One of the more interesting facets of the recent Vicente Eduardo Garcia Foreign Corrupt Practices Act (FCPA) criminal enforcement action was the involvement in the investigation of the Internal Revenue Service – Criminal Investigation.
Garcia was the former SAP executive who admitted paying bribes in Panama.
An FBI press release stated, “The investigation is being conducted by FBI and the IRS-CI. The Criminal Division’s Office of International Affairs and the Securities and Exchange Commission’s Division of Enforcement, which separately announced civil charges against Garcia, provided assistance.”
As noted in a recent Morrison & Foerster White Paper on the case entitled 5 Takeaways From Former SAP Exec’s FCPA Case” by Chuck Duross, Stacy Sprenekel, and Ian Bausback, while the FBI is usually the Deparment of Justice’s investigative arm, so to is the IRS-CI.
The authors said, “Many people do not realize the role played by the IRS-CI in FCPA cases, but IRS-CI agents have played major roles in many of the prominent FCPA cases in the past few years.”
This led me to consider what does the IRS-CI bring to a FCPA investigation? First, the IRS-CI has skills and experience in looking at financial patterns and tracing money. Since usually FCPA violations are tied to other legal violations, for example money-laundering or fraud, the IRS-CI is well-suited to comb through financial records to find patterns in payments.
Further, the IRS-CI has significant experience in investigating corporate shell structures which can be part of an ongoing criminal attempt to obtain bribes and then conceal the location of the money.
It is always clear that the IRS could be looking into financial statements for mis-characterization of bribe payments, specifically focusing on tax returns. Similarly, the IRS would also investigate to determine if companies were amending their financial statement filings, including tax returns, to correct such mis-characterizations after disclosure of any such payments. This same type of analysis would be applied to any monies which were initially mis-characterized on a company’s books and records, such as gifts, travel, entertainment or charitable contributions.
The addition of the IRS-CI to any FCPA investigation brings additional specialization and sophistication to the government’s effort. Agent Balmaseda’s remarks provide a company with clear guidance on the types of analysis that the IRS can, and will, perform. Companies should use this information and begin to perform these types of investigations internally before the government comes knocking. Lastly, a corporate tax return may provide fertile grounds for an investigation.
My conclusion: Companies which now perform an internal investigation but do not self-report may find themselves in deeper trouble.
Thomas Fox is a contributing editor of the FCPA Blog and a Compliance Week columnist. He’s the founder of the Houston-based boutique law firm tomfoxlaw.com. A popular speaker on compliance and risk-management topics, Fox is also the creator and writer of the widely followed FCPA Compliance Report. His book Lessons Learned on Compliance and Ethics topped Amazon’s bestseller list for international law. He can be contacted here.
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