Directors, in addition to executives, soon may be targets of Foreign Corrupt Practices Act (FCPA)
enforcement actions for failing to make a good faith attempt to
assure that a corporate information and reporting system is in
The FCPA, which prohibits bribery of foreign public officials in
order to obtain or retain business, includes accounting provisions
related to bookkeeping and internal controls. These accounting
provisions already have an expansive reach and can create pitfalls
to corporations and their employees. In addition, the internal
controls provision can pose a particular risk to board members,
audit committee members, and other independent directors.
There is real concern that the Department of Justice (DOJ)
and the Securities and Exchange Commission (SEC) may be
setting the stage to charge independent directors and members of
audit committees for knowingly failing to implement and/or maintain
a system of internal accounting controls sufficient to provide
reasonable assurances that transactions and assets are properly
authorized and recorded. In particular, directors may face internal
controls charges for failing to implement the controls necessary to
prevent improper payments, even in instances where the director is
not aware of the improper payment itself.
These risks should not be taken lightly, given the recent
increase in internal controls violations charges by the DOJ, and
the continued use of the internal controls charge by the SEC. For
additional guidance on how directors can protect against liability
for internal controls violations, read our
extended article in the FCPA Advisor.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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