On November 14, 2012, the Criminal Division of the Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission published A Resource Guide to the Foreign Corrupt Practices Act (the “FCPA Guidance”), a document that has been eagerly anticipated for more than a year. The FCPA Guidance, the full text of which is available here, was billed by DOJ and SEC as an unprecedented undertaking to provide detailed information about their interpretation of the FCPA and their approach to investigations, enforcement actions and criminal prosecutions.
While the FCPA Guidance is certainly detailed – it is 120 pages and contains 418 endnotes – how much the FCPA Guidance impacts the FCPA landscape remains to be seen and will require a more detailed scrubbing by practitioners, industry experts, general counsels and company compliance personnel. At this point, however, the following portions of the FCPA Guidance are worth highlighting.
Gifts, Travel, and Hospitality Expenses
One thing that corporate compliance officers in particular were hoping to get from the FCPA Guidance was some clarity on what types of gifts, travel, entertainment and hospitality expenses are or are not prohibited by the FCPA, and the most optimistic watchers were hoping for some bright-line rule, such as a dollar amount threshold. While the FCPA Guidance does not provide any bright-line rules, DOJ and SEC have shed some additional light in this area.
Importantly, the FCPA Guidance reiterates that whether a payment, gift, or giving of anything of value violates the FCPA depends on whether the payor had a corrupt intent – regardless of the size of any payments, gifts or other things of value. The FCPA Guidance specifically states, however, that “it is difficult to envision any scenario in which the provision of cups of coffee, taxi fare, or company promotional items of nominal value would ever evidence corrupt intent, and neither DOJ nor SEC has ever pursued an investigation on the basis of such conduct.” The FCPA Guidance goes on to state that “a small gift or token of esteem or gratitude is often an appropriate way for business people to display respect for each other.”
The FCPA Guidance also provides hypotheticals that reflect – absent other information suggesting corrupt intent or that a gift or payment was not transparent and properly accounted for – the following:
- Providing small gifts (such as hats, pens and similar promotional items), food and beverages at a trade show at which the visitors to a company’s booth include foreign officials from high-risk countries would not violate the FCPA.
- Inviting a group of current and prospective clients, including several foreign officials, out for drinks and paying a “moderate” bar tab in connection with a trade show would not violate the FCPA.
- Providing a “moderately priced crystal vase…as a wedding gift and token of esteem” to the general manager of a foreign country’s electricity commission with which the company does business would not violate the FCPA.
- Providing foreign officials business-class airfare and lodging (in line with what the company provides its own employees) to inspect a U.S. facility that is part of the parties’ business relationship, and to take the foreign officials to a “moderately priced dinner, a baseball game, and a play,” would not violate the FCPA.
The aforementioned guidance and these hypotheticals concerning gifts and hospitality are acknowledgements by DOJ and SEC that often times local culture necessitates gifts and hospitality that are signs of respect that will not influence a public official to act one way or another, and that it is often appropriate for companies to give gifts and pay certain expenses in the normal course of carrying out a business relationship.
Lastly, the FCPA Guidance emphasizes that companies’ compliance programs need to have clear guidelines, procedures, and internal controls focused on gift-giving. The FCPA Guidance includes a not-so-subtle suggestion to companies that, though DOJ and SEC are not willing to set out strict gift thresholds or suggested gift-giving clearance procedures, companies need to evaluate their businesses and come up with their own procedures that balance appropriate gift-giving with prohibiting gifts disguised as bribes.
The FCPA Guidance acknowledges that companies often engage in charitable giving as part of legitimate local outreach, and it provides some useful insight into when charitable contributions are permissible. The FCPA Guidance specifically sets out five questions companies should consider when making charitable payments in a foreign county:
- What is the purpose of the payment?
- Is the payment consistent with the company’s internal guidelines on charitable giving?
- Is the payment at the request of a foreign official?
- Is a foreign official associated with the charity and, if so, can the foreign official make decisions regarding your business in that country?
