Skip to content

Continuing Legal Education Highlights, Part 1 of 3 (ABA Foreign Corrupt Practices Act – Washington, D.C.)

by merlin on September 18th, 2013
  • Sumo

Today was an introductory session on the Foreign Corrupt Practices Act at the Westin Hotel in Washington, D.C.  This is an interesting act, with a wide scope, that most people wouldn’t deal with at all on a daily basis but which is extremely relevant if a publicly-traded corporation finds itself involved in any international business affairs (as there are many hurdles they need to overcome).

A particular point of discussion that I encourage readers of this blog to comment on is the appropriateness of the US laws this relies upon as enforced on corporations acting abroad and their subsidiaries.  An example is Halliburton, or Blackwater.  This discussion fascinates me because of the propriety of US extra-territorial application of its laws and norms (especially as applied to military action abroad, such as in Syria).  Please – DISCUSS!

The FCPA is codified at 15 USC 78dd2:

(a) Prohibition

It shall be unlawful for any domestic concern, other than an issuer which is subject to section 78dd–1 of this title, or for any officer, director, employee, or agent of such domestic concern or any stockholder thereof acting on behalf of such domestic concern, to make use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to—

(1) any foreign official for purposes of—

(A)(i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person;

(2) any foreign political party or official thereof or any candidate for foreign political office for purposes of—

(A)(i) influencing any act or decision of such party, official, or candidate in its or his official capacity, (ii) inducing such party, official, or candidate to do or omit to do an act in violation of the lawful duty of such party, official, or candidate, or (iii) securing any improper advantage; or

(B) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person; or

(3) any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office, for purposes of—

(A)(i) influencing any act or decision of such foreign official, political party, party official, or candidate in his or its official capacity, (ii) inducing such foreign official, political party, party official, or candidate to do or omit to do any act in violation of the lawful duty of such foreign official, political party, party official, or candidate, or (iii) securing any improper advantage; or

(B) inducing such foreign official, political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person.

(b) Exception for routine governmental action

Subsections (a) and (i) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.

(c) Affirmative defenses

It shall be an affirmative defense to actions under subsection (a) or (i) of this section that—

(1) the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country; or

(2) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to—

(A) the promotion, demonstration, or explanation of products or services; or

(B) the execution or performance of a contract with a foreign government or agency thereof.

(d) Injunctive relief

(1) When it appears to the Attorney General that any domestic concern to which this section applies, or officer, director, employee, agent, or stockholder thereof, is engaged, or about to engage, in any act or practice constituting a violation of subsection (a) or (i) of this section, the Attorney General may, in his discretion, bring a civil action in an appropriate district court of the United States to enjoin such act or practice, and upon a proper showing, a permanent injunction or a temporary restraining order shall be granted without bond.

(2) For the purpose of any civil investigation which, in the opinion of the Attorney General, is necessary and proper to enforce this section, the Attorney General or his designee are empowered to administer oaths and affirmations, subpoena witnesses, take evidence, and require the production of any books, papers, or other documents which the Attorney General deems relevant or material to such investigation. The attendance of witnesses and the production of documentary evidence may be required from any place in the United States, or any territory, possession, or commonwealth of the United States, at any designated place of hearing.

(3) In case of contumacy by, or refusal to obey a subpoena issued to, any person, the Attorney General may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, or other documents. Any such court may issue an order requiring such person to appear before the Attorney General or his designee, there to produce records, if so ordered, or to give testimony touching the matter under investigation. Any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district in which such person resides or may be found. The Attorney General may make such rules relating to civil investigations as may be necessary or appropriate to implement the provisions of this subsection.

(e) Guidelines by Attorney General

Not later than 6 months after August 23, 1988, the Attorney General, after consultation with the Securities and Exchange Commission, the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue—

(1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and

(2) general precautionary procedures which domestic concerns may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section.

The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of chapter 5 of title 5 and those guidelines and procedures shall be subject to the provisions of chapter 7 of that title.

(f) Opinions of Attorney General

(1) The Attorney General, after consultation with appropriate departments and agencies of the United States and after obtaining the views of all interested persons through public notice and comment procedures, shall establish a procedure to provide responses to specific inquiries by domestic concerns concerning conformance of their conduct with the Department of Justice’s present enforcement policy regarding the preceding provisions of this section. The Attorney General shall, within 30 days after receiving such a request, issue an opinion in response to that request. The opinion shall state whether or not certain specified prospective conduct would, for purposes of the Department of Justice’s present enforcement policy, violate the preceding provisions of this section. Additional requests for opinions may be filed with the Attorney General regarding other specified prospective conduct that is beyond the scope of conduct specified in previous requests. In any action brought under the applicable provisions of this section, there shall be a rebuttable presumption that conduct, which is specified in a request by a domestic concern and for which the Attorney General has issued an opinion that such conduct is in conformity with the Department of Justice’s present enforcement policy, is in compliance with the preceding provisions of this section. Such a presumption may be rebutted by a preponderance of the evidence. In considering the presumption for purposes of this paragraph, a court shall weigh all relevant factors, including but not limited to whether the information submitted to the Attorney General was accurate and complete and whether it was within the scope of the conduct specified in any request received by the Attorney General. The Attorney General shall establish the procedure required by this paragraph in accordance with the provisions of subchapter II of chapter 5 of title 5 and that procedure shall be subject to the provisions of chapter 7 of that title.

