Government officials in the U.S. and abroad have in recent years roundly condemned the bribery of government officials, calling it harmful to devel-opment, an unfair business practice, and morally reprehensible.1 If one assumes, as the govern-ment does, that bribery misallocates economic resources and results in the delivery of inferior products and services for a given price, all of these descriptions apply equally well to bribery of a private, non-governmental person. Indeed, re-cent actions by American enforcement authorities, and what appears to be a growing international consensus against private commercial bribery, suggest that companies should expand their in-ternational compliance programs to aggressively prohibit commercial bribery as well as bribery of government officials. This article examines the international trend toward prohibition of private commercial bribery as well as tools that the U.S. authorities might use if they decide to aggres-sively punish commercial bribery abroad.
Commercial bribery is the corrupt dealing with agents or employees of prospective commercial partners in order to secure an advantage over business competitors.2 In its classic form, com-mercial bribery would involve paying a kickback to a purchasing agent in order to cause that agent to choose to buy the briber’s products rather than those of a competitor. Private commercial bribery is illegal under the laws of most U.S. states.
Commercial bribery involving a foreign govern-ment official has, of course, been illegal under federal law since the 1977 passage of the Foreign Corrupt Practices Act (“FCPA”), but private com-mercial bribery is not explicitly prohibited by fed-eral law. The Department of Justice, however, has used state laws, in combination with wire fraud statutes and the Travel Act, to prosecute domestic private commercial bribery. Thus, the fact that the foreign private commercial bribery is not ex-plicitly prohibited by federal law should not allow companies to act with impunity, because many of the tools that the DOJ is accustomed to using domestically may be equally applicable overseas.
While the U.S. stood more or less alone in its strong stance against bribery involving govern-ment officials for several years after the FCPA was enacted, over the last decade international views regarding corruption have begun to shift towards the U.S. view. And, as regards private commercial bribery in particular, the international community has been even more aggressive than the U.S. Arti-cle 8 of the Counsel of Europe’s Criminal Law Convention on Corruption, which entered into force in July 2002, provides that:
Each Party shall adopt such legislative or other measures as may be necessary to es-tablish as criminal offences under its domes-tic law, when committed intentionally in the course of business activity, the promising, of-fering or giving, directly or indirectly, of any undue advantage to any persons who direct or work for, in any capacity, private sector en-tities, for themselves or for anyone else, for them to act, or refrain from acting, in breach of their duties.3
Similarly, the United Nations Convention against Trans-national Organized Crime, which entered into force in September 2003, requires that state parties consider establishing non-governmental corruption as a criminal offense.4 And the United Nations Convention against Corruption, which entered into force on December 14, 2005, encourages member states to criminalize both public and private commercial bribery.5
As just one example of the international trend toward aggressive anti-corruption enforcement, the United Kingdom is expected to pass a Bribery Bill this year that would in many ways move the U.K. towards a more American-style enforcement and investigation regime, including extraterritorial provisions that would make the law applicable to any company that carries on a busi-ness in the U.K. The Bribery Bill would also apply to bribery of private persons, such that a company would violate the law if it is intended that, by paying the bribe, the recipient would be expected to act otherwise than in good faith, an impartial manner or in accordance with a position of trust.
Prohibition of commercial bribery is seen even in coun-tries which are known to have corruption problems. China, for example, has prohibited commercial bribery since 1996 but has strongly stepped up enforcement in recent years. The PRC Anti-unfair Competition Law pro-hibits the offering business counterparts money or property to induce them to purchase or sell products.6 In addition, one definition of a bribe under China’s criminal law is the provision of money or property to an employee of a private company for the purpose of seek-ing an improper benefit.7
After years as the undisputed world-wide leader of anti-corruption enforcement including aggressive attention to public sector bribery in countries that have not cho-sen to enforce their own laws, it might be expected that the U.S. will allow other countries to take the lead on foreign private commercial bribery. But, while, as noted above, there are no federal laws specifically dealing with private commercial bribery, the government does have tools at its disposal that will allow it to extend its al-ready-aggressive extraterritorial enforcement activities to the purely private sphere should decide to do so. And it is equally plausible that U.S. authorities, knowing that private bribery is increasingly criminalized around the world, will feel more empowered to use those enforce-ment tools.
One of those tools is the FCPA’s accounting rules. These provisions, which apply only to issuers, can be divided into two parts: “books and records” and “internal con-trol” provisions. The books and records provision re-quires that a company’s that books, records and ac-counts be kept in reasonable detail to accurately and fairly reflect transactions and dispositions of assets.8 It is crucial to note that the relatively low “reasonable de-tail” standard is used to evaluate a company’s books and records instead of a high “materiality” standard. The internal control provisions demand that a system of internal accounting controls is devised in order to (1) to provide reasonable assurances that transactions are executed in accordance with management’s authoriza-tion; (2) to ensure that assets are recorded as necessary to permit preparation of financial statements and to maintain accountability for assets; (3) to limit access to assets to management’s authorization; and (4) to make certain that recorded accountability for assets is com-pared with the existing assets at reasonable intervals and appropriate action is taken with respect to any dif-ferences.9
The FCPA’s accounting provisions apply to publicly held U.S. companies considered “issuers” under the Ex-change Act. (The definition of “issuers” is sufficiently broad to cover corporations with American Depository.
