In Opinion Release 10-02, the Department of Justice considered a request by a United States-based non-profit microfinance institution (MFI) that desires to change the status of its wholly-owned Eurasian subsidiary (Subsidiary) from a non-banking MFI to that of a licensed bank. This status change would allow the Subsidiary to provide additional borrower services and attract capital. To obtain this status change, the Eurasian government regulator (Regulator) has insisted that the Subsidiary make a grant to a local MFI in an amount equal to approximately 33 percent of the Subsidiary’s original grant capital, to ensure such capital remains in the Eurasian country. The Subsidiary conducted due diligence on six local MFI’s named by the Regulator. In the first wave of due diligence, based on publicly-available information and information from third-party sources, the Subsidiary eliminated three of the six MFI candidates as generally unqualified to receive the funds. In the second round of due diligence on the remaining three MFIs, the Subsidiary requested organizational documents and conducted interviews with each MFI. Based on this review, the Subsidiary eliminated two more MFIs. In its third and final round of due diligence, the Subsidiary requested and reviewed detailed information on the final local MFI’s parent organization and its directors and employees. The Subsidiary discovered that a board member of the local MFI and its parent organization was a sitting government official. However, local law prohibited the official from being compensated for his board service and the MFI provided no such compensation. The Subsidiary would make a grant of $1.42 million to the final local MFI subject to a written grant agreement with significant controls.
The DOJ determined that it would not bring an enforcement action against the U.S. MFI given the appropriate due diligence conducted by the U.S. MFI and the controls included in the proposed grant agreement. The controls include: the staggered payment of grant funds; ongoing monitoring and independent auditing of the local MFI; the earmarking of funds for capacitybuilding of the local MFI to ensure it can properly manage the funds; a prohibition on the compensation of the local MFI’s board members; and the institution of an anti-corruption compliance program. The DOJ noted that the due diligence and proposed controls met and even exceeded past efforts in DOJ Opinion releases addressing charitable-type grants and donations. See Opinion 10-02, available at http://www.justice.gov/ criminal/fraud/fcpa/opinion/2010/1002.pdf.