Iran: The Next FCPA Hotspot?

The nuclear framework agreement with Iran has businesses salivating at the opportunity to reach the resources and consumers cut off by years of economic sanctions. However, corporations that enter Iran could be swapping the punishment of economic sanctions for the long arm of the Foreign Corrupt Practices Act if they aren’t careful.

The FCPA prohibits U.S. companies and issuers from bribing foreign officials to obtain or retain business. More than 100 companies are already investigating whether their practices violate the law. Penalties for violations can reach into the hundreds of millions of dollars as Alstom S.A., a French power and transportation company, found out when it settled the Department of Justice’s investigation for $772 million last year.

The threat is high that some companies will be asked to violate the American anti-corruption law in their dealings while in the country. Iran is currently ranked as more corrupt than both of the current FCPA hotspots, China and Brazil, on the Corruption Perceptions Index published by Transparency International. If the U.S. lifts its economic sanctions, the competition between incoming businesses to gain an advantage in the Iranian economy will likely test the compliance protocols of organizations covered by the FCPA.

Energy companies could be among the first to move into Iran with its large oil and natural gas reserves, according to the Wall Street Journal. But the energy sector is the area where the U.S. law against bribery has been most frequently violated. More than $2 billion has been paid to the U.S. Government because of bribes for energy-related contracts as a result of the FCPA.

The fifth largest settlement for a violation of the FCPA relates to Iran energy resources. Total S.A., a multinational oil and gas company based in France, agreed in 2013 to pay $398 million to the SEC and the U.S. Department of Justice to settle allegations of illegal bribes and insufficient internal controls. The company was accused of paying $60 million in bribes to intermediaries of an Iranian government official who helped acquire and retain oil rights to two oil and gas fields. It is the third largest fine in the energy sector, eclipsed by the Alstom penalty and a Kellogg Brown & Root settlement for conduct in Nigeria.

President Obama called the framework agreement a “once-in-a-lifetime” opportunity. Many businesses appear to be treating it the same way. It didn’t take long after the announcement of a potential deal for Reuters to declare that “tens of billions of dollars worth of business” are up for grabs and BBC News to report that the “nuclear deal has hungry investors circling.”

Businesses often cut corners to take advantage of big opportunities. Companies eager to enter Iran quickly may have to rely on local businesses to hit the ground running. Bribes by “intermediaries” like these have been one of the most common ways for a company to get into trouble with the FCPA.

The influx of business into Iran won’t begin until at least 2016, so we are still years away from declaring the country on the same level as China or Brazil. The deal must first be finalized and the U.S. will only lift its economic sanctions after Iran has complied with its terms. Secretary of State John Kerry has estimated that it could take Iran “four months to a year” to meet its obligations under the agreement after the deal is finalized. Congress could also lay a wrench in the works if Senator Corker’s Bipartisan Iran Nuclear Agreement Review Act of 2015 is passed.

Ten years from now, let’s hope we are talking about the peace in the region and not efforts to cut down on corruption in yet another country.

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