On those rare occasions in which a U.S. business is confronted with the possibility of making a payment to a foreign official that is unrelated to the official’s government service, there is an understandable temptation to reject the payment and run in the opposite direction. In some cases, however, that is a very unattractive option. For example, if the foreign official is owed some amount as a result of his prior interest in the foreign subsidiary of the U.S. business and he is assuming a minister-level position in another country’s central monetary and banking agency, the U.S. business will be motivated to make the payment while navigating the FCPA-related obstacles associated with the situation. The Department of Justice’s first FCPA Advisory Opinion of 2014, Opinion No. 14-01 (Opinion), demonstrates that such a payment is permissible and will not prompt an enforcement action as long as the arrangement is transparent and steps are taken to undercut any suggestion of corrupt intent. The recently released Opinion emphasizes that the determination of whether a commercial transaction with a foreign official implicates the FCPA is fact intensive and offers beneficial guidance on DOJ’s FCPA enforcement analysis.

The facts giving rise to the Opinion are as follows. In March 2007, a U.S. company, through a wholly owned subsidiary, purchased a majority interest in a foreign financial services firm (foreign company) founded and managed by a foreign businessman (foreign shareholder). The 2007 purchase agreement prohibited the foreign shareholder from selling his minority interest in the foreign company for five years, unless the foreign shareholder was appointed to a “minister-level position or higher” in the foreign country’s government. The purchase agreement also provided the subsidiary with a buyout option, including a formula to value the minority shares.

In December 2011, as anticipated by the purchase agreement, the foreign shareholder was appointed to serve as an official in the foreign country’s central monetary and banking agency (foreign agency). There is no dispute that the foreign shareholder, by virtue of his appointment, became a “foreign official,” as that term is defined by the FCPA. Shortly after the appointment, the subsidiary foreign company entered into negotiations to purchase the foreign shareholder’s minority shares. Of note, both parties agreed that the buyout formula contained in the 2007 purchase agreement undervalued the foreign shareholder’s shares. Therefore, the parties engaged an independent accounting firm to provide a binding valuation of the purchased shares. Likewise, the parties carefully disclosed the relationship and potential sale to relevant authorities in the U.S. and in the foreign country. The matter was complicated by the fact that the foreign agency was a long-time client of the U.S. company, which provides asset management and investment banking services to the foreign agency. In line with DOJ’s prior guidance on this issue, see FCPA Opinion Procedure Release 2000-01 (Mar. 29, 2000), the U.S. company and the foreign company subsidiary represented that they would take appropriate steps to screen employees from the foreign shareholder and the foreign shareholder agreed to recuse himself from any decisions concerning awards of business to the U.S. company or the foreign company. The U.S. company sought guidance from DOJ on the FCPA implications of the proposed buyout.

Ultimately – as you probably inferred from the introduction – DOJ opined that enforcement action was not warranted by the proposed buyout. The Opinion outlines four factors that DOJ considers in analyzing business relationships with foreign officials: (1) whether there is the indicia of corrupt intent; (2) whether the transaction is transparent to the foreign government and the general public; (3) whether the transaction conforms with local law; and (4) whether the transaction includes necessary safeguards to prevent the foreign official from improperly using his position to award business to the company. Here, DOJ was satisfied with the parties’ actions and assurances, most notably that an independent firm valued the shares, thus avoiding any appearance that the purchase price was payment for some corrupt purpose.

Commercial transactions with foreign officials should be approached with care and restraint. Cynical law enforcement may view such arrangements as a disguise for a corrupt payment. However, as long as the transaction is transparent and lawful in the official’s country, appropriate safeguards against corrupt decision-making are installed, and the payment reflects the market value of the transaction − as in this case − then the payment can go forward. As even DOJ will recognize, such a payment is not a bribe.