Foreign Corrupt Practices Act Developments Update
On August 3, 2009, the US Department of Justice ("DOJ") issued its first official Foreign Corrupt Practices Act ("FCPA") guidance in more than a year. As described below, the recent DOJ release—which addresses a US company's proposed provision of US$1.9 million in free medical devices to a foreign government agency for evaluation purposes in order to participate in a government-subsidized healthcare program—concludes that the proposed conduct would not violate the FCPA. The primary factor in the DOJ's determination appears to have been the fact that the medical devices would be provided to the government agency itself, rather than to any individual government official.
This is important for two reasons: (1) It highlights the availability of the DOJ Opinion Procedure, which is an underutilized means for ensuring compliance with the FCPA in appropriate circumstances; and (2) it serves as an important reminder that FCPA liability may exist when doing business with foreign government-owned and -operated businesses, including (i) doctors and nurses in countries with a national health system; (ii) reporters and correspondents of government-owned media companies; (iii) professors and administrators at state-run universities and educational institutions; (iv) individuals at some banks and other financial institutions that are now owned and operated primarily by foreign governments; and (v) plant managers, engineers, etc. in a state-owned utility company. All of these individuals would likely be considered "foreign officials" under the FCPA—a reminder that is especially important in areas of the world such as China, India, Central and Eastern Europe and the Middle East.
The DOJ release comes at a time when FCPA enforcement efforts continue to rise. Just this past month, we have seen FCPA conspiracy convictions in two high-profile cases, the start of a third FCPA-related trial, the announcement of a new specialized unit within the US Securities and Exchange Commission's ("SEC") Division of Enforcement to combat corruption, and US$20 million in criminal and civil penalties and disgorgement extracted from a number of companies, including Nature's Sunshine Products, Control Components Inc. and Helmerich & Payne.
Increased FCPA enforcement translates into increased risk for companies and individuals engaging in business overseas. In this environment, corporations facing difficult FCPA questions should be aware of the DOJ's Opinion Procedure as an option for mitigating such risks. The procedure is fairly expeditious—28 CFR § 80.8 provides that, within 30 days of receiving a procedurally sound request, the Attorney General or his designee shall respond "by issuing an opinion that states whether the prospective conduct, would, for purposes of the [DOJ's] present enforcement policy," violate the FCPA. In this instance, the DOJ issued its final guidance only three days after the requester made its final submission. Prospectively obtaining guidance from the DOJ as to any potential FCPA enforcement action, allows a company to proceed free from worry of potential FCPA problems. The fact that this is the first Opinion Procedure Release in over a year, however, suggests that the procedure is underutilized.
Opinion Procedure Release 09-01
In Opinion Procedure Release 09-01, a US medical device manufacturer (the "Requester")—a "domestic concern" under the FCPA—requested guidance concerning a proposal to provide 100 medical devices valued at US$1.9 million, as well as medical accessories and technical support, to an unspecified foreign government free of cost for testing and evaluation in 10 of its government-run health centers. This "donation" was suggested during a meeting with an unnamed senior official of the foreign government ("Senior Official") as an avenue to facilitate the Requester's participation in a government-subsidized program in which these devices (as well as those made by the US company's competitors) would be purchased by the government and provided to citizens in need.
In response to the Requester's submission, the DOJ indicated that it would decline to take any enforcement action with respect to the proposed conduct. The DOJ's decision appears to be principally motivated by the fact that the medical devices, which are the "thing of value" in this instance, were to be provided to a foreign government and not to individual foreign government officials. As such, the DOJ concluded that the conduct proposed would fall outside the scope of the FCPA, which generally prohibits the provision of something of value, directly or indirectly, to a foreign government official in order to obtain, retain or direct business, or to secure an improper advantage. Additional factors that likely affected the DOJ's decision include:
- The Senior Official who informed the Requester that it would have to provide the free medical devices to participate in the program was not believed to be in a position to benefit personally from the Requestor's donation or testing process in any way.
- The Requester described efforts by the foreign government to ensure transparency and fairness in the selection process—the recipients were to be selected based on predefined objective criteria, the names of the recipients would be published on the government agency's website, and close family members of the government agency's officers and employees, working group members or employees of the participating health centers, with limited exceptions, would be disqualified from participating.
- The Requester's foreign agent negotiating the deal and participating in the selection of test subjects had received FCPA training in the last on and a half years.