- Is the payment conditioned upon receiving business or other benefits?
Aside from listing these questions, the FCPA Guidance makes the overarching point that “legitimate charitable giving” does not violate the FCPA, but charitable giving that is used as a vehicle to conceal payments made to corruptly influence foreign officials will violate the FCPA. Therefore, as further set forth in the FCPA Guidance, complying with this standard will require companies to fully vet any potential charitable contributions and perform the same FCPA-related due diligence that they would undertake for any other business transaction.
Examples of Past Declinations by DOJ and SEC
DOJ and SEC typically provide very little public information concerning instances in which they decline to pursue an enforcement action or prosecution, despite having evidence that a violation of the FCPA occurred. DOJ and SEC took the opportunity in the FCPA Guidance, however, to provide the following six examples of declinations, which provide some additional guidance to companies, especially those companies considering whether to self-report FCPA violations:
- A public U.S. company discovered that an employee obtained confidential information about a competitor’s bid from a third-party with connections to a foreign government. The company conducted an internal investigation, terminated the employees involved, severed ties with the third-party agent involved, self-reported FCPA red flags to DOJ and SEC, and immediately took “substantial steps” to improve its compliance program.
- A public U.S. company’s compliance department became aware of “small bribes” that had been paid by a construction company doing work for a subsidiary and approved by the company’s local law firm. The compliance department immediately ended the conduct, terminated its relationship with the construction company and the law firm, conducted an internal investigation and self-reported to DOJ and SEC, enhanced its compliance programs, and undertook a review of all of the company’s international third-party relationships.
- A public U.S. company discovered that a single employee of a small foreign subsidiary paid bribes to foreign officials, which led to small profits. The company self-reported the conduct, which was detected by the company’s internal controls, conducted a “thorough internal investigation,” disclosed the results of the internal investigation to the government, cooperated with DOJ and SEC investigations, and enhanced its internal controls.
- A public U.S. company discovered that a foreign subsidiary’s customs agent had paid bribes. The payments were detected by the company’s internal controls, the payments were immediately brought to the attention of management and the Audit Committee, an internal investigation was conducted, the company self-reported the results of the investigation to DOJ and SEC and fully cooperated with investigations, the company conducted immediate training of all employees, and the company conducted an extensive review of its anti-corruption compliance program.
- A public U.S. company identified potential improper payments in connection with its pre-acquisition due diligence of a foreign acquisition target. The U.S. company developed a comprehensive plan to investigate, correct and remediate any FCPA issues following the acquisition. The company also self-reported the issues to the government prior to the acquisition, provided the results of its internal investigation to the government on a real-time basis, and revamped the acquired company’s FCPA training and compliance policies immediately following the acquisition.
- A private U.S. company discovered that its foreign subsidiary paid small bribes to social security officials in a foreign country. The company immediately terminated the employees involved, thoroughly investigated the documents, self-reported the results of the investigation to DOJ, terminated its relationship with third-party agents in the foreign country, and improved its training and compliance programs.
It is certainly no coincidence that DOJ and SEC chose to highlight cases that share the following similar circumstances: (a) the bribes and/or resulting profits were small, (b) the companies all conducted internal investigation and self-disclosed the results of those investigations to DOJ and SEC, and (c) the companies acted quickly to investigate potential issues, terminate employees, and revamp compliance and training program. By highlighting these cases, DOJ and SEC are sending a clear message about the actions it expects companies to take should they discover potential FCPA violations, while also shedding some additional light on when a company may be given a “pass.”
While the impact of the FCPA Guidance remains to be seen, the foregoing are a few examples of how DOJ and SEC have moved the needle somewhat with respect to what companies need to do to make their best efforts to comply with the FCPA and provide guidance to their employees and agents around the world.
Please look for more Client Alerts in the upcoming weeks that will shed more light on the FCPA Guidance. Also, for additional information please consult Edwards Wildman’s July 2012 Guidance Note on the Foreign Corrupt Practices Act.