EFFECTIVE RISK MANAGEMENT IN COMPLIANCE

The SEC has repeatedly encouraged firms to utilise ‘risk assessments’ in their compliance programs. Unfortunately, the SEC has seldom offered concrete examples of how such a risk assessment process can work. But one example exists in which risk assessment has achieved great success – under the Foreign Corrupt Practices Act (FCPA). This article explains how risk assessment has been effectively applied in this area and also explores the limitations of this methodology in other contexts.

 A success story of risk assessment in compliance – the FCPA

The FCPA is complex but, in its simplest terms, prohibits the bribery of foreign governmental officials. There has been vigorous enforcement of this statute in recent years, with many of the penalties imposed for violations being harsh. Because of this, firms have sought to improve their compliance efforts in this area.

Since 1995, an organisation, Transparency International, has published an annual ‘Corruption Perception Index’, which purports to measure the level of perceived corruption in most countries. Transparency International was formed in 1993 and now has chapters in over 100 countries throughout the world. Since 1999, it has also published a bribe payers index, which measures the likelihood that businessmen in different countries will pay bribes.

For example, in the 2013 survey, Denmark had the lowest level of perceived corruption with a score of 91. The United States was moderately low, ranking 19th among all the countries listed, with a corruption score of 73. In contrast, North Korea and Somalia ranked at the bottom of the index, tied at 175th, with a corruption index of 8. Similarly, under the bribe payers index, which ranks the likelihood that businessmen in 28 countries will pay bribes, the most recent survey, published in 2011, identifies the Netherlands as having the lowest level of bribe paying with a score of 8.8. The United States ranked in the middle of the survey, in 10th place, with a score of 8.1. Russia ranked at the bottom of the survey with a score of 6.1. 

Jan-Mar 2014 Issue

Ropes & Gray LLP