BCG Scores FCPA Declination

The Justice Department has decided not to bring FCPA charges against Boston Consulting Group, crediting the firm for its prompt self-disclosure of bribery problems in Africa and for the painful financial consequences it imposed on the offending employees. Let’s dig into the declination letter and see what lessons the rest of the corporate compliance community can extract here.

The Justice Department released its declination letter on Wednesday, only the second declination we’ve seen so far this year. BCG agreed to disgorge $14.4 million in ill-gotten profits from its Africa misadventures (a drop in the well for BCG, which reported $12.3 billion in revenue for 2023 and is one of the largest consulting firms in the world), but will otherwise avoid any further punishment.

The bribery scheme itself is nothing compliance officers haven’t heard before. From 2011 to 2017, employees in BCG’s Portugal unit paid an agent in the African country of Angola roughly $4.3 million in commissions to help BCG win contracts with the Angolan government. The agent received 20 to 35 percent of the value of any contract he brought in, which is a notoriously risky compensation arrangement; and BCG sent the money to three different off-shore accounts the agent had. 

Long story short, this was all a sham so that the agent could bribe corrupt Angolan officials. BCG secured 11 contracts through the scheme, worth a total of $22.5 million in revenue and $14.4 million in profit. 

At some point (we don’t know exactly when), BCG management discovered the misconduct and launched an investigation. Several Portugal employees (we don’t know exactly who or how many) tried to cover their tracks with backdated contracts and falsified documentation, but BCG investigators figured things out and the firm self-reported to the Justice Department.

Factors That Led to a Declination

First, prosecutors credited BCG for its “timely and voluntary self-disclosure of the misconduct” — but here on the outside of the case, we don’t know whether “timely” means BCG disclosed the issue a few weeks after discovering it, or a few months. 

Either way, compliance officers today should probably take their cues about timely disclosure from the Justice Department’s recently launched whistleblower awards program. That program says that if a whistleblower first alerts the company to misconduct and then decides to report the issue to the Justice Department anyway, the company can still win voluntary self-disclosure credit if the company discloses within 120 days of the whistleblower first reporting internally. So that’s a big clue that as a practical matter from here forward, “timely” means within 120 days of your company first learning that it has a problem. 

Second and more important, however, were the numerous steps BCG took to hold individual employees accountable for their role in the misconduct. Those steps included (1) firing the offending employees; (2) withholding bonuses and denying access to “financial transition” (is that what we’re calling severance pay now?) normally given to BCG employees leaving the firm; and perhaps most notably, (3) requiring implicated BCG partners in Portugal to give up their equity in the firm.

That final point on surrendering equity — wow. That’s a punitive measure with real bite. Not only has BCG damaged the offenders’ future employment prospects by firing them and leaving a black mark on their records; the loss of equity is a wallop to all their past employment with the firm. I have no idea how much that equity might have been worth, but BCG is a giant and prosperous business, so it’s entirely possible those offenders just lost millions of dollars. 

BCG’s move seems exactly what the Justice Department had in mind when it told companies last year that it expects them to exercise compensation clawback policies as part of their compliance remediation. Other compliance teams would be wise to think long and hard about how to make disciplinary threats like this possible, and then work with HR and senior leadership to put the idea into policy and practice.

Other Remediation Stuff

The Justice Department credited BCG for several other remediation steps too, stuff we’ve seen in FCPA resolutions many times before:

• Adopting stronger, more formal FCPA training for employees;
• Adopting stronger vendor and client due diligence protocols;
• Establishing local and global risk committees that meet regularly; 
• Developing guidelines for opening offices in new and emerging markets.

For its part, BCG released a statement touting its various compliance program improvements, including “setting up digital solutions to drive data-driven risk & compliance decisions” (totally on-brand for a consulting firm) and “strengthening internal controls relating to anti-bribery and corruption due diligence and management of third-party relationships.”

One detail we don’t know is whether BCG scrapped incentive-based contracts with agents such as those used with the Angola person, where the agent wins a percentage of the total contract award. That can be a strong temptation for corrupt activities. Other recent settlements, such as SAP’s settlement earlier this year, did include a permanent end to sales commissions for public-sector contracts. 

To my thinking, however, the really big lesson in this BCG declination is the part about BCG revoking offenders’ equity and imposing other severe financial consequences on the offenders. Actions like that get employees’ attention, and might tip their mental scales away from committing misconduct in the first place.