Tag: FCRA

10 Reasons Why FCPA Compliance Is Critically Important for Businesses

  • The Foreign Corrupt Practices Act (“FCPA”) prohibits companies from bribing foreign officials in an effort to obtain or retain business, and it requires that companies maintain adequate books, records, and internal controls to prevent unlawful payments.
  • The FCPA was passed in response to an increase in global corruption costs.
  • Implementing an effective FCPA compliance program can benefit companies financially and socially, and it can help companies seize opportunities for business expansion.
  • In drafted and implemented appropriately, an FCPA compliance program will: serve as an invaluable tool against corruption, promote ethical conduct within the company, reduce the societal costs of corruption, and foster business expansion domestically and globally.
  • Company leaders should consider hiring experienced legal counsel to provide advice and representation regarding FCPA compliance.

What is the Foreign Corrupt Practices Act?

Enacted in 1977, the Foreign Corrupt Practices Act (“FCPA”) is a federal law that prohibits bribery of foreign officials in an effort to obtain or retain business. It also requires companies to maintain adequate books, records, and internal controls in their accounting practices to prevent and detect unlawful transactions.

Congress passed the FCPA in response to growing concerns about corruption in the global economy. The FCPA includes provisions for both civil and criminal enforcement; and, over the past several decades, FCPA enforcement proceedings have resulted in billions of dollars in penalties, disgorgement orders, and other sanctions issued against companies accused of engaging in corrupt transactions with government entities.

What are the Risks of FCPA Non-Compliance?

The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) are the primary agencies tasked with enforcing the FCPA. These agencies take allegations of FCPA violations very seriously, motivated in large part by the damage that bribery and corruption of foreign officials can cause to the interests of the United States. Prosecutions under the FCPA have increased in recent years, with both companies and individuals being targeted.

Due to the risk of federal prosecution, companies that do business with foreign entities must implement compliance programs that are specifically designed to prevent, detect and allow for appropriate response to transactions that may run afoul of the FCPA. In addition to helping to prevent and remedy FCPA violations, adopting a robust compliance program also demonstrates intent to follow the law and can create a positive view of your company in the eyes of federal authorities.

“Implementing an effective FCPA compliance program serves a number of important purposes. Not only can companies mitigate the risk of their employees engaging in corrupt practices, but they can also discourage corrupt conduct by other entities and demonstrate to federal authorities that they are committed to complying with the law.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.

If your company is targeted by the DOJ or SEC for a suspected FCPA violation, it will be important to engage federal defense counsel promptly. Having counsel available to represent your company during an FCPA investigation is crucial for protecting your company and its owners, executives, and personal against civil or criminal prosecution.

Why Should Companies Implement FCPA Compliance Programs?

Here are 10 of the most important reasons why companies that do business with foreign entities need to adopt comprehensive and custom-tailored FCPA compliance programs:

