General Counsels, Chief Executive Officers, Chief Financial Officers, and Corporate Secretaries of U.S. publicly-traded companies across the country must take individual responsibility for the accuracy and completeness of corporate financial reports filed quarterly and annually. Under the Sarbanes-Oxley Act and Exchange Act Rules, this certification includes confirmation that the company has appropriate internal disclosure controls, which also directly or indirectly constitutes a certification of worldwide compliance with the corporate compliance obligations. By extension, they are thereby also certifying compliance with applicable laws, including the U.S. Foreign Corrupt Practices Act (FCPA). Generally, the FCPA prohibits the giving of improper gifts or bribes to government officials. It is enforced by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), and over the last year has been the subject of over 25 prosecutions, mostly against corporate defendants. Exactly how to comply with the FCPA has long been a source of confusion, as little guidance existed explaining precisely what is required in order to ensure compliance or what standards are applied by the DOJ and SEC to determine whether a prosecution will be initiated.
On November 14, 2012, the DOJ and SEC jointly issued the guidance, entitled “FCPA: A Resource Guide to the Foreign Corrupt Practices Act.” The 120-page Guide provides practical information and hypotheticals for enterprises of all sizes—from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world—on gray-area topics such as who is a foreign official, the treatment of gifts, travel and entertainment expenses, facilitating payments, successor liability, and third-party vetting. The Guide also contains recent examples of actual fact patterns in which the DOJ and SEC decided not to take action against companies as well as a discussion of the factors the agencies considered when choosing to pursue legal action for particular matters.
The Guide includes, among other things:
- An extensive discussion regarding the proper method of providing gifts, travel, and entertainment to foreign officials, including a hypothetical addressing the issue. The DOJ and SEC explain that their enforcement efforts are not focused on the payment of reasonable travel and entertainment expenses, but instead focus on the corrupt payment of travel and entertainment expenses occurring in conjunction with other conduct reflecting systemic bribery or other clear indicia of corrupt intent.
- A section addressing the question “Who is a Foreign Official” and what constitutes a department, agency, or instrumentality of a foreign government. Among other things, this section notes that, generally, an entity is unlikely to qualify as an instrumentality of a foreign government if a government does not own or control a majority of its shares. However, the section also discusses the limited circumstances in which DOJ or SEC enforcement actions have involved foreign officials employed by entities in which a foreign government has less than 50 percent ownership.
- A lengthy discussion of successor liability in merger and acquisitions that includes two hypotheticals—one in which the acquired company was not previously subject to the FCPA, one in which it was—as well as practical tips to reduce the risk of FCPA violations in the merger and acquisitions context. The DOJ and SEC explain that they take action against successor companies only in limited circumstances, generally in cases involving egregious and sustained violations or where the successor company directly participated in the violations or failed to stop the misconduct from continuing after the acquisition.
- A section addressing how to implement an effective corporate compliance program. The Guide makes clear that there is no one-size-fits-all program, and that effective compliance programs are usually tailored to a company’s specific business and to the risks associated with that business. The section discusses the common-sense and pragmatic factors that DOJ and SEC consider when evaluating a company’s compliance program.
According to Grant Petersen, a shareholder in the Tampa office and a member of the firm’s International Practice Group, “While the Guide does not provide any shocking revelations regarding FCPA compliance, it does provide practical examples and insights on how to implement and maintain a legally defensible FCPA compliance program and how to deal with the DOJ and SEC if and when they come knocking.”