The FCPA and SOX and Internal Controls

May 13, 2016

What is the interplay of two different pieces of legislation enacted almost 25 years apart in response to widely different crisis? In the case of the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley Act (SOX) quite a bit. Many have speculated that the passage of SOX was one of the contributing factors to the explosive growth in FCPA enforcement actions after 2004, basically because of the SOX 404 reporting requirement. However, the development of these two laws by regulators may move well beyond where the legislators who enacted them may have intended their initial reach.

The FCPA was passed in 1977 in response to US companies’ blatant use of bribery and corruption to secure business outside the US. SOX was passed in response to the financial fraud engaged in by companies such as Enron and WorldCom in the late 1990s and early 2000s. Both laws focused on robust internal controls as a part of the solution going forward. So we have the FCPA to prevent foreign bribery and SOX to prevent accounting fraud as was perpetrated by the likes of Enron and WorldCom.

Joe Howell, Executive Vice President of Workiva, has said that the FCPA and SOX are closely tied to one another. He believes that SOX is, in many ways built on a pedestal that Congress created in the FCPA. Further, he sees a clear lineation to Dodd-Frank, which he also believes in many ways, relies on much of the work done in the other areas internal controls to require that financial institutions to have sufficient controls. He said, “In my personal view, it not only is not a stretch to draw a line from the Foreign Corrupt Practices Act of 1977 to the Sarbanes-Oxley Act of 2002 up to Dodd-Frank of 2010.

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