On November 14, 2012, the Criminal Division of the US Department of Justice ("DOJ") and the Enforcement Division of the US Securities and Exchange Commission ("SEC") jointly released "A Resource Guide to the US Foreign Corrupt Practices Act" (the "Guidance"). The long-awaited Guidance discusses the DOJ's and SEC's interpretations of both the anti-bribery and accounting provisions of the FCPA and the authorities' approach to enforcement. While the fine-print disclaimer makes clear at the outset that the 120-page Guidance is "non-binding, informal, and . . . does not constitute rules or regulations," it is nonetheless a useful resource that organizes important information about the FCPA in one convenient place and sheds some light on the enforcement authorities' perspectives regarding such thorny topics as what constitutes proper/improper gifts and entertainment, who is a "foreign official," when facilitating or so-called "grease" payments are permitted, the application of successor liability in the M&A context, and principles of parent-subsidiary liability.
The Guidance is likely most helpful to smaller or mid-size companies that do not have extensive legal and compliance resources. This audience is likely to benefit from the many true-to-life hypotheticals analyzed by the government. For example, want to know whether it is okay to provide t-shirts with your company's logo to trade show attendees that include foreign officials? The Guidance says it is. What if you invite a dozen current and prospective customers, including some foreign officials, to join you for drinks afterwards and then pick up the moderate bar tab? Per the Guidance, you are likely still in good shape, as this activity does not suggest the corrupt intent necessary to constitute a bribe under the FCPA. But send senior officials and their spouses on an all-expense-paid first-class trip to Las Vegas, where your company has no facilities, and you will "almost certainly violate[ ] the FCPA because it evinces a corrupt intent," according to the Guidance.
Another set of hypotheticals helps explain the facilitating payment exception to the FCPA. According to the Guidance, a one-time small payment by your local agent to a foreign government clerk to ensure that the clerk promptly files and stamps your environmental permit application, as he is required to, is likely permissible under the FCPA (but may violate other laws, including in the foreign country, and must be properly booked to comply with the FCPA's accounting provisions). By contrast, if the permit is held up because of concerns about its environmental impact, having your local agent grease the director of the Department of Natural Resources to ensure approval would be "a clear violation of the FCPA since it was designed to corruptly influence a foreign official into improperly approving a permit."
While examples such as these can be a useful benchmark, particularly if they happen to address the precise conduct your company is considering, the Guidance only goes so far in terms of practical utility for companies facing real-world scenarios that are often far more complex than the Guidance contemplates. For instance, the question of who constitutes a "foreign official" under the FCPA -- which defines that term to include employees of an "instrumentality" of a foreign government -- remains murky. To predict whether the DOJ will consider a partially state-owned enterprise to be an instrumentality of a foreign government, the Guidance suggests applying a "non-exclusive" list of eleven factors used in prior jury instructions and then paying particular attention to whether or not the foreign government has majority ownership of the entity. It makes no mention, however, of a pending appeal in the Eleventh Circuit challenging whether a jury should be instructed to construe the term "instrumentality" to include only foreign entities performing governmental functions similar to departments or agencies, as well as the extent to which the U.S. government should be required to submit evidence at trial establishing that the "instrumentality" in fact performed a government, rather than a traditionally commercial, function.
One topic on which the Guidance is particularly useful is the importance of an effective compliance program. Although, as expected, the Guidance does not set forth any "formulaic rules" for the particular type of compliance program that will shield a company from liability should its employees commit an FCPA violation, the enforcement authorities state that they "employ a common-sense and pragmatic approach to evaluating compliance programs." The Guidance then goes on to describe the "hallmarks of an effective program," including:
- A commitment from senior executives to lead the company with a "culture of compliance"
- A clear, concise, and accessible code of conduct
- Sufficient authority, autonomy and resources for compliance officers
- A proportionate assessment of risk
- Training and access to compliance advice
- Incentives and disciplinary measures
- Diligence in third party dealings
- A mechanism for confidential reporting and internal investigation
- Pre-acquisition diligence and post-merger integration
- Continuous improvement through periodic testing and review.
The Guidance cautions against a "check the box" approach, and emphasizes that an effective compliance program must be tailored to each company's particular circumstances.
Given the severe penalties that companies may face for an FCPA violation, coupled with the government's obvious appetite for bringing these sorts of cases, implementing and enforcing an effective compliance program is more important than ever, even if there remains no absolute compliance defense under the statute (as there is under the UK Bribery Act). Not only will such a program help prevent and detect a violation, but as illustrated by the DOJ's recent "declination" to prosecute Morgan Stanley, a "case study" which features prominently in the Guidance, a robust compliance program can prove a critical factor in persuading the government to exercise its prosecutorial discretion not to hold a company liable for the misdeeds of a "rogue employee." Not surprisingly, per the Guidance, other significant factors include conducting a thorough internal investigation, voluntarily disclosing the violation, and taking prompt and substantial remedial action.
While the Guidance does not provide any guarantees or bright-line rules, it does offer unique insight into the enforcement authorities' thinking and can help sensitize companies doing business abroad to some of the key FCPA considerations that warrant substantial attention.