“The importance of a comprehensive forensic audit to uncover a pay-to-play scenario cannot be overstated. Pay special attention to clients that are state-owned entities and implement compliance programs for newly acquired companies that include the buy-in from third-party agents. The cost of proper due diligence will pale in comparison to an FCPA investigation and subsequent penalties.”
Paul Donato, Director, HKA
The global construction market is expected to exceed $10 trillion by 2023—opening the door to new opportunities as well as unknown risks.
While expanding to global markets can have high rewards, risks such as those pertaining to the Foreign Corrupt Practices Act (FCPA) are real. The act speaks to two primary areas of law: corruption (anti-bribery provision) and the books and records and internal controls (accounting provision). In simplest terms, the FCPA prohibits pay-to-play activities. If your firm plans to acquire a foreign company to take advantage of infrastructure building opportunities, be mindful of pay-to-play activity during due diligence.
In some parts of the world, pay-to-play is a common modus operandi. However, FCPA specifically prohibits payments of any kind to state-owned entities to win or keep work by any publicly traded U.S. organization.
During due diligence, call for a comprehensive forensic investigation to look for potential bribery mechanisms like higher-than-expected commissions, success or consulting fees, rebate programs, invoice write-offs, lavish travel and entertainment expenses.
Beyond avoiding hefty fees from the Department of Justice (DOJ), there’s value in due diligence. If the company you’re acquiring has won contracts because of pay-to-play and those activities cease when your organization takes over, anticipated revenues could be severely impacted. If inappropriate activities are found and reported, the DOJ and Securities and Exchange Commission are far less likely to prosecute those who make efforts to cease the activities.
The importance of a comprehensive forensic audit to uncover a pay-to-play scenario cannot be overstated. Pay special attention to clients that are state-owned entities and implement compliance programs for newly acquired companies that include the buy-in from third-party agents. The cost of proper due diligence will pale in comparison to an FCPA investigation and subsequent penalties.
Originally published in Law & Risk Mitigation Today
This publication presents the views, thoughts or opinions of the author and not necessarily those of HKA. Whilst we take every care to ensure the accuracy of this information at the time of publication, the content is not intended to deal with all aspects of the subject referred to, should not be relied upon and does not constitute advice of any kind.