(2) Any document or other material which is provided to, received by, or prepared in the Department of Justice or any other department or agency of the United States in connection with a request by a domestic concern under the procedure established under paragraph (1), shall be exempt from disclosure under section 552 of title 5 and shall not, except with the consent of the domestic concern, be made publicly available, regardless of whether the Attorney General responds to such a request or the domestic concern withdraws such request before receiving a response.

(3) Any domestic concern who has made a request to the Attorney General under paragraph (1) may withdraw such request prior to the time the Attorney General issues an opinion in response to such request. Any request so withdrawn shall have no force or effect.

(4) The Attorney General shall, to the maximum extent practicable, provide timely guidance concerning the Department of Justice’s present enforcement policy with respect to the preceding provisions of this section to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to such provisions. Such guidance shall be limited to responses to requests under paragraph (1) concerning conformity of specified prospective conduct with the Department of Justice’s present enforcement policy regarding the preceding provisions of this section and general explanations of compliance responsibilities and of potential liabilities under the preceding provisions of this section.

(g) Penalties

(1)(A) Any domestic concern that is not a natural person and that violates subsection (a) or (i) of this section shall be fined not more than $2,000,000.

(B) Any domestic concern that is not a natural person and that violates subsection (a) or (i) of this section shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Attorney General.

(2)(A) Any natural person that is an officer, director, employee, or agent of a domestic concern, or stockholder acting on behalf of such domestic concern, who willfully violates subsection (a) or (i) of this section shall be fined not more than $100,000 or imprisoned not more than 5 years, or both.

(B) Any natural person that is an officer, director, employee, or agent of a domestic concern, or stockholder acting on behalf of such domestic concern, who violates subsection (a) or (i) of this section shall be subject to a civil penalty of not more than $10,000 imposed in an action brought by the Attorney General.

(3) Whenever a fine is imposed under paragraph (2) upon any officer, director, employee, agent, or stockholder of a domestic concern, such fine may not be paid, directly or indirectly, by such domestic concern.

(h) Definitions

For purposes of this section:

(1) The term “domestic concern” means—

(A) any individual who is a citizen, national, or resident of the United States; and

(B) any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.

(2)(A) The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

(B) For purposes of subparagraph (A), the term “public international organization” means—

(i) an organization that is designated by Executive order pursuant to section 288 of title 22; or

(ii) any other international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order in the Federal Register.

(3)(A) A person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if—

(i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or

(ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.

(B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.

(4)(A) The term “routine governmental action” means only an action which is ordinarily and commonly performed by a foreign official in—

(i) obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country;

(ii) processing governmental papers, such as visas and work orders;

(iii) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country;

(iv) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or

(v) actions of a similar nature.

(B) The term “routine governmental action” does not include any decision by a foreign official whether, or on what terms, to award new business to or to continue business with a particular party, or any action taken by a foreign official involved in the decision-making process to encourage a decision to award new business to or continue business with a particular party.

(5) The term “interstate commerce” means trade, commerce, transportation, or communication among the several States, or between any foreign country and any State or between any State and any place or ship outside thereof, and such term includes the intrastate use of—

(A) a telephone or other interstate means of communication, or

(B) any other interstate instrumentality.

(i) Alternative jurisdiction

(1) It shall also be unlawful for any United States person to corruptly do any act outside the United States in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any of the persons or entities set forth in paragraphs (1), (2), and (3) of subsection (a) of this section, for the purposes set forth therein, irrespective of whether such United States person makes use of the mails or any means or instrumentality of interstate commerce in furtherance of such offer, gift, payment, promise, or authorization.

(2) As used in this subsection, the term “United States person” means a national of the United States (as defined in section 1101 of title 8) or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the laws of the United States or any State, territory, possession, or commonwealth of the United States, or any political subdivision thereof.