  1. The FCPA is an invaluable tool in the federal government’s fight against foreign corruption.
    • The FCPA is a massive piece of legislation that is designed to allow the DOJ and SEC to effectively combat corruption and bribery involving foreign officials. Ultimately, enforcement of the FCPA is intended to eliminate the costs of foreign corruption to the United States.
    • An effective and robust FCPA compliance program promotes these objectives while also protecting companies and individuals against civil liability and criminal prosecution.
  2. Anti-corruption laws like the FCPA promote ethical conduct.
    • Companies that have comprehensive policies against bribery and corruption send a strong message to other companies and foreign officials that they are committed to aiding in the federal government’s fight against corruption.
    • Foreign officials are less likely to ask for bribes from companies that promote an anti-corruption corporate environment through their compliance policies and procedures.
    • Compliance with anti-corruption laws promotes positive morale among company personnel who feel the pride of working for a company that is committed to transparency and ethical conduct.
  3. The FCPA allows companies to develop strong internal controls and avoid a slippery slope toward an unethical culture.
    • Companies that regularly utilize bribes in their business operations are likely to eventually encounter multiple problems, both in the U.S. and abroad.
    • Once a foreign official knows that a company is willing to pay bribes, that foreign official will request larger bribe amounts. In order to continue business operations in the relevant jurisdiction, company personnel may continue to accept the foreign official’s terms and pay larger bribes.
    • If left unchecked, corrupt practices can become so prevalent that they create enormous liability exposure for the company.
    • Maintaining a focus on FCPA compliance allows companies to develop effective internal controls that promote efficiency in their business operations.
  4. The FCPA reduces the societal costs of corruption.
    • Corruption increases costs to society. This includes political, social, economic, and governmental costs resulting from unethical business conduct.
    • By adopting and enforcing strong FCPA compliance programs, companies can help reduce these costs.
  5. The FCPA reduces the internal business costs of corruption.
    • Corporate success depends on certainty, predictability, and accountability. An environment where corruption is rampant costs companies time and money, and it can lead to disruptions in the continuity of their business operations.
    • FCPA compliance instills predictability in investments, business transactions, and dealings with foreign officials.
  6. Corruption and bribery create an unfair business environment.
    • Companies are more likely to be successful in an environment that emphasizes fair competition, and in which all competitors sell their products and services based on differentiation, pricing, and efficiency.
    • Corruption and bribery allow for unfair results in the marketplace. For instance, companies that utilize bribes can achieve increased sales and increased market share despite offering an inferior product at an uncompetitive price.
  7. The penalties under the FCPA encourage compliance and accurate reporting.
    • The penalties imposed under the FCPA incentivize the disclosure and reporting of statutory violations. These penalties include fines, imprisonment, disgorgement, restitution, and debarment.
    • Whistleblowers can receive between 10% and 30% of amounts the federal government recovers in FCPA enforcement litigation, and this provides a strong incentive to report violations as well.
    • The risk of significant penalties is an important factor for companies to consider when deciding how much time, effort, and money to invest in constructing an FCPA compliance program.
  8. Anti-corruption laws foster business expansion and stability both domestically and globally.
    • For companies that plan to expand domestically or internationally, success depends on the existence of a competitive environment in which companies compete fairly based on product differentiation, price, and other market factors.
    • Fair competition and growth opportunities are hampered when competitors can simply bribe their way to success. Therefore, FCPA enforcement is essential to maintaining fair competition.
    • DOJ and SEC investigations can severely disrupt efforts to maintain stability and predictability, and they can lead to significant financial and reputational harm.
  9. Corruption leads to human rights abuses.
    • Companies that regularly utilize corruption and bribery to achieve their business goals often resort to other illegal practices as well. This includes forced labor and child labor.
    • These types of human rights abuses are commonplace in countries where corruption and bribery are widespread.
    • To reduce the risk of these human rights abuses, it is crucial for company personnel to be educated on the potentially disastrous consequences of corruption and bribery.
    • Developing a robust compliance policy is the best way to educate personnel, reduce the risks of corruption and bribery, and eliminate the human rights abuses associated with these risks.
  10. The FCPA encourages open communication between companies and their legal counsel.
    • With regard to FCPA compliance, it is a legal counsel’s job to represent the best interests of the company and help the company foster an environment of ethical conduct. Achieving these objectives requires open and honest communication between the company and legal counsel.
    • Due to the severe sanctions imposed under the FCPA, companies are incentivized to hire counsel to advise them with regard to compliance and to adopt and implement effective FCPA compliance programs.

Effective FCPA Compliance Programs Help Companies Avoid Costs, Loss of Business Opportunities, and Federal Liability

Working with legal counsel to develop robust FCPA compliance policies and procedures can help prevent company personnel from offering bribes and engaging in other corrupt practices while also encouraging the internal disclosure of suspected violations. Failing to maintain adequate internal controls and foster a culture of compliance can be detrimental to a company’s operations, and FCPA violations can lead to civil or criminal prosecution at the federal level. As a result, all companies that do business with foreign entities would be well-advised to work with legal counsel to develop comprehensive FCPA compliance policies and procedures.

Oberheiden P.C. © 2020

For more on the Foreign Corrupt Practices Act see the National Law Review Criminal Law & Business Crimes section.

Two Class Actions Alleging Starbucks Violated FCRA’s Background Report Disclosure Requirements Are Grinding Toward Settlement

Two pending class action lawsuits alleging coffee giant Starbucks violated the Fair Credit Reporting Act (“FCRA”) by relying on flawed background reports to decline employment to over 8,000 job applicants will likely settle in the coming months.  The two suits are being consolidated in the U.S. District Court for the Northern District of Georgia for the purpose of a directing notice to a single nationwide class.

Before taking adverse action against an applicant based on a background report, 15 U.S.C. §1681b(b)(3) requires the employer to provide the applicant with a copy of the report and a written summary of the applicant’s rights under 15 U.S.C. §1681g(c)(1).  The purpose of this requirement is to allow the applicant an opportunity to correct any errors on the report before the adverse action is taken.

In the first suit, pending in the U.S. District Court for the Western District of Washington, the lead plaintiff, Jonathan Santiago Rosario (“Rosario”), alleges that he was denied employment as a Starbucks barista based on an inaccurate background report Starbucks obtained from Accurate Background, Inc. (“Accurate Background”).  Rosario claims he was taken out of consideration for the position based on several criminal charges and convictions that appeared on his report.  Rosario maintains that the report was inaccurate and that Starbucks took the adverse action weeks before he was provided with the report and the written summary of rights.  Rosario argues that he never had a meaningful opportunity to dispute the report and that Starbucks never reconsidered him for the position.

