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What Are Business Ethics?

Business ethics refers to policies and practices a corporation should implement to do the right thing regarding societal standards. Engaging in appropriate business ethics is usually necessary to gain public approval, help a company maintain business partners, and stay popular among consumers. Generally, business ethics are guided by laws that determine the ethical violations that merit serious consequences. Still, the law only covers relevant business ethics and corporate social responsibility practices. Examples of categories that business ethics encompass are corporate corruption and bribery, social causes, accounting fraud, and the four types of corporate social responsibility.

Good business ethics allows for trust between the corporation and the consumer. With respect to bribery, the guidelines are set by laws such as the FCPA and enforced by the DOJ and Securities and Exchange Commission (SEC). Regarding ethical issues covered by U.S. laws, there is a clear set of consequences ranging from significant fines to prison time to encouraging corporations to practice good business ethics and corporate social responsibility. Additionally, the SEC implemented a whistleblower program and award to motivate employees or other individuals with vital information on corporate crimes to come forward. With the help of a qualified whistleblower attorney, these individuals can even report anonymously and receive protection from retaliation.

However, there are also ethical issues not necessarily covered by U.S. laws and instead reflect public opinion– which can be crucial to long-term financial success. Social and environmental problems have become tantamount to other ethical violations in recent decades, inspiring boycotts and lost business partners. Numerous instances of societal backlash directly influence business ethics and four types of corporate social responsibility. For example, in April of 2000, Mitsubishi had to pull out of an industrial salt project in Mexico due to a successful boycott campaign launched by those who cared about the project’s negative environmental impact.

While ensuring a corporation’s impact on the environment and the community may seem secondary to turning a maximum profit, researchers at NYU have found evidence that corporate governance and engaging in good business ethics increase financial performance. Companies engaging in good business ethics often foster better workplace environments, attracting stronger talent. Over time, it is clear that successful businesses take business ethics and corporate social responsibility into account.

What Are the 4 Types of Corporate Social Responsibility?

Corporate social responsibility is itself a subcategory of business ethics. It refers to specific strategies and goals for a business to meet stakeholder expectations while considering its impact on its community. Within CSR, a company should consider four main categories of responsibility.

Economic Corporate Responsibility

Economic, corporate responsibility focuses on bolstering the economic well-being of the communities in which it operates. The expectation is not for the company to take on a significant financial burden to meet this obligation but to step in to maintain good business ethics and corporate social responsibility. For example, a larger corporation can source its products and services locally or contribute to economic development initiatives within its local community.

Philanthropic Responsibility

Philanthropic responsibility is the second of the four types of corporate social responsibility. Similar to economic responsibility, it focuses on giving back to communities via charitable donations, employee volunteer programs, sponsoring community events, or creating a foundation. The critical difference is that economic responsibility refers to the financial well-being of its community. In contrast, philanthropic responsibility refers to various causes, such as education and social welfare.

Environmental Responsibility

Environmental responsibility is an essential pillar of business ethics and corporate social responsibility. As a business’s obligation to minimize its operation’s negative impact on the environment, this can range from merely recycling and composting at your offices to rejecting profitable opportunities that could cause significant harm to the environment.

Ethical Social Responsibility

The final of the four types of corporate social responsibility, ethical and social responsibility, refers to honest, transparent business practices that align with societal values, laws, and regulations. Within this category, you will see the most oversight by government bureaus such as the DOJ and SEC. However, this pillar of business ethics and corporate social responsibility also focuses on treating employees somewhat and engaging with partners and suppliers that follow ethical standards.

The Benefits of CSR

The impact of CSR strategies on a business could be harmful, with the expectation to donate profits and adhere to ethical standards that rule out potentially lucrative business opportunities. However, setting goals within these four types of corporate social responsibility comes with many benefits, ranging from risk mitigation to cost savings. For example, when a company sets a goal to prioritize business ethics and corporate social responsibility– they can avoid situations where projects are halted due to protests, thus protecting their reputation, saving money, improving their relationship with stakeholders, and encouraging innovation in seeking projects that are guided by CSR.

Moreover, CSR initiatives can be beneficial in unexpected ways. Investing in environmental CSR strategies may come with a higher upfront cost, but often, plans such as reducing energy consumption or waste will ultimately save companies money. Additionally, good business ethics and corporate social responsibility initiatives enhance a business’ reputation, attract and retain talent, and improve satisfaction at all company levels.

