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Compliance Pitfalls to Avoid for Small Businesses

Small businesses often believe that only large corporations need to worry about complex federal regulations and compliance burdens. However, smaller companies are increasingly facing scrutiny and enforcement actions in areas like FCPA violations, environmental regulations, anti-money laundering laws, and OSHA standards. Without proper compliance, small businesses can easily run afoul of rules they may not even realize apply to them.

In this blog, I'll highlight key compliance pitfalls small business owners should be aware of based on recent cases and enforcement trends. I'll also provide best practices for mitigating risks. My experience as white collar defense counsel has shown me time and again how lacking basic compliance measures can lead to otherwise avoidable legal headaches for small companies.

Foreign Corrupt Practices Act

When most think of FCPA anti-bribery enforcement, large multi-national companies come to mind. However, small businesses that do any work internationally can also implicate these rules. FCPA prohibits bribing foreign officials to obtain business abroad. Even what's considered a facilitating "tip" in many countries can trigger violations.

In one recent case, the DOJ imposed a $300,000 penalty on a small oil equipment company whose sales agents gave kickbacks to land deals in Latin America. Assuring compliance with FCPA should be a priority for any small business with global activities. Clear policies, training, and auditing of foreign sales partners is essential.

Workplace Safety & OSHA

While tiny businesses may assume they fly under the radar, OSHA has been cracking down on even very small employers with penalties for violations of workplace safety rules. Alarmingly, data shows businesses with under 100 employees have injury rates far above the national average.

Lacking documented safety protocols or proper equipment and training means small businesses are low-hanging fruit for OSHA inspectors. One recent case imposed $500,000 in fines on a machine manufacturer with only 30 employees over unguarded equipment and electrical issues. Don't let workplace safety slide just because you’re small.

Environmental Regulations

Small businesses in numerous industries underestimate their exposure to EPA regulations and permitting requirements. For example, auto repair shops and dry cleaners often impermissibly discharge hazardous materials down drains. Construction firms illegally dump waste. Other small businesses run afoul of rules around air emissions or energy efficiency mandates.

Violations bring heavy fines and business disruptions - sometimes existential threats for small operators. A thorough audit of environmental compliance should be a best practice for any company that uses chemicals, produces emissions, or generates significant waste.

Anti-Money Laundering

AML rules require careful customer screening and transaction monitoring to detect criminal activity like fraud or terrorism financing. While small financial firms and advisors may not take AML procedures seriously, regulators strongly disagree. Willful or negligent AML violations have led to hundreds of thousands in penalties for small wealth management and mortgage brokers.

Documenting robust know-your-customer due diligence and understanding monitoring requirements keyed to your business is essential. Cutting corners on AML compliance because you are small only increases liability risks when the inevitable violations occur.

Consumer Protection

Whether state or federal regulators like the FTC and CFPB, consumer protection remains a priority. Small retailers and service providers are common targets for investigations over deceptive marketing, hidden fees, or unfair billing. Big companies have teams of lawyers to ensure advertising and contracts are compliant - small businesses often wing it.

The result is frequently enforcement actions. One recent FTC case sanctioned a small solar company over deceptive green energy claims, while a moving company faced lawsuits over holding belongings hostage for fee payment. Avoiding consumer protection pitfalls takes concerted attention for small enterprises.

Maintaining Compliance

Given limited resources, how can small businesses reasonably stay on top of compliance? Focus first on core risk areas like FCPA, workplace safety, and requirements specific to your industry. Designate a compliance officer internally to own leading training, audits, and policy updates. Seek cost-effective legal guidance when unsure about obligations.

Leverage free resources like SBA.gov and SCORE mentoring to strengthen compliance know-how. Raise awareness among employees and implement controls even if not mandatory yet. View compliance through a lens of risk mitigation, not legal burden. A forward-leaning approach can help small businesses avoid the most common missteps as regulations evolve.

The bottom line is in the modern era, small businesses can't afford to ignore compliance, assuming they will fly under the radar. The risks are real, and the consequences of violations can be devastating. With proper attention and support, small companies can meet their obligations, avoid fines, protect their reputation, and create a foundation for sustainable growth.