An Overview of the DOJ's and SEC's Recent FCPA Guidance
Who is covered? (pp. 10-11)
- "Issuers"—i.e., most companies listed on U.S. exchanges or who file periodic reports with the SEC
- "Domestic concerns"—i.e., U.S. persons and businesses
- Foreign persons or non-issuers that further a corrupt payment while in the U.S.
- DWT Note: The Guide does not state whether, in the government's view, calls or e-mails into the U.S. would satisfy this element.
What is covered? (pp. 11-21)
- Generally, interstate conduct that furthers a corrupt payment of anything of value to a foreign official for a business purpose
- Meaning of "Business Purpose"
- Made to obtain or retain business
- Guide includes as examples winning a contract; influencing the procurement process; circumventing importation rules; gaining non-public bid information; evading taxes or penalties; influencing lawsuits or enforcement actions; getting exceptions to regulations; avoiding contract termination
- DWT Note: Bribery to evade taxes presumably would only qualify if the evasion was intended in some way to obtain or retain business.
- Meaning of "Corrupt"
- Intended to induce recipient to misuse his official position
- Act can be corrupt even if actor doesn't know identity of recipient or bribe is never carried out
- Meaning of "Anything of Value"
- FCPA has no minimum threshold.
- Value is context-specific—i.e., a small amount in the U.S. may be a sizeable bribe abroad
- Small payments or gifts are okay, such as coffee, taxi fare, reasonable meals and entertainment expenses, and promotional items of nominal value
- Watch for extravagant gifts like sports cars or fur coats, or widespread gifts of smaller items that add up to a wider scheme suggesting a bribe
- Charitable contributions cannot be used to funnel bribes to government officials—e.g., donating to a local charity headed by a government official to get business
- Meaning of "Foreign Official"
- Under the statute, "foreign official" includes officers or employees of an "instrumentality" of a foreign government
- Guide presents a broad definition of "instrumentality", including state-owned or state-controlled entities—and says that an instrumentality can be a company that is less than 50% owned by the government
- Guide makes no distinction between high-level officials and low-level employees
- DWT Note: The 11th Circuit (U.S. v. Esquenazi, No. 11-15331-C) is currently considering whether state-owned entities qualify as "instrumentalities" of foreign governments, and whether their employees therefore qualify as "foreign officials."
Payments to Third Parties (pp. 21-23)
- Covered parties cannot use go-betweens to avoid FCPA liability
- The FCPA prohibits acts made while knowing that the third party will use the item for a bribe; "knowing" includes being aware of a high probability that the prohibited bribes can occur (no "head-in-the-sand" defense)
- Guide lists as "red flags" excessive compensation to third parties; unreasonably large discounts to distributors; consulting agreements that vaguely describe services; third-party consultant is in a different line of business than that for which it's engaged; third party is associated with a foreign official or is engaged at the official's request; third party is a shell offshore company or requests payments to offshore accounts
Exceptions and Affirmative Defenses (pp. 23-27)
- Reasonable and Bona Fide Business Expenditures Defense
- Guide says trips primarily for personal entertainment purposes are not bona fide business expenses
- DOJ and SEC will not take an FCPA enforcement action for bona fide expenses to visit company facilities, train employees, or demonstrate products
- Suggested safeguards include selecting foreign officials on merit-based or predetermined criteria; paying costs directly to vendors; no advances; ensuring expense are reasonable and transparent; not conditioning payment on foreign official action
- Examples of improper expenses include:
- $12,000 birthday trip for government decision-maker
- $10,000 on dinner and entertainment for a foreign official
- Trip to Italy for sight-seeing and $1,000 in pocket money
- Trip to Paris for official and wife with a chauffeur to take driving tour
- Trips to see tourist destinations for employees of Chinese state-owned company or government officials, ostensibly for training
- Paying bills for family of official
- Examples of proper expenses include:
- Foreign officials visiting trade show booth of company and getting free promotional items
- Company invites customers, including some foreign officials, for moderate dinner after trade show
- After winning contract with state-owned business, company gives moderately-priced vase to business manage as wedding gift (fine if properly recorded and appropriate for occasion)
- Company pays for business class travel and hotel for officials to inspect facilities, and takes officials to moderate dinner, baseball game, and play
- DWT Note: The Guide includes an especially useful section with hypotheticals on gifts, travel and entertainment, see pp. 14-19. This section is worth reading, as in our experience, in-house counsel often encounters related issues.
- Permitted by Local Law Defense
- Defense does not cover cases where a country's laws are silent on whether bribes are illegal; the country's written laws must affirmatively permit the conduct
- DWT Note: Realistically, this defense is unlikely ever to be available.
- Routine Government Action Exception
- Covered parties can make "facilitating or expediting payments" to further non-discretionary "routine government actions," such as processing visas, providing police protection, supplying basic utilities
- Guide says to look at the purpose rather than the size of the payment, and emphasizes that this is a narrow exception
- DWT Note: The UK Bribery Act does not include this exception, and companies should be wary of approving or allowing any conduct under the theory that it is a facilitating or expediting payment.
