Strangers in Strange Lands: Avoiding Fraud on Foreign Soil

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.

You are looking to expand your company by either opening an office or manufacturing facility abroad, or you want to start selling your products beyond U.S. borders.

There are, of course, many logistical factors to be considered, not the least of which is understanding which types of payments to foreign government officials are allowed and which are considered fraudulent.

“In today’s global economy, failing to understand the laws that affect business operations in a foreign country can land your company in a heap of trouble,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.  “There are laws both in the United States and in foreign countries that you have to be concerned about.”

A forensic accounting expert, Anderson said, can help you navigate this complex international maze and work with you to establish internal policies and procedures as part of a comprehensive fraud deterrence program. Such actions, he said, can protect your company from unwittingly participating in fraudulent financial activities abroad.

Anderson offered as an example a U.S. company that wanted to open a new factory in Thailand.  Although the company’s product was sold in Great Britain and other countries, this would be the company’s first factory operation outside the U.S.

The factory was two months from opening, he said, when the general manager of the Thailand subsidiary called the U.S. parent company with the news that the provincial governor in Thailand had just told him there was a two-year backlog in approving factory licenses.  The provincial governor also said that if the company paid him a “fee” in cash, he would be able to expedite the process and issue the license by the time the factory was ready to open.

“The senior executive in the U.S. was in a quandary,” said Anderson, a Certified Fraud Examiner who recommends that every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  “The company needed to get the factory open on time, but, if it made the payment to the provincial governor, was it breaking any laws?  Was making a payment to get a license issued faster a violation of the Foreign Corrupt Practices Act and, therefore, an act of fraud?”

The Foreign Corrupt Practices Act of 1977 and its 1988 amendments (FCPA) make it a crime, Anderson said, for a business or its officers, directors, employees, agents or shareholders to bribe a foreign official for the purpose of influencing that official in order to obtain or retain business. However, he said, the law does permit facilitation payments.

Facilitation payments are payments to foreign officials to expedite routine governmental actions — such as processing papers, issuing permits or other normal procedures — that the officials are bound to perform anyway.  Facilitation payments are not intended to influence the official’s decision, only the timing.  The payment to the provincial governor met the FCPA’s definition of a facilitation payment, meaning the company had no risk of violating U.S. law.

Unfortunately, the U.S. law wasn’t the only law the company had to worry about.  Because the company sold its product in Great Britain, they also were subject to the provisions of the United Kingdom Bribery Act of 2010 (UKBA), which holds that all payments to foreign officials — including facilitation payments — are illegal.

Under the UKBA, it doesn’t matter where the payment is made.  As long as a company does business in the UK, any facilitation payment in any country in the world is still illegal, Anderson said.  However, the U.S. company discovered that the UK agency charged with enforcing the law — the Serious Fraud Office — primarily focused on situations it deemed to be “serious or complex.”

Counsel to the U.S. company advised that “serious or complex” situations generally involved significantly large payments and/or multiple payments for the same purpose, neither of which was the case with the facilitation payment in Thailand.  Anderson said the company made the payment, documented and recorded it in its accounting system, received the factory license and opened the factory on time.

“Companies need to be careful when operating on foreign soil,” said Anderson, a forensic accounting expert with experience in both fraud investigations and fraud deterrence programs.  “As with the case of the U.S. company opening a plant in Thailand, you don’t necessarily need to have physical operations in a country to be subject to their laws.”

If your company operates in foreign countries or sells products overseas, or is thinking about doing so, it might be time to contact a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.   A forensic accounting expert can design a comprehensive fraud deterrence program that includes policies and procedures regarding financial activities in foreign countries, Anderson said.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.