"From now on, would-be violators of the Foreign Corrupt Practices Act ("FCPA") should stop and ponder whether the person they are trying to bribe might really be a federal agent."
---Assistant Attorney General Lanny A. Breuer
On January 19, 2010, the Department of Justice announced its successful use of a "first of its kind" undercover operation to investigate and prosecute executives for FCPA violations when it unsealed 16 indictments against officers and employees of U.S. and international companies on the heels of the arrest of 21 individuals at a convention in Las Vegas and an executive in Miami. The FBI and DOJ arrested these executives at the conclusion of a complex, undercover sting operation, wherein FBI agents posed undercover as representatives of the Minister of Defense of an African nation who were willing to accept bribes to divert business to the companies involved. In connection with these indictments, approximately 150 FBI agents executed 14 search warrants in locations across the United States. Similarly, the United Kingdom's City of London Police executed seven search warrants in connection with their own investigations into companies involved in the foreign bribery conduct that formed the basis for the indictments. The executives and employees charged were all in the military and law enforcement products industry, and ranged in age from 25 to 66. They represented all levels of corporate responsibility, including CEOs, directors, salespeople and one general counsel. At least one of the companies involved is publicly traded on the NASDAQ. The defendants were charged with conspiracy to violate the FCPA, conspiracy to engage in money laundering, and engaging in substantive violations of the FCPA. The maximum prison sentence for the conspiracy count and for each FCPA count is five years. The maximum sentence for the money laundering conspiracy charge is 20 years in prison.
The FCPA is a commercial anti-corruption statute which prohibits offering, promising, authorizing or giving a bribe directly or indirectly to a foreign official for the purpose of influencing an official in his official capacity, or to secure an improper advantage in order to obtain or secure business. The FCPA also requires publicly traded companies in the United States to maintain accurate financial books and records and effective internal controls.
According to the indictments, the defendants each allegedly agreed to pay a 20 percent "commission" to an FBI agent they believed was a sales agent who represented the minister of defense of an African country in order to win a portion of a $15 million deal to outfit the country's presidential guard. The defendants allegedly agreed to create two price quotations in connection with the deals. One quotation represented the true cost of the goods while the second quotation had the true cost of the goods plus the 20 percent commission. The defendants also allegedly agreed to engage in a small "test" deal to show the minister of defense that he would personally receive the 10 percent bribe.
The use of undercover FBI agents to ensnare executives in attempts to bribe a person they thought was a foreign official of an African country continues the Department's use of aggressive investigative tactics to investigate and prosecute FCPA violations, and demonstrates the Department's intense commitment to assure FCPA compliance. It is significant that the Department of Justice Fraud Section, which has exclusive supervisory authority over FCPA prosecutions, once again partnered with the U.S. Attorney's Office for the District of Columbia to investigate and prosecute these cases. The Fraud Section and the Department of Justice are clearly supplementing their resources to increase FCPA enforcement. In announcing the indictments, Assistant Attorney General Lanny Breuer cautioned that "[t]he undercover techniques used in this case should cause all would-be FCPA fraudsters to pause and to ask: Am I really paying off a foreign government official or could this be a federal agent?" Breuer further stated, "Of course, if you even have to ask yourself this question in all likelihood you shouldn't be doing whatever it is that you are doing." The Department's use of proactive undercover law enforcement techniques to police conduct relating to the FCPA and the unsealing of the 16 indictments in the District of Columbia should serve as an important wake-up call to all companies to redouble their efforts to comply with the FCPA and educate its executives and employees about the dangers of FCPA noncompliance.
With the DOJ and FBI making good on their recent promises to use proactive undercover techniques to catch "real time" FCPA violations, the need for strong corporate compliance polices has never been stronger. Since corporate officers are deemed to be acting for the benefit of the employer, companies who do not actively train and monitor their employees to avoid FCPA-related misconduct will likely face charges themselves under the theory of "collective liability." Under this theory, the actions of corporate officers, employees and agents are attributed to the corporate principal, resulting in the corporation being held liable for both civil and criminal sanctions and penalties. Best practices require a company to regularly revisit their FCPA compliance program, including documenting the diligence applied in educating and training its employees.
In the end, the best way to defend against the government's new proactive enforcement is to be proactive in avoiding a violation in the first place.