What corruption really costs
Monday 30 January 2012 - by Heidi Lawson
When you mention the word "compliance" to almost anyone working in capital markets, be they bankers, lawyers or accountants, you almost immediately lose your audience.
Impact on Price
FCPA and Bribery Act investigations can have an immediate impact on share price. For example, on March 1, 2011, the Las Vegas Sands Corporation announced that the Securities and Exchange Commission and the DOJ were investigating its FCPA compliance.
By the end of the trading day, its share price had dropped 6.3 per cent, which represented a shrink in market capitalisation of $1.67bn in a single day.
Examples of this kind, showing a marked drop in share price and value in response to announcements of alleged corruption, are common.
FCPA fines are steep and on the increase. In 2010, companies paid in penalties an average of $2.14 per U.S. dollar gained from FCPA violations. This is an 1,800 per cent increase from penalties of just $0.11 per dollar in 2007.
In 2010, corporate fines and disgorgements for FCPA violations amounted to over $1.7bn, which exceeded all previous years. And, the six largest actions in 2010 accounted for $1.36bn of this total.
There are also significant "downstream effects" that can far surpass the cost to companies of FCPA fines and drops in share price. These include securities class action lawsuits, disbarment from foreign contracts and restrictions on the ability to import or export goods and services.
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Will markets in 2012 have a tougher time than 2011?