In this issue, we address some frequently asked questions related to the applicability of the FCPA.
Q. Whose Act Is Regulated by the FCPA?
FCPA applies to a person or entity falling under any of the following three categories:
- any issuer which has a class of securities registered pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") or which is required to file reports under the Exchange Act (the "Issuer") or any officer, director, employee or agent of such Issuer, or any stockholder thereof acting on behalf of such Issuer;
- any individual who is a citizen, national or resident of the U. S., or any entity which has its principal place of business in the U. S. or is organized under the laws of the U.S. (the "Domestic Concern") or any officer, director, employee, agent of such Domestic Concern, or any stockholder thereof acting on behalf of such Domestic Concern; or
- any person or entity other than an Issuer or a Domestic concern (a "Foreign Non-Resident") or any officer, director, employee, agent of such Foreign Non-Resident, or any stockholder thereof acting on behalf of such Foreign Non-Resident while in the territory of the U. S.
FCPA regulates the use of any means or instrumentality of interstate commerce by a person or entity described above in the course of providing monetary or other benefits to a foreign official. The requirement of using interstate commerce is broadly interpreted under the FCPA to include such acts as sending an email in the U.S., placing a telephone call in the U.S. or sending a wire transfer through a U.S. bank which results in making or offering to make a corrupt payment to a foreign official.
Q. Would Koreans or Korean Companies Be Subject to the FCPA Regulations and Enforcement?
We have seen many Koreans and Korean companies assuming that the FCPA would not apply to them because it is a U.S. law. However, as discussed above, any person or entity constituting an Issuer, a Domestic Concern or a Foreign Non-Resident acting in the U.S. may be subject to the FCPA regardless of their nationality through the acts of their officer, director, employee, agent or shareholder. Thus, Koreans and Korean companies are not exempt from the FCPA’s regulations. By way of illustration, we provide the following two hypothetical cases that could come within the reach of the FCPA.
Company A is a software developing company in Korea. For purpose of procuring a development contract for security software from the government of Country X, Company A sent government officials of Country X a set of expensive wine that was imported from Country Y, as a gift for national holidays of Country X. Two years ago, Company A listed its shares in the U.S. through American Depository Receipts (ADRs) for USD 50,000,000 to obtain investment from its foreign investors.
- Company A is considered as an Issuer, which is directly subject to the FCPA. An issuer includes any company with any class of securities registered in the U.S. stock markets, irrespective of whether such company was established in the U.S. Thus, a Korean company that listed its stock in the U.S. stock markets through ADRs would qualify as an Issuer and would be subject to the FCPA. However, the requirement related to the use of interstate commerce should also be met for the FCPA to apply. In addition, US authorities would have to consider whether gift of wine is more than a nominal token gift that is unlikely to improperly influence a foreign official. Generally, the more luxurious and extravagant the gift is, or the more pervasive the pattern of such gift giving, the more likely the US regulator is to view this gift of wine as intended for improper purpose.
Company B is a manufacturer of inflatable boats in Korea. All of its shareholders are Korean, and it does not have any subsidiary or branch office outside Korea. The Defense Acquisition Program Administration of Korea recently opened a competitive bid for the manufacture and supply of inflatable boats for military use. In order to receive preferential treatment in the bid, Company B contacted Korean government offficial C, upon whose request Company B deposited 30 million Korean Won with a bank account opened at a U.S. bank under a name different from official C's name.
- Company B is considered as a Foreign Non-Resident. Even though Company B did not provide corrupt payment in the U.S. territory, Company B did use a U.S. bank in the course of providing the corrupt payment. Given US authorities’ prevailing view that the requirement of "acting while in the territory of the United States" as a basis for applying the FCPA to a Foreign Non-Resident is more expansive than acting while physically in the U.S. territory, one cannot preclude the possibility that the FCPA may apply to Company B.