ABA CLE – Westin Hotel (Georgetown, Washington)

Wednesday, September 18, 2013

 

Fundamentals

Continued Enforcement:

  • Cases more frequent, penalties higher
  • More criminal prosecutions
  • More individual prosecutions
  • International cooperation/enforcement abroad
  • Industry-focused investigations
  • Evolving compliance requirements
  • Parallel civil litigation

 

2 Primary Provisions:

Anti-bribery and accounting aspects

 

No [US nexus} may corruptly…etc. (specific elements)

  • Simply have to make sure they have sufficient tie to US to subject to law
  • What is a “foreign subsidiary”?
    • Anti-bribery provisions apply to foreign branches, but NOT to foreign subsidiaries
    • Sub can STILL be liable: as agent, co-conspirator, intermediary, etc.
    • Subs of “issuers” – directly liable to accounting provisions
    • Enforcement incentive to find jurisdictional hook

“Corruptly”: Surreptitiously, secretly, obtaining quid pro quo, contrary to local law, intends to influence improperly, often intent (corrupt) is assumed by authorities

“Anything of value”:

Even “psychic benefit” – ex. Schering-Plough

 

Can be direct or indirect: ex. Vicarious liability (highly litigated area)

  • Must show made payment “while knowing” of “high probability” that $ would pass through;
  • Failed to investigate risks or ignored red flags
  • Hired 3rd party that is likely to pay

Ex. Pfizer, Pfizer, etc.

 

“Foreign Official”:

  • Can also include relatives, wives, etc. w/ power overt them (ex. Tyco International)

 

See the ACG (?) Convention (“spheres of dominant influence”)

 

This walks an incredibly interesting line – if a part of a company has a stake of any degree in US markets, then the other parts of the company would be subject to US moral codes.

 

Affirmative Defenses:

  • Local law defense (not tested in Court, but okay in practice)
  • Expenditures on behalf of foreign officials
    • Must be bona fide and reasonable
    • AND directly related to the promotion, licensure, etc.

 

Apparently, paying because you MUST is different from paying to expedite a service.

 

Accounting violations:

  • Mischaracterized payments
  • Misrecording “facilitating payments”
  • Internal controls failures:
    • Payments contrary to company policies
    • Failure to document
    • No due diligence
    • Failure to provide FCPA training to consultants
    • Systems that allowthis stuff

 

Penalties:

  • Fines + disgorgement, potential incarceration, foreign parallel prosecution, etc.

 

Karen Trombino:

Compliance with the FCPA:

 

  • No requirement that there be such a program in a business;
  • No compliance program and a public company with a board of directors and international business – TERRIBLE RISK

 

  1. References:   Justice Department opinion memos on enforcement of FCPA (they actually make evaluation of intended compliance programs for companies, but it MUST be compliant – if not, then it is terrible step to take);
  2. Who has responsibility in this area (compliance)?
  3. Effective communication/input with superior about the issue (ex. Helpline or hotlines for reporting)
  4. Disciplinary procedures (anti-corruption compliance policy AND procedures)
  5. Due diligence requirements
  6. Superior or evaluators!!!!
  7. Make it a part of their employment contract!!!!  Also – make sure that any and all agreements with others contain FCPA compliance provisions

 

  • FCPA DOES NOT require that US Corporations have due diligence with respect to their international associations
  • FCPA DOES charge with knowledge if there is reason to know AGENT will get company in trouble

Must be a sufficient level of due diligence that company knows if red flags are going up for FCPA violations (look at that numbered list above)

  • Remember: a company’s actions will always be judged in hindsight

 

Mergers and Acquisitions: Due Diligence Considerations

Ex. Successor liability; representations that are made in acquisition documents (shareholders will rely on these)

  • If violations discovered before deal is completed, but not reported to DOJ and FEC, then prosecution of purchasing company
  • Remember:  there are FCPA “sting” operations by the DOJ (new)

 

DOJ released: A Resources Guide to the US Foreign Corrupt Practices Act

–         Starting point for research

–         Guide is written from an enforcement perspective

–         It is “non-binding, informal”

–         Views of SEC/DOJ is NOT the view of the Courts

 

Remember: There is NO “compliance defense” under the FCPA.

 

The Guide’s compliance programs follow similarly that list above.

–         The third-party reps actually must be TRAINED (native language) in FCPA.

 

IMPROPER:

Ex. Expensive birthday trips or substantial $ for gifts, dinner, etc.; Guide says WHAT violates, but not what does NOT violate

 

See the DOJ FCPA webpage for all updates!!!!

 

FCPA Internal Investigations:

  • Results must be credible, reliable;
  • Before you begin:
    • Identify client;
    • To whom will you report
    • Who is point of contact
    • Subject-matter and scope (elements of offense/law)
    • How did allegations come to light (ex. Whistleblower, government investigation, etc.)
    • Self-disclosure guideposts for client and timing/cost issues
    • The investigation itself:
      • Document retention
      • Need forensic accountants, computer/IT experts (document preservation, etc.)
      • Review of all relevant compliance programs
      • Review of attorney-client privilege concerning issues
      • Upjohn warnings – advise person you DO NOT REPRESENT THEM (no attorney-client privilege between yourself and THAT PERSON) – also check local laws on attorney-client agreement, data security laws, extradition issues, Dodd-Frank whistleblower protection laws!!!!
      • Document this stuff!!!
      • Make sure that client understands that they need to BOTH self-report AND remediate any problems!!!!

 

OECD Anti-bribery Convention

Signed in 1997

US brings the  most

In 2012, fewer than half of members reported ongoing proceedings

 

 

 

 

 

 

 

 

Comments are closed.