fraud. What are you seeing in the international space?
Danielle: One of the concerns with the international space and fraud is actually the existence of the Foreign Corrupt Practices Act. It says you can’t bribe officials, which is a pretty obvious matter for international foreign officials.
Jen: One would think you don’t want to bribe people. So, what does the FCPA actually cover?
Danielle: So, what the concern is from an FCPA perspective is that you can actually have criminal liability as the business owner or managers for things that you don’t even do. So, if you have an agent or somebody that works for you—doesn’t even have to actually work for you, just an agent—bribe a foreign official on your behalf unbeknownst to you, you can actually have that criminal liability.
There are a couple of problems with this from an international business perspective, especially for Houston-based businesses, is that a lot of oil companies in other parts of the world are actually not private businesses. They’re foreign state-run government businesses, and so those employees are foreign officials. So, what may be an okay business practice in the U.S. for a private business, when you get international may not be an appropriate business.
Jen: So, what could be considered a bribe? Is a facilitation payment a bribe? What does the law say?
Danielle: There’s a fine line there. The law does allow for facilitating payments, which that may be a whole other topic on what not…
Jen: We’ll get an attorney in for that.
Danielle: A lot of companies don’t like to even allow facilitating payments, because where is that line? As well as there are other international standards that don’t allow facilitating payments, such as the U.K. Bribery Act. And because of the way international business works in, we are such a connected world, a lot of times some companies won’t even allow the facilitating payment. Which is, just for viewers, there’s a fine line of what’s allowed and the $20 bill in the passport to get through customs may or may not be allowed depending on the situation.
Jen: So, where does the accounting come into this?
Danielle: There’s a lesser known provision of the Foreign Corrupt Practices Act that actually requires public companies to have come accounting provisions in place.
Danielle: Mainly related to books and records as well as internal controls. So, mainly they’re not wanting you to book things as a slush fund or something like that.
Jen: So, what can companies do to make sure that they’re in compliance?
Danielle: One: comply with those standards, but there is a guide, a Foreign Corrupt Practices guide, by the DOJ that actually outlines what needs to be in place. It is required for public companies, but we are seeing private companies that want abide by it for a best practices to limit the company’s liability if an employee does something that they’re not supposed to do. And protecting the company as well as those individuals that could be in a role to have some criminal risk.
Jen: Wow, well that definitely sounds important, and Houston business owners need to be thinking about that if they’re doing any kind of international business. Perfect, thanks for sharing that with us, appreciate it.
Danielle: Of course.
Jen: For more about this topic, visit PKFTexas.com. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.