In a January 31, 2012 posting, the FCPA Compliance and Ethics Blog reported on a new FCPA investigation tool being deployed by the U.S. government: Internal Revenue Service gum-shoes. The use and inclusion of these agents will add an additional layer of review to internal and external investigations.
On January 24 - 25, 2012, the Hilton Post Oak Hotel hosted the American Conference Institute's "6th Houston FCPA Boot Camp" which featured a panel discussion on current enforcement trends that included Nathaniel B. Edmonds, Assistant Chief of the DOJ’s Fraud Section, Jason Rose, Senior Attorney in the FCPA Specialization Unit at the SEC, and SAC Clarissa Balmaseda, head of the IRS’s criminal investigation unit. Observing the gathering, Tom Fox noted that this was the first time that he had seen an IRS agent participate in a FCPA conference on behalf of the U.S. government.
And the thinking behind bringing the IRS into FCPA probes?
Edmonds noted the value proposition of using the agency to look at financial patterns and trace money in that context, where the bribery itself is only one component of the illicit activity. Money laundering and related fraud – including the use of corporate shell structures as a part of an ongoing criminal attempt to obtain or pay bribes and then conceal the location of the money – are common and the IRS has the ability and skill to comb through financial records to find patterns in suspected payments.
While Balmaseda indicated that the IRS would be looking at what seemed primarily to be conduct that might fall more under the books and records provisions of the FCPA – such as mischaracterization of bribe payments on financial statements and tax returns and the failure to correct the same in amended filings – Edmonds’ statement strongly suggests the IRS’ involvement at the outlying stages and in conjunction with a DOJ criminal review.
In a heads up to compliance departments and in-house counsels, Balmaseda indicated that the following will be among the red flags that her agency will be looking for when brought into FCPA investigations:
- Timing of contract awards
- Amounts or costs of contracts
- Payment methodologies and recipients
- Questionable patterns in employee expense reports
- Presence or absence of a strong internal audit team
- Questionable tax filings and subsequent amendments
As the FCPA Compliance and Ethics Blog astutely pointed out, the addition of IRS agents to an FCPA investigation brings additional specialization and sophistication to the government’s effort and companies that perform internal investigations and do not report may now find themselves embattled on another front.
In addition to conducting internal inquiries with the aim of ferreting out activity subject to criminal charges by the DOJ and books and records sanctions by the SEC, companies will have to re-tool their own investigations teams to include professionals that can and will address this added layer of IRS scrutiny.
