On July 16, 2010, the US Department of Justice (DOJ) issued its second Foreign Corrupt Practices Act (FCPA) Opinion Procedure Release of 2010 (Opinion). The DOJ stated that it does not presently intend to take any enforcement action against a United States nonprofit organization (Requestor) that proposes to make a grant to a foreign organization, even though the board of the foreign organization and that of its parent include a sitting government official and a number of former government officials.1
The relevant facts noted in the Opinion are as follows:
1. The Requestor, a US-based nonprofit that provides loans and financial services to low-income entrepreneurs, operates a subsidiary (Foreign Subsidiary) in a foreign country (Foreign Country). The Foreign Subsidiary is organized as a limited liability company under the Foreign Country’s laws and is regulated by an agency of the Foreign Country’s government (Regulating Agency).
2. To broaden the range of financial services that it may provide to its borrowers, the Requestor sought to convert the Foreign Subsidiary into a banking institution under the Foreign Country’s law. Concerned that the Foreign Subsidiary’s transformation from humanitarian to commercial status could result in grant funds leaving the country or being used to benefit private investors, the Regulating Agency said it would require the Foreign Subsidiary to make grants to local microfinance institutions, and provided a list of six possible recipients.
3. The Foreign Subsidiary conducted three rounds of due diligence, eliminating all but one potential recipient as unqualified or disqualified. The remaining organization (Local MFI), however, had a sitting government official on its board; the same official also served on the board of the Local MFI’s parent organization. Other board members were former government officials. The Foreign Country’s law prohibits sitting government officials from receiving compensation for this type of board service, and in fact none of the board members of the Local MFI or its parent were compensated for their board service. Further, the sitting government official served the Local MFI in a capacity unrelated to the microfinancing industry.
4. The Requestor prepared a draft agreement (Agreement) to govern the proposed grant. The Agreement contained several controls to ensure that the grant would not result in a violation of the FCPA. These included the staggering of payments; quarterly independent monitoring; semi-annual audits by an accounting firm chosen by the Foreign Subsidiary; earmarking of grant funds for capacity-building on the part of the Local MFI; and an explicit prohibition on compensating board members with grant funds. The Agreement also included additional anti-corruption compliance provisions, which prohibited the Local MFI from offering bribes or undergoing a change in ownership or control, and required it to maintain accurate records, adopt certain anti-corruption policies, and certify its compliance with the terms of the Agreement. Finally, the Agreement allowed the foreign Subsidiary to terminate the grant and recall the funds if it received evidence that “reasonably suggest[ed]” a breach of the Local MFI’s obligations.
Focusing on the fact that (1) the Foreign Subsidiary conducted three rounds of due diligence, (2) the Agreement included the same types of controls as past grants in connection with which the DOJ had agreed not to take enforcement action, and (3) the Agreement included additional controls, the DOJ determined that the Requestor had taken measures sufficient to “ensure with reasonable certainty” that the grant money would not be transferred to officials of the Foreign Country. Accordingly, the DOJ found that the proposed grant would not give rise to a FCPA enforcement action.
Corporations or nonprofit organizations making grants to foreign organizations, however, should be aware of the limited reach of this opinion. The DOJ emphasized that the Requestor could exert substantial control over the choice of grantee, the grantee’s use of funds, and the grantee’s business practices and ownership generally. Further, none of the board members of the Local MFI or its parent were compensated for their service, and the Foreign Country’s law in fact prohibited government officials from being compensated for such board service. All of these facts indicated that the Requestor’s proposed grant to the Local MFI was not likely to result in the corrupt giving or offering of “anything of value to any foreign official” in order to assist in “obtaining or retaining business,” as required to establish a violation of the FCPA. The DOJ, however, could find that a grant made after less due diligence, or subject to less stringent controls, or in a country where compensating government officials for board service is permitted, is more likely to result in the transfer of things of value to a foreign official.