The U.S. government’s push to enforce the Foreign Corrupt Practices Act in recent years has left corporations on the defensive. Being charged with violating FCPA, which forbids paying bribes to foreign officials, can mean big fines or criminal charges, and even an FCPA investigation can be costly. Beauty products seller Avon Products, which began an FCPA investigation in 2008, reportedly has run up $122.5 million in legal costs related to the investigation to date. Such expenses may not be covered by directors and officers liability insurance, either. Generally, D&O coverage must be triggered by some type of charge, which may be missing in a preliminary investigation, and D&O policies do not cover the company itself. Now a couple of insurers are addressing that gap.
In July, insurance brokerage Marsh announced a new policy, FCPA Corporate Response, that covers the cost of investigations for the company and individuals.
Jack Flug, a managing director in Marsh’s financial and professional liability practice, says FCPA investigative costs can pile up. Companies may need to hire not only lawyers, but forensic accountants, IT consultants and compliance consultants, Flug says. “If you send experts offsite to Brazil or China or wherever, it can get quite expensive.”
F. Joseph Warin, head of the FCPA team at law firm Gibson Dunn, notes that as electronic communication proliferates, the cost of searching through all those emails can be high.
Rob Yellen, chief underwriting officer for the executive liability unit of insurer Chartis, says companies may not have done anything wrong. “Enforcement authorities have the right to ask for information and when they do, there’s a cost involved in doing the homework to get them the answer,” he says.
Earlier this year, Chartis launched a policy called Investigation Edge that covers legal expenses and discovery costs resulting from investigations by authorities; it can be extended via endorsement to include FCPA investigations.
The government is estimated to be investigating more than 150 companies for FCPA violations.
Ann Longmore, product manager for D&O in the executive risk group at Willis, notes news of an FCPA investigation often triggers other lawsuits against a company, like stock drop or derivative claims. Given that, “it’s a good thing not to exhaust the D&O cover paying investigative costs in the early stages,” she says.
But Longmore argues that the policies to insure against FCPA investigative costs are too expensive. “That’s the sticky wicket right now,” she says. “Carriers want more for it than companies are willing to pay.”
For an earlier look at the Foreign Corrupt Practices Act, see Hunting Foreign Bribes.