For the second time in 2010, and only the tenth time in the past five years, the US Department of Justice (DOJ) has issued an Opinion Procedure Release detailing the agency’s Foreign Corrupt Practices Act (FCPA) enforcement policy regarding “certain specified, prospective—not hypothetical—conduct.”
According to the facts set out in the Release, a US-based microfinance institution (MFI) is attempting to transform its many local operations into commercial entities. The MFI believes that the conversion from a charitable to a commercial organization will allow it to attract capital and expand its services to include savings accounts, micro insurance, and remittances. With regard to one of its foreign subsidiaries, the MFI has faced resistance from the government of a country in Eurasia where that subsidiary is located. The Eurasian government expressed a concern that these types of conversions can cause grant funds and their proceeds to be shifted from humanitarian needs to commercial benefits for investors. To that end, the Eurasian government has demanded that the subsidiary provide a grant to a local MFI, as specified by the country’s government, in an amount equal to approximately 33 percent of the subsidiary’s original grant capital.
Given that the MFI is a domestic concern facing pressure to give something of value, the MFI is concerned that, should any of the funds find their way to a foreign official, FCPA liability could attach. In considering the funding, the MFI conducted three rounds of due diligence of potential recipients, including a close inspection of any ties to government officials through the local MFIs’ boards of directors. Further, the MFI proposed certain controls as conditions for the grant, including: the staggered payment of grant funds; ongoing monitoring and auditing; the earmarking of funds for capacity-building; a prohibition on the compensation of board members; and the institution of an anti-corruption compliance program.
In the Release, the DOJ recounts the structure of the deal and concludes that it “does not intend to take any [FCPA] enforcement action.” The due diligence conducted by the MFI was extensive and included the types of review and internal controls the DOJ has noted, in prior Opinion Releases, to be important for FCPA compliance, including:
- FCPA certifications by the donation recipient
- Due diligence to confirm that none of the recipient’s officers were affiliated with the foreign government at issue
- A requirement that the recipient provide audited financial statements
- A written agreement with the recipient restricting the use of funds
- Steps to ensure that the funds were transferred to a valid bank account
- Confirmation that contemplated activities had occurred before funds were disbursed
- Ongoing monitoring of the efficacy of the program.
US “issuers” and “domestic concerns” are often faced with foreign government-related hurdles in the conduct of business abroad. The DOJ Opinion Procedure Release offers real time assurance that specified and identified conduct does not run afoul of the FCPA. In this instance, the Opinion Release highlights the level of due diligence and design of proper controls a “domestic concern” should consider when structuring deals with foreign government imposed requirements.