Similarly, the lead plaintiff in the second suit, Kevin Wills (“Wills”) of Georgia, alleges that Starbucks took adverse employment action against him without providing proper notice and a written summary of rights under FCRA.  Starbucks allegedly hired Wills pending the results of his criminal background check.  Starbucks allegedly received a report from Accurate Background stating that “Kevin Willis” of Minnesota had two prior convictions for domestic violence.  As a result of the report, Starbucks informed Wills over the telephone that he could not work for Starbucks.  Days later, Wills received a letter enclosing the background report.

According to an April 17, 2019 order issued by Judge Richard Jones, who presides over the Rosario action, the parties from both cases jointly participated in several sessions with a private mediator and have reached an agreement in principle to settle both cases on a class basis.

On April 24, 2019, Magistrate Judge Catherine M. Salinas issued a report and recommendation in the Wills case recommending that the Clerk in the Northern District of Georgia consolidate the Rosario case into the Wills case.  After fourteen days, if no party objects, the cases will likely be consolidated.

To date, no details about the terms of the settlement have been released.

 

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.
This post was written by Nadia Adams of Womble Bond Dickinson (US) LLP.
Read more on FCRA Litigation on the National Law Review’s Litigation Type of Law page.

Supreme Court to Decide Who Can Sue Under Privacy Law

Does a consumer, as an individual, have standing to sue a consumer reporting agency for a “knowing violation” of the Fair Credit Reporting Act (“FCRA”), even if the individual may not have suffered any “actual damages”?

The question will be decided by the U.S. Supreme Court in Spokeo, Inc. v. Robins, 742 F.3d 409 (9th Cir. 2014), cert. granted, 2015 U.S. LEXIS 2947 (U.S. Apr. 27, 2015) (No. 13-1339). The Court’s decision will have far-reaching implications for suits under the FCRA and other statutes that regulate privacy and consumer credit information.

FCRA

Enacted in 1970, the Fair Credit Reporting Act obligates consumer reporting agencies to maintain procedures to assure the “maximum possible accuracy” of any consumer report it creates. Under the statute, consumer reporting agencies are persons who regularly engage “in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.” Information about a consumer is considered to be a consumer report when a consumer reporting agency has communicated that information to another party and “is used or expected to be used or collected” for certain purposes, such as extending credit, underwriting insurance, or considering an applicant for employment. The information in a consumer report must relate to a “consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.”

Under the FCRA, consumers may bring a private cause of action for alleged violations of their FCRA rights resulting from a consumer reporting agency’s negligent or willful actions. For a negligent violation, the consumer may recover the actual damages he or she may have sustained. For a “willful” or “knowing” violation, a consumer may recover either actual damages or statutory monetary damages of $100 to $1,000.

Background

Spokeo is a website that aggregates personal data from public records that it sells for many purposes, including employment screening. The information provided on the site may include an individual’s contact information, age, address, income, credit status, ethnicity, religion, photographs, and social media use.

Spokeo, Inc., has the dubious distinction of receiving the first fine ($800,000) from the Federal Trade Commission (“FTC”) for FCRA violations involving the sale of Internet and social media data in the employment screening context. The FTC alleged that the company was a consumer reporting agency and that it failed to comply with the FCRA’s requirements when it marketed consumer information to companies in the human resources, background screening, and recruiting industries.

Conflict in Circuit Courts

In Robins v. Spokeo, Inc., Thomas Robins had alleged several FCRA violations, including the reckless production of false information to potential employers. Robins did not allege he had suffered or was about to suffer any actual or imminent harm resulting from the information that was produced, raising only the possibility of a future injury.

The U.S. Court of Appeals for the Ninth Circuit, based in San Francisco, held that allegations of willful FCRA violations are sufficient to confer Article III standing to sue upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of the statute. In other words, the consumer need not allege any resulting damage caused by a violation; the “knowing violation” of a consumer’s FCRA rights alone, the Ninth Circuit held, injures the consumer. The Ninth Circuit’s holding is consistent with other circuits that have addressed the issue. See e.g., Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702, 705-07 (6th Cir. 2009). It refused to follow the U.S. Court of Appeals for the Eighth Circuit in finding that one “reasonable reading of the [FCRA] could still require proof of actual damages but simply substitute statutory rather than actual damages for the purpose of calculating the damage award.” Dowell v. Wells Fargo Bank, NA, 517 F.3d 1024, 1026 (8th Cir. 2008).

