Three enforcement actions which made clear that there were no distinctions between agents and distributors. They were the Smith & Nephew, Inc., Oracle and Eli Lilly and Company. Each of these enforcement actions had different FCPA violations and they each revealed separate steps which a company should take to both prevent and detect FCPA violations in their company.

These three separate bribery schemes call for three different but overlapping responses. The Lilly enforcement action also makes clear the need for internal audit to follow up with ongoing monitoring and auditing. Internal audit can be used to help determine the reasonableness of a commission rate outside the accepted corporate norm. The Oracle enforcement action demonstrates that Oracle needed to institute the proper controls to prevent its employees at Oracle India from creating and misusing the parked funds in the distributor’s account. The Company needed to audit and compare the distributor’s margin against the end user price to ensure excess margins were not being built into the pricing structure. Smith & Nephew did not perform sufficient due diligence on these distributors nor did they document any. Further, the distributor was domiciled in a location separate and apart, the UK, from the sole location it was designed to deliver products or services into, Greece. This clearly demonstrated that the entities were used for a purpose that the company wished to hide from Greek authorities. While it is true that a distributor might sell products into a country different than its domicile, if the products are going into a single country, this should have raised several Red Flags.

Three Key Takeaways

  1. Use auditing and monitoring.
  2. Distributors will be treated the same as other business ventures.
  3. Robust due diligence must be performed.