How Business Ethics Relate to Reporting Corporate Crime

While the obligation of CSR strategies belongs to the business, it’s essential to maintain integrity and business ethics as an individual. At FBR, our expert attorneys apply their passion for justice by helping the people brave enough to report corporate crime. The SEC whistleblower program provides just compensation and retaliation protection to whistleblowers who hold corporations accountable for unethical practices.

Out of the four types of corporate social responsibility, it is most likely a breach of ethical, social responsibility that leads to a crime. If you think you have relevant information regarding an illegal violation of business ethics and corporate social responsibility, do not hesitate to take our award-winning whistleblower evaluation. Then, contact FBR for a free, anonymous consultation.

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Whether you run a business or work in compliance, one of the most frequently asked questions on the Foreign Corrupt Practices Act (FCPA) is: Do I have to train employees on FCPA compliance?  

In this article, we explain when a company has to train employees on FCPA compliance, which employees need to be trained, and provide guidelines for an FCPA compliance checklist. If you’re in a hurry, here are the takeaways:

• The FCPA is a law that applies to all U.S. companies, both public and private. Fines for violating the FCPA are usually millions of dollars and can include prison time for individuals; 
• Determining which employees must receive FCPA training depends on whether the employee is exposed to bribery and corruption risks. It does not matter whether they are a foreign or domestic employee;
• Publicly traded companies are likely legally required to train certain employees on FCPA compliance. Private companies, on the other hand, are much less likely to have an obligation to do so;
• Regardless of whether there is a legal obligation to train employees on FCPA compliance, there are at least five good reasons for companies to train employees with an FCPA compliance checklist.

This article was prepared by FBR’s Managing Attorney John Peterson. John is an FCPA whistleblower attorney with almost a decade of experience advising on FCPA issues. John has represented numerous Fortune 500 companies in FCPA investigations and currently represents brave FCPA whistleblowers who anonymously report FCPA violations to the U.S. authorities. If you have a question on any material discussed in this article, please contact FBR here.

What is the FCPA?

The FCPA is a U.S. law that prohibits bribery of foreign government officials. The FCPA has two core principles that should be mentioned during FCPA training:

1. All U.S. persons and companies are forbidden from bribing foreign government officials. (This is referred to as the FCPA’s ‘anti-bribery’ provision).
2. Publicly traded companies must maintain a system of ‘internal controls’ to ensure financial misconduct (like bribery) does not occur (This is called the FCPA’s ‘internal controls’ or ‘books and records’ provisions).

Both provisions work in tandem to prevent bribery and ensure that public companies have accurate books and records that investors can rely on. For more background on these provisions, check out the Department of Justice’s (DOJ) FCPA resource guide, which functions as an FCPA Bible for compliance personnel. These resources, such as creating an FCPA compliance checklist, are ideal for FCPA training.

What is a Bribe?

The first core principle of the FCPA is that U.S. persons and companies are forbidden from bribing foreign officials. ‘Foreign official’ is a broad term that covers all foreign government employees, including government agencies and institutions. For example, even low-level employees of a hospital or university could be considered foreign officials if the institution is owned or run by a foreign government.

For the purposes of the FCPA, a bribe occurs when someone gives or promises ‘anything of value’ to a foreign official with the intention of gaining something in return. During FCPA training, you can emphasize that, usually, this happens when a company gives a foreign official something personally valuable to the official in exchange for favorable business treatment. Examples of bribery prohibited by the FCPA include giving cash, gifts, travel, entertainment, job opportunities, or charitable donations where the motivation is to obtain a business benefit.

An important point to remember is that bribes are not always initiated by the company; sometimes, they are explicitly requested by foreign officials. Simply because a foreign official requests a bribe does not exempt it from the FCPA– which is important to note during FCPA training. The exceptions to the FCPA’s anti-bribery provisions are extremely limited and rarely invoked but should still be a part of your FCPA compliance checklist.

What is a System of Internal Controls? 

The second core principle of the FCPA is that publicly traded companies must have a system of internal accounting controls that ensure that the company’s money is spent in accordance with its policies and recorded properly in the company’s accounts. This provision of the FCPA tries to ensure that public companies have internal rules and procedures designed to stop financial misconduct and ensure that a company’s accounting records are accurate. FCPA training should emphasize your company’s system of internal controls.

The FCPA does not specify a particular model of ‘internal controls’ for public companies to use. It leaves it up to each company to design its controls based on the unique risks and circumstances presented by the company’s business. However, the DOJ and the Securities and Exchange Commission (SEC) have published detailed guidelines on what they view as the principles of a modern compliance program, and these guidelines should be read as instructions for building an adequate system of internal controls.

