Companies in the automotive industry would be wise to pay attention to Foreign Corrupt Practices Act (the “FCPA”) compliance. What has in the past been a risk management issue principally for massive multi-national corporations is now a real and serious risk for almost any company – large, medium or small; public or private – that sells products, manufactures or otherwise operates overseas.

The FCPA is a federal anti-bribery statute. It criminalizes the payment of anything of value to a government official or employee of a state-owned commercial enterprise (i.e., a high percentage of the population of China) in order to improperly influence the official or to obtain or retain business. Unlike most federal laws, the FCPA applies extra-territorially. That means that a U.S. company or an employee of a U.S. company can be prosecuted in the U.S. for bribes paid in another country. This extends to bribes paid by a subsidiary or an affiliate or even an agent of the company that may have little connection to the U.S. headquarters.

The consequences of getting caught up in an FCPA enforcement action can be catastrophic. Criminal fines routinely register in the tens of millions of dollars, and the largest fines and penalties are measured in the hundreds of millions of dollars. And individuals – company officers and other employees – are prosecuted and sent to prison.

FCPA enforcement has been and remains a top enforcement priority for the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). In fact, the DOJ has repeatedly stated that FCPA enforcement is second only to anti-terrorism in its hierarchy of priorities. And earlier this year, the DOJ announced the formation of three new FBI squads with over 30 dedicated special agents focused on investigating foreign bribery.

FCPA enforcement has been active in the automotive industry. By way of example, there have been FCPA enforcement actions brought against industry members Daimler and Fiat. Just last year, Delphi Automotive PLC reported publicly that it had discovered and disclosed to the regulators potential violations of the FCPA arising out of its China operations.

FCPA enforcement is no longer focused only on large multi-national corporations. There have been numerous actions brought against smaller and medium sized companies. Just last year, while announcing a $2 million settlement with Smith & Wesson Holding Corp., the head of the SEC’s FCPA enforcement division made clear that mid-size companies are in the crosshairs of regulators. “This is a wake-up call for small and medium-size businesses that want to enter high-risk markets and expand their international sales,” said Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA unit.

To manage FCPA risk, every company should have a meaningful corporate compliance program and internal controls designed to prevent and detect FCPA violations. An effective FCPA compliance program has many benefits, including:

• Preventing violations in the first place, through clear, effectively communicated anti-bribery policies and through employee training;

• Allowing a company to detect potential issues and remedy problems early, before they grow into big problems that are likely to result in an enforcement action;

• Generating significant credit with the enforcement authorities, should an FCPA issue arise, with an effective compliance program being a factor the DOJ will consider in determining whether it should even bring criminal charges against the company; and

• Meaningful reductions in the fines and penalties to which the company would otherwise by subject in the event that it is charged with an FCPA violation.

It is a mistake for small and medium-sized companies that operate internationally to ignore the real and significant risks posed by the FCPA. Burying one’s head in the sand will not make the risk go away. Committing to developing and implementing an effective FCPA compliance program will yield significant benefits and is a prudent risk mitigation strategy.