FCPA compliance: What you need to know

by AppZen May 8, 2018

What is the FCPA?

Its full name is actually the Foreign Corrupt Practices Act of 1977 (FCPA) and it was designed to make it illegal for companies to influence foreign officials with personal payments.

The bribing of foreign officials by American companies was so problematic – a US Securities and Exchange Commission (SEC) investigation in the mid 1970s revealed that more than 400 companies admitted to the practice – that compliance is overseen by both the SEC and the Justice Department. Lawmakers were agitating for such a law for decades, but several high-profile scandals in the 1970s brought the issue into the collective conscious.

What does FCPA compliance mean for companies today?

Violations don’t just yield massive fines, they also could mean criminal indictments against those involved. The challenge of course is that there is no single database of Politically Exposed Persons (PEPs). However, different companies and governments do compile databases of people that are at high risk of getting bribed for their influence or people which companies should not be doing business with under any circumstances.

How can AppZen help?

AppZen is able to cross reference all compiled online PEP lists to spot expense reports that have a PEP tagged as the recipient of a company expenditure. This removes the burden of human auditors spending hours digging into every PEP list for every name tagged on a report. Violations typically occur in the form of expensed gifts, meals, entertainment, travel, charity contributions, and consulting fees where a recipient name field is required.

It is important to note that a majority of FCPA violations committed by employees often lack intent, meaning, they have no idea that the person they are taking out to a professional meal is actually politically exposed.

What does AppZen check?

Currently, Appzen checks the following online resources to identify PEP:

Specially Designated Nationals (SDN) List

A list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.

Chiefs of State and Cabinet Members of Foreign Governments List

An online directory published by the CIA of “Chiefs of State and Cabinet Members of Foreign Governments.”

Diplomat List

List covering foreign missions (embassies, interest sections) in the United States and the members that reside in those missions.

Denied Persons List

A list of people and companies whose export privileges have been denied by the Department of Commerce’s Bureau of Industry and Security (BIS).

Unverified List

List includes names and countries of foreign persons who in the past were parties to a transaction with respect to which BIS could not conduct a pre-license check (PLC) or a post-shipment verification (PSV) for reasons outside of the U.S. Government’s control.

Entity List

Parties whose presence in a transaction can trigger a license requirement supplemental to those elsewhere in the Export Administration Regulations (EAR). The list specifies the license requirements and policy that apply to each listed party.

List of Statutorily Debarred Parties

These persons are prohibited from participating directly or indirectly in the export of defense articles (including technical data) and defense services.

Terrorist Exclusion List

A list of people deemed by the United States to be connected to a terrorist organization.

Most Wanted Healthcare Fugitives List

A list of the most wanted health care fugitives.

Unauthorized Bank List

An unauthorized bank is any financial institution operating without a license or charter

How does it work?

AppZen’s AI employs varying degrees of logic to identify FCPA violations. If an employee tags an expense with the name and organization of the recipient labeled, or just the organization itself, our AI will do a comparison across all online public lists to quickly identify if that name and/or organization are associated to PEPs. Even if the name is slightly misspelled during input, AppZen can still flag the PEP with a high degree of confidence.

But what about an expense tagged to just a name without an organization or an organization without an name? In the case of a name tagged to an expense without an attributed organization name, AppZen’s AI will first search that person’s name online to determine the unique nature of the name itself. For example, a search of  “John Smith” will clearly illustrate to our machines that there are thousands of “John Smiths” in the world. So even if this name “John Smith” is listed on a PEP list, the AppZen AI will not have enough confidence (because it is very likely they are not the same person) to flag this expense. However, let’s say the name “Timothy VanBurton III” is tagged on a meal. A quick search by the AI might indicate that (a) this is a very unique name with only a handful of people in the world having it and (b) it is also included on a PEP list.

Although the AppZen AI isn’t 100% certain about this name’s PEP status, it will flag the expense for manual review because it has a much higher degree of confidence in the probability of a match.