What are the Penalties for Violating the FCPA? 

Proper FCPA training involves highlighting the potential penalties for any violations in your FCPA compliance checklist. The FCPA is enforced by the DOJ and the SEC. This means that both agencies can investigate and fine companies for violating the FCPA. For corporations, FCPA fines regularly cost over a hundred million dollars and, on a handful of occasions, have even surpassed a billion dollars. Individuals can also face fines as well as up to 20 years in prison for criminal violations of the FCPA’s anti-bribery provisions. If you are looking for a catalog of previous FCPA fines and offenses, Stanford University has a helpful database of prior FCPA fines that can be accessed here.

What is FCPA Training? 

FCPA compliance education is training to help employees understand what the FCPA is, what the FCPA prohibits and requires, and most importantly, what a company expects an employee to do when faced with FCPA issues.

An FCPA compliance checklist should teach employees how to recognize FCPA red flags and how to deal with situations where FCPA concerns arise. This should include training on prior cases brought by the SEC and DOJ, which illustrate real-world examples of FCPA violations. This training provides a good opportunity to detail your company’s system of internal controls to ensure your employees understand the resources available to them.

FCPA training should be tailored to the role or business unit that the employee works in so that the training can address situations the employee is most likely to encounter. Training should also provide specific advice on what the employee should do in those situations and how to report potential FCPA violations.

Compliance training can take many forms, but ideally, it should be conducted in person by a compliance professional. While video instruction and online materials like an FCPA compliance checklist are helpful, there is no substitute for in-person training from an experienced compliance professional who can answer questions in real time. The FCPA training should take place in small groups where the employee is separated from their supervisor to give them the confidence and freedom to ask questions without fear of embarrassment or retaliation.

Does a Company Have to Train Employees on FCPA Compliance? 

Generally speaking, if a company is private, i.e., not publicly traded, it’s unlikely that the company has a legal obligation under the FCPA to provide employees with FCPA compliance instruction. However, if a company is publicly traded, it’s more than likely that the company is required to provide FCPA training to certain employees.*

As mentioned above, publicly traded companies are legally required by the FCPA to have a reasonable ‘system of internal controls.’ There is no explicit rule stating that FCPA compliance education must form a part of this system, but if the company does business outside the U.S., it’s likely that the company has some exposure to the risk of FCPA violations. For example, any business outside the U.S. is likely to involve employees interacting with foreign officials who are customs officers, issuers of licenses or contracts, or who are in charge of purchasing goods on behalf of government institutions. These situations should be included in FCPA training or an FCPA compliance checklist, as they all present bribery and corruption risks and, therefore, FCPA risks.

When there is an obvious FCPA risk, authorities such as the DOJ and SEC are likely to consider a failure to train employees on FCPA compliance as a failure to maintain adequate internal controls. This would constitute a breach of the FCPA’s internal controls provisions.

*As companies are unique, there are various circumstances that could alter this analysis. Certain private companies without stock traded in the U.S. may, in fact, be legally required by contract, state, or industry rules to conduct FCPA training for their employees. Similarly, public companies may be able to avoid the obligation to train employees on the FCPA if compliance training on an equivalent foreign anti-bribery law is sufficiently similar or if they have no functional risk exposure to FCPA violations. At base, there is no substitute for tailored legal advice on this subject, and all companies should consult with experienced FCPA counsel before determining whether they have an obligation to train employees on FCPA compliance.

What Employees Must be Trained On FCPA Compliance? 

If a company is required to conduct FCPA training for their employees, the next logical question is: Which employees must be trained?

Any proper FCPA compliance checklist will maintain that compliance training is most likely required for employees who are at risk of committing, assisting, facilitating, or witnessing FCPA violations. In particular, this will include any employees who interact with foreign officials, approve discretionary payments or expenditures in foreign jurisdictions, or are involved with obtaining licenses or contracts from foreign governments.

When looking at foreign and domestic (U.S.) employees, the analysis does not change. Whether the employee needs FCPA training will depend on whether they are in a position to commit, assist, facilitate, or witness an FCPA violation. For the purposes of legal training obligations, it does not matter whether the employee is foreign or domestic.

From a practical perspective, however, FCPA compliance training is arguably more important for foreign employees than it is for domestic employees. This is because bribery of foreign officials usually takes place outside the U.S., meaning that foreign employees are more likely to witness the violation.

