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The High Cost of FCPA Violations

By William Steinman
August 30, 2007

Earlier this year, Baker Hughes Inc. ascended to the top of an exclusive and prominent list, but it is one on which few companies would want to be mentioned. On April 26, 2007, the Texas-based oil field products and services company announced that it was settling a federal probe alleging that it violated the Foreign Corrupt Practices Act ('FCPA'), and that it would pay fines and penalties in excess of $44 million ' the largest combined punishment under that law. It was truly one for the record books ' at least for the time being.

In a nutshell, the FCPA prohibits U.S. companies and persons from giving anything of value to foreign government officials in order to obtain or retain business. The law also requires public companies to ensure that their books and records are accurate, and to maintain robust internal controls on the expenditure of corporate funds. And while the FCPA was signed into law in 1977, there have been more enforcement actions brought by the Department of Justice ('DOJ') and the Securities and Exchange Commission ('SEC') (the two agencies in charge of enforcing the act) in the last four years than in the prior 26 years combined. Baker Hughes' FCPA woes serve as a roadmap of what companies operating internationally should and should not do, and boldly highlight the red flags that corporate counsel should be watching for.

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