The constitutional question before the U.S. Supreme Court is the scope of Congress’ authority to confer Article III standing, particularly, whether a violation of consumers’ statutory rights under the FCRA are the type of injury for which Congress may create a private cause of action to redress. In Beaudry, the Sixth Circuit identified two limitations on Congress’ ability to confer standing:

  1. the plaintiff must be “among the injured,” and

  2. the statutory right must protect against harm to an individual rather than a collective.

The defendant companies in Beaudry provided check-verification services. They had failed to account for a change in the numbering system for Tennessee driver’s licenses. This led to reports incorrectly identifying consumers as first-time check-writers.

The Sixth Circuit did not require the plaintiffs in Beaudry to allege the consequential damages resulting from the incorrect information. Instead, it held that the FCRA “does not require a consumer to wait for consequential harm” (such as the denial of credit) before bringing suit under FCRA for failure to implement reasonable procedures in the preparation of consumer reports. The Ninth Circuit endorsed this position, holding that the other standing requirements of causation and redressability are satisfied “[w]hen the injury in fact is the violation of a statutory right that [is] inferred from the existence of a private cause of action.”

Authored by: Jason C. Gavejian and Tyler Philippi of Jackson Lewis P.C.

Jackson Lewis P.C. © 2015

California Class Action Suit Alleges LinkedIn Violated Fair Credit Reporting Act (FCRA) By Providing Employers With Reference Reports

Allen Matkins Law Firm

Another interesting case filed in California recently highlights the myriad risks employers face when using social media as part of their hiring process.

A class action lawsuit was filed in the Central District of California against LinkedIn based on allegations that thereference reports LinkedIn generates for premium subscribers, including many employers, violate the Fair Credit Reporting Act(“FCRA”). According to the plaintiffs in Sweet, et. al. v. LinkedIn Corporation, an employer who is a premium subscriber can generate a report containing the names, locations, employment areas, current employers, and current positions of all persons in a user’s network who may have worked with a job applicant and also contact the applicant’s “references.” An employer, according to the allegations, can run such a “reference report” on a job applicant without the applicant receiving any notification whatsoever. Thus, as the complaint alleges, “any potential employer can anonymously dig into the employment history of any LinkedIn member, and make hiring and firing decisions based upon the information they gather, without the knowledge of the member, and without any safeguards in place as to the accuracy of the information that the potential employer has obtained.” The complaint claims this activity potentially violates both the FCRA’s purposes, which include safeguards as to the accuracy, fairness, and privacy of the information that a potential employer obtains, and the FCRA’s customer notification requirements.

This latest lawsuit against LinkedIn serves as another example of the complex legal issues and risks that an employer faces when using social media to make recruiting and hiring decisions.

© 2010-2014 Allen Matkins Leck Gamble Mallory & Natsis LLP
ARTICLE BY

Alexander Nestor
Nisha Verma
OF
Allen Matkins Leck Gamble Mallory & Natsis LLP

Beware of Online Applications and Background Check Authorizations

Posted in the National Law Review on December 15, 2011 an article by Luis E. Avila, Nancy L. Farnam, Richard D. Fries, Jeffrey T. Gray, Jr., Richard A. Hooker and David E. Khorey of Varnum LLP regarding class actions against employers’ conducting background checks:  

 

Varnum LLP

An increasing number of employers have been recipients of proposed class actions alleging that the way they conduct background checks on prospective employees violates the Fair Credit Reporting Act 15 U.S.C. §1681 (“FCRA”).

A recent example is a claim filed in Virginia, which focuses on the employer’s online job application. The process asks potential employees whether they are willing to allow the company to obtain a consumer report or criminal background check on them. Applicants must then click a button labeled either “Accept” or “Decline.” The claim alleges that for purposes of the FCRA, an electronic disclosure is not one made “in writing” and that an electronic signature (Accept/Decline) does not satisfy the requirements of the act.

As it relates to employers conducting background checks on prospective employees, the FCRA requires that a person may not procure a consumer report for employment purposes with respect to any consumer, unless (1) a clear and conspicuous disclosure has been made in writing to the applicant at any time before the report is procured, in a document that consists solely of the disclosure that a consumer report may be obtained for employment purposes; and (2) the consumer has authorized in writing the procurement of the report by that person.

Electronic disclosures of this sort have traditionally been viewed as falling under the Electronic Signatures in Global and National Commerce Act (“E-Sign”). However, this claim challenges this understanding of E-Sign by alleging that the law does not apply to job applicants, but instead only to consumers, which it defines as an individual who obtains products or services.

Under the FCRA, employers may be liable to each class member for up to $1,000.00 or actual damages, plus punitive damages and attorneys’ fees and costs. So far this year, two companies have agreed to multimillion-dollar settlements in similar cases.

We strongly recommend that employers review their online job application process to ensure that it does not run afoul of the FCRA and obtain competent labor counsel to address any concerns

© 2011 Varnum LLP