Q 1. WHAT IS THE FOREIGN CORRUPT PRACTICES ACT ("FCPA")?
Congress enacted the FCPA to bring a halt to the rampant bribery of foreign government officials. The FCPA has two main areas of focus:
- Anti-Bribery Provisions: Prohibits the offering or paying of a bribe or anything else of value to a foreign government or political party official in order to obtain or retain business or secure any improper advantage.
- Books and Records Provisions: Requires companies that trade on U.S. exchanges to make and keep accurate books, records and accounts of all payments and to devise and maintain reasonable internal accounting controls for preventing and detecting FCPA violations.
Q 2. DOES THE FCPA APPLY TO ME?
The FCPA applies to U.S. companies conducting business abroad, most foreign subsidiaries of U.S. companies, U.S. companies seeking to acquire a foreign entity or U.S. companies that employ foreign vendors or agents. Even non-U.S. companies with securities that trade on U.S. exchanges are subject to the FCPA. The FCPA also applies to all U.S. citizens and any resident alien who works for any of the above mentioned companies.
The scope of the anti-bribery provisions of the FCPA is broad. What most would consider normal business entertainment or accommodations may run afoul of the FCPA. Furthermore, companies acquiring even minority positions in another company are expected to perform FCPA due diligence or face potential liability.
Q 3. WHY SHOULD I BE CONCERNED?
In the past few years, there has been a surge in FCPA enforcement and both the Department of Justice and SEC have recently levied significant fines. In 2007, the DOJ and SEC brought a combined 38 FCPA enforcement actions, which was more than double the 15 cases brought in 2006. Recent fines include $44 million levied against Baker Hughes, $28.5 million in the Titan case and $26 million against the Vetco Gray companies. Individuals who violate the FCPA may face a maximum term of imprisonment of 5 years. The Department of Justice and the SEC have recently increased the number of attorneys and investigators dedicated to FCPA enforcement. Given these new resources and record high fines, FCPA enforcement will certainly remain vigorous in 2008 and beyond.
Q 4. WHAT SHOULD I BE LOOKING FOR?
The items listed below do not automatically mean there is an FCPA problem, but they do indicate areas of heightened concern that need to be examined closely.
- The transaction is in, or involves, a country known for corrupt payments such as China and Nigeria.
- Your sales representative or agent is requesting an unusually high commission or fee.
- The entertaining of government officials or their relatives.
- Unusual contract terms or payment arrangements such as requests for payment in cash, bearer instrument, or "upfront payments".
- The use of shell companies.
- The foreign customer’s insistence that a particular agent be used.
- The role or function of an agent or middleman is not clear.
Q 5. WHAT CAN I DO TO PROTECT MY ORGANIZATION?
Corporations can be found criminally or civilly liable through the acts of an employee or agent, even if that person is acting against company policy. Because any corporation may find itself with a rogue employee or agent, the most effective way for a corporation to avoid or mitigate liability is through a comprehensive and vigorous compliance program.
Any corporation that conducts business with foreign governmental entities should institute such a program in their U.S. and non-U.S. operations to educate the managers and employees about the FCPA and to create and maintain a culture of FCPA compliance.
An effective compliance program is far more than policies in a binder. Effective controls must be designed and maintained. All relevant managers, employees and agents, such as independent sales representatives, must receive regular training. Periodic audits must be conducted, and any violations of the policy or the law should be dealt with appropriately. Finally, a senior manager should have direct responsibility over the program.
Take stock of your internal controls and procedures, including those for your non-U.S. affiliates. Consider an FCPA review of your transactions. Ensure that your organization is tracking, vetting and appropriately monitoring such things as promotional accounts, charitable giving, entertainment expenses, payments to middlemen, agents or distributors outside the United States.
Q 6. WHAT SHOULD I DO IF A POTENTIAL FCPA VIOLATION SURFACES?
An organization’s response must be swift. Retain counsel, preserve all electronic data, ensure that no hard copies of documents are destroyed and conduct a thorough inquiry.
If you discover the potential violation before the government does, you must consider the benefits of voluntary disclosure. Although the FCPA does not mandate disclosure of violations, voluntary disclosures frequently enable the corporation to either avoid prosecution or obtain significant mitigation of civil and criminal penalties. Before a corporation self reports, however, it is crucial that you seek advice of counsel expert in the FCPA.