With private equity firms expanding into underdeveloped economies, firms and their senior managers have opened themselves up to potential criminal liability under the Foreign Corrupt Practices Act (FCPA), a law enacted in the 1970s to prohibit corporate bribery abroad and encourage proper bookkeeping domestically. Currently, there are more than 100 active enforcement investigations for suspected FCPA violations. The Department of Justice and the Securities Exchange Commission have opened numerous investigations over the last decade and secured criminal convictions of individuals under the FCPA, demonstrating the newfound enforcement priority of corrupt anticompetitive activity abroad. However, according to Lauren Resnick and Marco Molina, authors of "In the Crossfire: Why Private Equity Firms, Investment Funds & Their Managers Should Beware of the Foreign Corrupt Practices Act," this should not deter hedge funds and private equity firms from growing. This increased regulation should be seen as an opportunity for the private investment industry to bolster its due diligence processes, compliance programs and internal controls.
To avoid extensive liability under the FCPA, investors in the private investment industry are encouraged and expected to conduct pre- and post-acquisition FCPA diligence to eliminate any potential violations. The FCPA Resource Guide informs the industry of vital components in anticorruption compliance programs and encourages companies to be proactive in their reporting of improper activity. Resnick and Molina conclude that risk assessment "is the bailiwick of the private investment industry," making FCPA compliance a must for companies in that arena.
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