Rising FCPA Enforcement
The issuance of Opinion Procedure Release 09-01 comes at a time of increasing FCPA enforcement. Although many FCPA-related investigations result in settlements with US enforcement authorities (either through deferred prosecution agreements, nonprosecution agreements, or plea agreements), the summer of 2009 has witnessed three highly-publicized FCPA federal trials:
(1) Frederic A. Bourke Jr., cofounder of handbag maker Dooney & Bourke and an investor in Oily Rock Group Ltd., who was convicted of conspiring to violate the FCPA on July 10, 2009 for his knowledge of bribes made to Azeri officials in order to obtain a controlling interest in and ultimately profit from the privatization of the State Oil Company of the Azerbaijan Republic ("SOCAR").
(2) Former Louisiana Congressman William J. Jefferson, who was acquitted of violating the FCPA but convicted of 11 other corruption-related charges, including conspiracy to violate the FCPA, on August 5, 2009 in connection with US$90,000 in cash found in Jefferson's freezer that was allegedly to be used to bribe the Nigerian Vice President in order to secure a telecommunications deal.
(3) Gerald and Patricia Green, Hollywood movie producers who are accused of paying more than US$1.7 million in bribes to a government official with the Tourism Authority of Thailand in order to secure US$10 million in contracts, in violation of the FCPA. Their trial began on August 4, 2009 in Los Angeles.
Additionally, the SEC's Division of Enforcement announced the creation of a specialized unit devoted to prosecuting issuers who violate the FCPA. In a speech given to the New York City Bar Association on August 5, 2009, Division of Enforcement Director Robert Khuzami remarked:
The Foreign Corrupt Practices Act Unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits US companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.
We have also recently seen US$20 million in criminal and civil penalties and disgorgement extracted from several companies, including Nature's Sunshine Products, Control Components and Helmerich & Payne.
- Nature's Sunshine Products: Nature's Sunshine Products' Brazilian subsidiary made US$1 million in cash payments to customs officials in order to facilitate importing product into Brazil, and then purchased false documentation to conceal the nature of the payments. The former CEO and CFO, in their capacities as control persons, violated the books and records and internal controls provisions of the FCPA in connection with these payments. The company has agreed to pay a civil penalty of US$600,000; the CEO and CFO will each pay US$25,000.
- Control Components Inc.: Valve-maker Control Components Inc. admitted to making 236 corrupt payments to foreign officials at state-owned entities in more than 30 countries, including China, Korea, Malaysia, and the United Arab Emirates. The company made these payments, totaling US$4.9 million, over the course of a decade in order to secure contracts and sales that produced net profits of about US$46.5 million. Control Components has agreed to pay a criminal fine of US$18.2 million, implement an antibribery compliance program, retain a compliance monitor for three years, serve a three-year term of organizational probation and cooperate with the DOJ's ongoing investigation. Eight former executives have also been charged for their involvement in the same improper conduct.
- Helmerich & Payne: Oil and gas driller Helmerich & Payne's subsidiaries in Argentina and Venezuela paid US$185,673 in 50 bribes to customs officials in order to clear imports of drilling equipment through customs. The payments were made directly or through third-party customs brokers, and resulted in Helmerich & Payne avoiding US$320,604 costs. The payments were disguised in invoices as "additional assessments," "extra costs," and "extraordinary expenses," "urgent processing," "urgent dispatch" or "customs processing." Helmerich & Payne has agreed to pay a US$1 million criminal penalty and to disgorge US$320,604 plus prejudgment interest of US$55,077.22.
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The DOJ's Opinion Procedure Release 09-01 can be found here: www.usdoj.gov/criminal/fraud/fcpa/opinion/2009/0901.html
The case against Frederic A. Bourke Jr. is United States v. Bourke, 05-cr-00518, US District Court, Southern District of New York (Manhattan).
The case against William J. Jefferson is United States v. Jefferson, 07-cr-00209, US District Court, Eastern District of Virginia (Alexandria).
The case against Gerald and Patricia Green is United States v. Green & Green, 08-cr-00059-GW, US District Court, Central District of California (Los Angeles).
Director Khuzami's August 5, 2009 remarks can be found here: www.sec.gov/news/speech/2009/spch080509rk.htm
The SEC litigation release for Nature's Sunshine Products can be found here: www.sec.gov/litigation/litreleases/2009/lr21162.htm
The DOJ press release for Control Components Inc. can be found here: www.usdoj.gov/criminal/pr/press_releases/2009/07/07-31-09control-guilty.pdf
The DOJ press release for Helmerich & Payne can be found here: www.usdoj.gov/criminal/pr/press_releases/2009/07/07-30-09helmerich-pays.pdf
The SEC cease-and-desist order for Helmerich & Payne can be found here: www.sec.gov/litigation/admin/2009/34-60400.pdf