Stricter enforcement of the Foreign Corrupt Practices Act, combined with Sarbanes-Oxley’s accounting requirements and an aggressive plaintiffs bar, has increased the litigation risk for public companies and their executives. Although the FCPA preceded SOX by 30 years, the internal controls, rules and compliance regime imposed by SOX forced companies to tie their FCPA compliance programs to their financial control and reporting to avoid additional liability for themselves, their directors and their executives from government agencies or shareholders.
After enactment of the FCPA, the number of civil suits filed against companies and directors based was insignificant. SOX reporting requirements and the increase in FCPA enforcement kindled an increase in such civil actions. Although the FCPA contains no private right of action, companies, their directors and officers are vulnerable to civil litigation in multiple ways after FCPA-related activity is reported, Immediately after the required public disclosure of an expensive regulatory investigation or government settlement, they may be named in derivative lawsuits alleging breaches of fiduciary duty, oversight and disclosure failures and fraud–or in securities fraud class action suits alleging SOX and/or FCPA violations.
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