On November 14, 2012, A Resource Guide to the U.S. Foreign Corrupt Practices Act was released by the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission (“Guide”). The Guide is intended to deal with issues raised regarding the consistency in which the regulators have sought to enforce the FCPA.
The Guide addresses a wide variety of topics in a question and answer format, including who and what is covered by the FCPA’s anti-bribery and accounting provisions; what constitute proper and improper gifts, travel and entertainment expenses (compared to charitable contributions); the nature of facilitating or expediting payments; the application of “Parent-Subsidiary Liability” and “Successor Liability” from mergers or takeovers; the hallmarks of an effective corporate compliance program; and what the DOJ or SEC consider when deciding to open an investigation or bribing charges. Initial commentary on the Guide is somewhat critical, highlighting that much of the detail is already common knowledge.
This type of guidance is part of a worldwide trend towards increasing the public’s awareness of anti-corruption issues aligned with a growing international consensus that strong anti-corruption legislation and frameworks are required in order to combat instances of bribery and corruption.
There are many similarities between the Guide and the guidance delivered by the UK Ministry of Justice on the UK Bribery Act 2010 in March 2011 (“UK Guidance”) which illustrates that regulators are progressively taking a common approach towards corruption in an international environment where the tolerance for corruption is dramatically decreasing. However, a striking difference between the two is that the Guide draws on the vast experience of the DOJ and SEC in prosecuting FCPA violations and gives examples of past prosecutions to illustrate the application of the mechanics of the FCPA’s bribery provisions.
For example, companies sometimes grapple with whether proposed gifts or entertainment to government officials are appropriate. The Guide acknowledges that small gifts are often an appropriate way for business people to display respect and do business. Helpfully, the Guide contrasts these legitimate situations against reference to an array of prosecutions by the DOJ and SEC where gifts and travel expenses have been found to have been given for an improper purpose.
Examples range from the obvious:
- a defendant giving a government official a country club membership and a generator as well as household maintenance expenses, payment of cell phone bills, an automobile worth $20,000 and limousine services. The same official also received $250,000 through a third party agent;
to the less obvious:
- a Californian based telecommunications company spending nearly $7 million in a five year period on airfares for its customers (including employees of Chinese State Owned Enterprises) in order to obtain systems contracts in China. Although the trips were purportedly for the individuals to conduct training at the company’s facilities, in reality no training occurred on many of these trips;
- similarly, a New Jersey-based telecommunications company spent millions of dollars on approximately 315 trips for Chinese government officials, ostensibly to inspect factories and train the officials in using the company’s equipment. However, the officials spent little or no time visiting the facilities and frequented popular tourist destinations instead.
The Guide also provides examples of prosecutions concerning alleged facilitation payments which are allowed under the FCPA. One example involved an Oklahoma based corporation who violated the FCPA when its subsidiary paid Argentine customs officials approximately $166,000 to secure customs clearance for equipment and materials that lacked required certifications and to pay a lower than applicable duty rate. The company’s Venezuelan subsidiary had also paid Venezuelan customs offices approximately $7,000 to permit the importation and exportation of equipment and materials not in compliance with local regulations and to avoid a full inspection of the imported goods.
Another point of interest is an acknowledgement in the Guide that the OCED recommends all countries encourage companies to prohibit or discourage facilitation payments, something which the Guide states the US has done regularly. In keeping with the OCED’s recommendation, we are seeing a general movement towards prohibiting facilitation payments (for example, there is a proposal to remove the facilitation payments defence from Australia’s foreign bribery provisions) and many jurisdictions such as UK, China and the Hong Kong SAR do not permit facilitation payments. Will the US follow suit?
The Guide will assist global businesses to understand and determine their exposure under the FCPA. It provides insight into anti-corruption trends and developments which will help to inform businesses no matter where they operate and regardless of whether they have exposure to the FCPA. Companies are well advised to have a good understanding of the principles expounded in the Guide and the UK Guidance. This, coupled with an awareness of the anti-corruption legislation in the jurisdictions in which they operate will help companies to navigate and minimise bribery and corruption risks.
You can find the Guide here.