High Tech and Corruption Risks

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4 Responses

  1. Michael,

    The message that high tech and Silicon Valley are ripe for aggressive FCPA enforcement has been given forcefully and repeatedly at probably 15 conferences, 20 or more law firm presentations and annual ACC programs in the Bay Area in the past 6 years. Feeding the speculation the government was going to start enforcement, the SEC opened a Bay Area FCPA office to some fanfare 2 years ago. Despite all the dire predictions, there have been virtually no actions brought or serious fines levied against high tech companies, so nothing has grabbed the attention of corporate management (though the current HP matter has the potential to change that).

    It is odd that you point to supplier relationships in China as a probably source of FCPA problems. The supply side is not the main source of FCPA risk for tech companies. A much larger risk is the high tech sector’s extreme reliance on sales channels for international business and many companies’ poorly informed, inconsistent, hands off management of those channels. China does seem to be the US government’s focus for FCPA enforcement. But corruption in the high tech sector – and all industries – exists everywhere in the world as companies scramble for business in corrupt environments with very little assessment of the risks. Compared to other countries, China may be a large supplier of products, but is just one of many markets for sales, technology transfers and service transactions by US technology companies, and those are the types of transactions which have a much greater potential for bribery.

    I do agree with your generalization that the technology sector is behind the curve in getting anti-corruption compliance programs in place – but again that message has been given at every presentation on the FCPA in the bay area for the past 6 years and there is not much evidence it has had a significant impact on corporate compliance programs. The tech sector remains a target rich environment for FCPA investigations, and not many companies have compliance programs which would qualify them for credit under the Federal Sentencing Guidelines or the DOJ’s very clear Attachment C guidance.

    To date FCPA enforcement has been a boogie man story to silicon valley executives. When the stock option backdating matter hit a few years ago, roughly 100 tech companies were investigated in a year or so, senior executives and general counsels lost their jobs, everyone got the message and cleaned up fast. The stock option backdating scandal showed the government can act when it wants to and companies will react. If the government mounted a similar concerted investigation in the FCPA area, it could probably bring a similar number of cases in the tech industry and management would react.

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