White Collar, Investigations and Enforcement

Foreign Corrupt Practices Act (FCPA)

Regulatory enforcement is on the rise, and the DOJ and SEC are expected to remain aggressive in enforcing the FCPA in the future. But one fundamental economic issue in FCPA disputes has so far garnered little attention: if a company pays a bribe to secure a project, what exactly is the gain to the company from the bribe?

During the penalty phase of an enforcement action, the amount of fines (including disgorgement) levied are based on the "benefit received" from a bribe. However, to date there has been little consideration of the true benefit of the bribe. With fines escalating into the hundreds of millions of dollars, it is necessary to clearly understand what effect a bribe had on profits and to carefully establish what the but-for profits would have been without the bribe. Rigorous economic analysis sheds light on how to evaluate the effect of a bribe and what the appropriate fines, if any, should be.

The true benefit of a bribe is not based only on the profits earned from the project; there are a number of additional considerations based on the incremental probability of winning generated by the bribe, and the opportunity cost of the project won, that will lead to a more realistic (and sometimes lower) calculation of the true economic profits from the bribe. For example, while a bribe may have led to very high gains, the but-for profits could have been high (and the gain from the bribe low) if the bribe would have little effect on the probability of winning the work or if alternative projects were similarly profitable.

NERA experts can help in FCPA matters by using economic analysis to apply great precision to the financial benefits of bribery in order to evaluate the effect of the bribe, and therefore the appropriate fines. We offer a global team of experts in economics, finance, and accounting; many of NERA's economists are also Certified Public Accountants and Chartered Financial Analysts, with training and experience in analyzing financial statements and financial data prepared in accordance with Generally Accepted Accounting Principles and International Financial Reporting Standards.