- Extortion or Duress
- "Mere economic coercion" does not amount to extortion
Corporate Liability (pp. 27-30)
- Parent-Subsidiary Liability
- Parent might be liable if it directed the subsidiary's misconduct or controlled or could have supervised the subsidiary
- Successor Liability
- Guide says that the government usually takes actions against a successor only in cases of egregious, sustained violations or if the successor directly participated in the FCPA violations or failed to stop the misconduct post-acquisition
What does DOJ Consider? (pp. 52-53)
- Nature and seriousness of offense
- Pervasiveness of wrongdoing within the corporation
- The corporation's history of similar misconduct
- The corporation's timely and voluntary disclosure of wrongdoing and cooperating
- DWT Note: The FCPA does not require disclosure of suspected wrongdoing, although the Guide indicates that prosecutors consider disclosures in determining how to resolve corporate criminal cases.
- The effectiveness of the corporation's compliance program
- The corporation's remedial actions
- Collateral consequences of prosecution, including to shareholders and public
- The adequacy of the prosecution of individuals alone
- The adequacy of civil or regulatory enforcement remedies
What Does SEC Consider? (pp. 53-54)
- The statutes or rules violated
- The "egregiousness" and "magnitude" of the violation
- Whether the harmed group is vulnerable
- Whether the conduct is ongoing
- Whether the conduct can be investigated within the statute of limitations
- Whether other authorities are better suited to investigate
"Hallmarks" of Effective Compliance Programs (pp. 56-65)
- Commitment from senior management and a clearly articulated policy against corruption
- Code of conduct and compliance policies and procedures
- Make available in local languages for foreign subsidiaries
- Guide notes with approval web-based approval processes to review routine items involving foreign officials
- Company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business
- Risk assessment
- Look at country and industry sector, business opportunities and partners, government involvement and regulation, and exposure to customs and immigration in conducting business
- Training and continuing advice
- Incentives and disciplinary measures
- Third-party due diligence and payments
- Guide suggests that companies should undertake ongoing monitoring of third-party relationships
- Confidential reporting and internal investigations
- Periodic testing and review
- Pre-acquisition due diligence and post-acquisition integration
- DWT Note: The Guide does not recognize an affirmative defense based on a robust compliance program. The Guide does note that each program should be tailored to a specific organization, hence no "check-the-box" list.
Penalties, Sanctions, and Remedies
Criminal Penalties (pp. 68-69)
- For anti-bribery provisions violations, up to . . .
- $2 million or twice the gain/loss for business entities
- $100,000 for individuals or twice the gain/loss and 5 years of prison
- DWT Note: The Guide appears to be mistaken on the $100,000 point— individuals are subject to up to a $250,000 fine for each criminal violation of the FCPA pursuant to Title 18, United States Code, Sections 3571(b) and (e).
- For accounting provisions violations, up to . . .
- $25 million for business entities or twice the gain/loss
- $5 million for individuals or twice the gain/loss and 20 years of prison
Civil Penalties and Collateral Consequences (pp. 69-71)
- For anti-bribery provisions violations, up to . . .
- $16,000 per violation for business entities and individuals
- For accounting provisions violations, up to . . .
- $7,500 - $150,000 for individuals
- $75,000-$725,000 for companies
- Other consequences include suspension or debarment from contracting with the federal government, cross-debarment by multilateral development banks, and suspension or revocation of export privileges
Compliance Monitors (pp. 71-72)
- In criminal and civil cases, the government may appoint a corporate monitor if a company does not have an effective internal compliance program or needs to establish internal controls
DOJ Resolutions (pp. 74-75)
- Plea agreements
- Deferred prosecution agreements, where the DOJ files charges but defers prosecution
- Non-prosecution agreement (if with a company, made public through DOJ's website)
- Declinations (the DOJ generally does not publicize this information)
- In the case of individuals, DOJ considers federal enforcement priorities, the nature of the offense, any deterrent effect, culpability and criminal history, cooperation, and the probable sentence if convicted
SEC Resolutions (pp. 76-77)
- Civil injunctive actions and remedies
- Civil administrative actions and remedies
- Deferred prosecution agreements (the SEC entered into its first in May 2011)
- Non-prosecution agreements
- Termination letters and declinations
- The SEC considers the seriousness of the violation, SEC resources to pursue the investigation, the evidence's strength, potential investor harm if the SEC does not take action, and the age of the conduct
Past Declinations (pp. 77-79)
- Guide gives 5 examples of past declinations, with overriding themes of prompt remedial action (e.g., terminating employees and business relationships involved), self-reporting, and taking steps to improve corporate compliance programs
- DWT Note: Declinations are not publicized so it is useful to review these examples.