As widely reported, the Securities and Exchange Commission is conducting a sweep of the financial services industry, seeking information about possible violations of the Foreign Corrupt Practices Act in connection with, among other things, interactions with sovereign wealth funds. This sweep puts two powerful forces on a collision course: the ascendency of vast, government-controlled asset pools hungry for investment opportunities and the ever-increasing enforcement of the FCPA, the U.S. law that broadly prohibits offering, paying, promising to pay or authorizing the payment of anything of value to a foreign official for the purposes of obtaining or retaining business.

There are a number of good reasons why private equity firms, hedge funds and investment advisers should adopt new -- or strengthen existing -- FCPA compliance policies, not the least of which is the current sweep.

First, interactions between funds and governments are frequent and probably more frequent than many realize. While it is readily apparent that an employee of the Ministry of Finance in Singapore is a foreign official, it is less obvious that an employee of Temasek Holdings Pte. Ltd., the sovereign wealth fund owned by the Singapore government, is also a foreign official.

A strong FCPA compliance policy, coupled with tailored training, will ensure that fund employees and agents understand and appropriately address the bribery risks inherent in interactions with sovereign wealth funds and other state-owned entities, whose employees are also considered foreign officials. FCPA due diligence on sovereign wealth funds and the government officials in charge of investment decisions can reduce any up-front risk and mitigate downstream damage if an issue emerges. Under the FCPA, improper payments by agents create liability for the principal. As such, anti-bribery due diligence programs should cover agents, particularly those engaged in lobbying and fundraising activities, and should focus on uncovering past misconduct (a reliable indicator of probable future misconduct) or government ties.

Equity investments by government funds are not the only possible government interaction. Buyout firms are teaming with sovereign wealth funds and other state-owned entities to pursue acquisitions. Yuan- and other foreign-currency-denominated funds co-managed by foreign and local investment firms are being raised to make investments abroad. In China, for example, outbound private equity transactions are fraught with government regulation: Deal-specific approval from multiple government agencies is required.

Funds and banks should have clear policies in place so that their employees, lawyers and accountants understand that government interactions implicate bribery laws and that certain deal protocol, such as lavish dinners, may not be appropriate. Anti-bribery due diligence should be conducted on joint venture partners and investment opportunities. Indeed, investors have an affirmative duty to conduct anti-bribery due diligence when a high probability of bribery exists.

Aided by the benefit of hindsight, courts have found a high probability of bribery exists when deals are done in countries with high levels of corruption and when lead investors have engaged in past misconduct. Not surprisingly, sovereign wealth funds are primarily located in countries awash in oil and export revenues, which are often "challenging jurisdictions" from a corruption perspective.

Second, the risk-reward ratio is shifting. In the U.S., financial firms are under increasing scrutiny (witness the spate of insider trading cases, Dodd-Frank's new registration requirements for investment advisers and the pay-to-play reforms), anti-bribery enforcement is high, and sanctions are significant.

Criminal and civil liability attach to violations of the FCPA; both the Department of Justice and the SEC have enforcement authority. To say that FCPA enforcement is on the upswing is to repeat what everybody has been saying for almost 10 years. One recent statistic underscores just how lucrative the FCPA has become to the government. In 2010, the DOJ secured more than $2 billion in judgments and settlements as a result of DOJ-led enforcement actions. FCPA enforcement accounted for $1 billion of this amount, the largest in the history of the FCPA.

The SEC is also paying close attention to the FCPA. In 2010, in an effort to restore confidence in its enforcement program after the $50 billion Bernie Madoff Ponzi scheme, the SEC completed its most significant structural reforms in four decades, singling out five high-priority areas of enforcement, including asset management (hedge funds and investment advisers) and the FCPA. In addition, the SEC is tapping into a treasure trove of enforcement leads.

As mandated by Dodd-Frank, the SEC established a whistleblower program, awarding informants between 10% and 30% of amounts recovered from substantial securities law violations, including FCPA actions. With FCPA-related fines and penalties now routinely in the hundreds of millions of dollars, the incentive to provide original information to the SEC about possible bribes or falsified books and records is considerable.

Enforcement authorities are not passively waiting for whistleblower reports to initiate international bribery investigations. Both the DOJ and the SEC are using traditional law enforcement techniques to proactively gather evidence. In early 2010, the DOJ announced the largest single investigation and prosecution of individuals in the history of the FCPA. Twenty-two individuals were indicted for conspiring to bribe the minister of defense of an unnamed African country. There, the DOJ worked with the FBI to orchestrate an elaborate undercover sting operation, with FBI operatives posing as sales agents who were connected to the minister of defense.

Third, there is substantial risk of reputational damage for companies caught up in allegations of corruption. Improper payments to foreign officials garner headlines. This is due in part to the enormous monetary penalties imposed and the jail sentences handed down. A sample of recent FCPA settlements include: Siemens AG -- $1.6 billion; TSKJ -- a four-company joint venture collectively paying $921.8 million; BAE Systems plc -- $400 million; Daimler AG -- $185 million.

In addition, the DOJ is delivering on its promise to prosecute and convict high-ranking executives involved in bribery schemes. See, for example: Douglas Murphy, the president of American Rice Inc., sentenced to 63 months in prison, and David Kay, American Rice's vice president of Caribbean operations, sentenced to 37 months in prison; Charles Jumet, a vice president of Ports Engineering Consultants Corp., and John Warwick, president of PECC, who were sentenced to 87 months and 37 months imprisonment, respectively; and the married Hollywood producers Gerald and Patricia Green, who were each sentenced to six months in separate penitentiaries (the government is appealing the short sentence; the Greens are appealing the convictions).

Public sentiment against corruption is at a fever pitch, as is the desire to expose graft, kickbacks and bribery. The political upheaval in the Middle East is in many ways a popular uprising against corruption. Technology such as Twitter and Facebook provides a wide platform for private citizens to publicize corruption allegations and gain followers.

The New York Times recently reported on the efforts of Aleksei Navalny, a Russian blogger who has attracted a "vast audience" with websites dedicated to unveiling bribery in Russian energy companies and in the government procurement process. Navalny's posts have triggered an investigation by Prime Minister Vladimir Putin into alleged fraud at OAO Transneft (and, because it is Russia, a criminal investigation of Navalny). One of Navalny's websites explains why Russians should care about corruption: "Because pensioners, doctors and teachers are on the edge of survival, while scoundrels in power buy another villa, yacht or the devil knows what."

Finally, fostering a culture of anti-bribery compliance delivers a tangible return on investment. A robust compliance program mitigates the anti-bribery risks inherent in the firm's international operations. The metrics a firm uses to evaluate its own compliance program are equally applicable to its portfolio companies, acquisition candidates and other investment opportunities: Has sufficient anti-bribery due diligence been conducted on intermediaries, deal partners and co-investors to assess the bribery risks these third parties introduce? Have all government touch points been identified and robust policies (such as those curbing lavish hospitality) been implemented? Have expectations regarding anti-bribery compliance been effectively communicated to employees and agents?

Answering these questions before a deal is signed or an investment is made helps to quantify a target's bribery risk profile, which in turn impacts its valuation. As an added benefit, asking the right questions also limits possible successor liability.

Julie Proudfit Coleman is a director of advisory services at Trace International Inc.