GAIM Ops Cayman: Hedge funds warned on FCPA

07 Apr, 2014

Government agencies have warned hedge funds at GAIM Ops Cayman that enforcement of the Foreign Corrupt Practices Act (FCPA) will be a priority for 2014.

“Hedge funds are likely to fall into two buckets. The first would be if they are soliciting investments from a foreign official or a sovereign wealth fund or pension fund controlled by the state and we will be scrutinising any gifts, entertainment or travel afforded to those individuals to ensure they do not break the rules. The other area where hedge funds may fall foul is when they invest in a market where corruption is a way of life,” said Sarah Coyne, chief of the business and securities fraud section at the US Attorney’s Office for the Eastern District of New York.

The FCPA prohibits US organisations from bribing foreign officials for government contracts and other business. There have been a series of high profile settlements over the last few years by a number of companies including Allianz and Ralph Lauren.  

Hedge funds are most likely to find themselves falling foul of the rules because of a third-party agent working in a jurisdiction where corruption is endemic, warned Coyne. “The use of a third party in a jurisdiction where corruption is widespread or the use of a consultant who has awareness about the local culture and who may be dealing with a sovereign wealth fund is an area where hedge funds are most likely to get into trouble under the FCPA,” she said.

However, she added enforcement agencies adopted a proportional approach towards implementing the FCPA, pointing out that buying a prospective client a reasonably priced dinner or coffee would not warrant their interest. Hedge funds were advised strongly to cooperate with enforcement agencies should they ever be accused of breaching the FCPA, something Coyne said could result in lesser fines being doled out.

Enforcement agencies are also working more closely together to combat criminal activities undertaken by financial institutions. “The FBI has relations with local law enforcement agencies all across the world and we are working much closer with global regulators,” said David Chaves, securities and commodities fraud program manager at the FBI.

A number of governments are clamping down on bribery. The 2010 Bribery Act passed in UK goes beyond the FCPA’s remit in that it prohibits bribery of individuals in the private as well as public sector. One lawyer, speaking at the time, described the UK Bribery Act as the “FCPA on steroids.”  However, the UK’s Serious Fraud Office (SFO) has been slow to prosecute firms found to be in breach of the Bribery Act.


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