How do I Report FCPA Violations? 

For employees, reporting FCPA violations can be a daunting prospect, even with quality FCPA training. Reporting to the wrong person or organization can seriously affect an employee’s legal rights and could expose them to harassment, retaliation, or worse. Even if a company provides a compliance hotline as part of their FCPA compliance checklist, which many companies do, reporting internally can mean the employee misses out on whistleblower protections or the potential to claim a whistleblower award for reporting the conduct. These legal protections can be critically important to help employees avoid retaliation, and FCPA whistleblower awards can be substantial. As an employee, it’s crucial to stay informed on FCPA issues. Providing yourself with FCPA training could mean the difference between missing a violation and earning a massive whistleblower award.

Any employee who has witnessed a potential FCPA violation or who is considering blowing the whistle on FCPA misconduct should speak to a qualified FCPA whistleblower attorney as soon as possible and before reporting internally. Most whistleblower attorneys offer a free and confidential consultation, which will give the employee all the information they need to make a decision on where, when, and whether to report the violation. As whistleblowers often face harassment and retaliation for reporting FCPA violations, speaking with an attorney with substantial FCPA training before reporting is essential to mitigate this risk.

For companies, reporting FCPA violations to authorities can also have major benefits, including avoiding prosecution and reducing fines. Companies who believe they may have violated the FCPA should immediately contact outside counsel who can investigate the potential violation and advise on whether reporting is needed.

Five Reasons You Should Provide FCPA Compliance Instruction

While not all companies are required to give FCPA compliance training, all companies should strongly consider it. At the very least, every employee should have access to an FCPA compliance checklist. Here are the top 5 reasons every company should provide FCPA training:

1. Training prevents violations. FCPA fines regularly run over $100 million, meaning that a company could be financially devastated if even one of its employees violates the FCPA. Giving gifts and paying for entertainment can be customary when doing business in some parts of the world, and it’s possible that even well-intentioned employees can breach the FCPA without intending to. Implementing a system of FCPA compliance instruction can significantly reduce the chances that employees breach the FCPA and, therefore, significantly reduce the chance that the company faces a multi-million dollar fine.
2. Training increases reporting. Sometimes, despite the company’s best efforts, employees engage in FCPA violations. However, if proper FCPA training was provided to other employees in the organization, even if an employee violates the FCPA, it is more likely that they will be in a position to recognize the violation and report it to the company. This increase in reporting gives the company a better chance at stopping further violations, mitigating the damage, and taking appropriate action to reduce the risk of prosecution. For example, if the company identifies the violation and reports it to the authorities, the company has a good chance of avoiding prosecution. An easy-to-reference FCPA compliance checklist can make these violations more obvious to trained employees.
3. FCPA training can lead to reduced fines. If a company has a robust corporate compliance program, this will be taken into account by authorities when deciding whether to prosecute an alleged FCPA violation and when determining how much a company should be fined, if a fine is appropriate. When a company has good FCPA compliance instructions, it increases the chances the company will avoid prosecution or receive a reduced fine.
4. Training can improve productivity. FCPA violations are not only costly because of the potential for fines, but they can also be an enormous waste of time and resources for a company. FCPA training allows employees to recognize and avoid situations that will potentially lead to FCPA complications. If business units don’t recognize FCPA red flags early, they can invest time and resources on deals and joint ventures that ultimately have to be scrapped because of compliance concerns. By pursuing opportunities that are more compliance-friendly, employees can save the company time and resources, thereby improving business unit productivity.
5. Training can enhance corporate culture. Failing to train employees on FCPA compliance can suggest that a company does not value corporate social responsibility. Corporate responsibility is increasingly being used by investors and prospective employees to select companies that they wish to invest in or work for. By investing in FCPA training, a company can promote a healthy corporate culture of ethics and responsibility, which can benefit the company from an investment and employment perspective. 

More Resources on the FCPA

The FCPA can be intimidating to companies and employees alike, but it doesn’t have to be. Explore more articles about the FCPA, including past whistleblower cases, with the FBR Award Journal. If you are unsure if you’ve witnessed an FCPA violation and are thinking about blowing the whistle, take our award-winning evaluation before sending us an email.

Our expert team at FBR has extensive FCPA training, and we are passionate about bringing corporations to justice while supporting and protecting those brave enough to come forward with information. Depending on your responses to the evaluation, you may be informed of unique circumstances that could affect your eligibility for a whistleblower reward. Please contact our office for a free consultation to get specific legal advice.

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