Receipts traded on U.S. markets or stock exchanges.)10 In addition, the accounting provisions apply to all major-ity-owned subsidiaries (domestic and foreign) of U.S. issuers and, with respect to any company (including joint ventures) in which the issuer or one of its subsidi-aries holds 50 percent or less of the voting power, the issuer is required to make a “good faith” attempt to cause the minority-owned firm to follow the accounting rules.
While the FCPA accounting provisions have traditionally been used in conjunction with the anti-bribery provisions (charging companies with failing to properly account for, and failing to adequately prevent, a payment made to a foreign government official), there is no statutory requirement that limits the accounting provisions to foreign government bribery. Perhaps the most dramatic example of “independent” FCPA accounting enforce-ment thus far has been in connection with the Iraq Oil for Food scandal. The Oil for Food program, which was terminated in 2003, was established with the stated intent to allow Iraq to sell oil on the world market in exchange for food, medicine, and other humanitarian needs for ordinary Iraqi citizens without allowing Iraq to rebuild its military. The Saddam Hussein regime, how-ever, often required participating companies to pay ille-gal bribes to the government in order to participate in the program. Because the bribes were for the most part paid to the government itself, rather than to “govern-ment officials,” the payments could not be prosecuted under the FCPA’s anti-bribery provisions. However, since the companies failed to account for the bribes correctly, they violated the FCPA’s accounting provi-sions. So far at least a dozen companies have been charged by the SEC with violations of the FCPA’s ac-counting provisions in connection with the Oil for Food program.
The precedent set by the Oil for Food cases could just as easily be applied to private commercial bribery abroad. Much like the Oil for Food bribes to a sovereign government were not punishable under the FCPA’s anti-bribery provisions but were considered accounting viola-tions, a bribe to a private citizen or commercial coun-terparty, if recorded falsely on the company’s ledger, would also give rise to a books and records violation.
A second tool in the government’s arsenal is the Travel Act, which effectively federalizes the various state pri-vate commercial bribery laws. The Travel Act makes it a federal crime to “ travel or use the mail or any facility of interstate commerce with the intent to … promote, manage, establish, carry on, or facilitate the promotion, management, establishment or carrying on, of any unlawful activity.”11 Notably, the Travel Act defines “unlawful activities” as including “bribery… in violation of the laws of the State in which committed or of the United States.”12 Thus, to prove a violation of the Travel Act, “the government [is] required to establish that [de-fendant]: (1) used a facility of interstate or foreign commerce; (2) with intent to commit any unlawful activ-ity…; and (3) thereafter [performed] an additional act to further the unlawful activity.”13 In other words, the use of a facility of interstate commerce such as telephones, fax transmissions, wire transfers, or internet communi-cations14 to further a private bribe would create Travel Act liability.
In order to use the Travel Act to punish private com-mercial bribery, federal authorities must on state stat-utes which outlaw private commercial bribery.15 Such statutes, however, are common. New York law, for ex-ample, provides that “[a] person is guilty of bribing …when he confers, or offers or agrees to confer, any benefit upon an employee, agent of fiduciary without the consent of the latter’s employer or principal, with intent to influence his conduct in relation to his employer’s or principal’s affairs.”16
California has a similar private commercial bribery law,17 upon which the Department of Justice relied to bring Travel Act charges in a recent foreign bribery case, United States v. Control Components, Inc.18 The CCI case included traditional FCPA bribery charges, but CCI also pled guilty to conspiring to bribe decision-makers of several foreign privately-owned businesses in order to induce them to purchase CCI’s products. While there have been few federal actions based solely on for-eign private commercial bribery,19 the CCI matter should be seen as a “warning shot” designed to put cor-porations on notice that the U.S., like many other na-tions, is becoming serious about stopping private com-mercial bribery. Use of the Travel Act is also notable because, unlike the FCPA’s accounting provisions, there is no requirement that the defendant be an issuer on a stock exchange.
Other statutes that the U.S. government could poten-tially use to crack down on private commercial bribery include the mail and wire fraud statutes,20 racketeering charges,21 or section 2(c) of the Robinson Patman Act,22 an antitrust law which has been held to encom-pass private commercial bribery.23 Mail and wire fraud charges would likely be easily supportable in cases of foreign commercial bribery, because the mail and wirefraud statutes “make it a crime to devise a scheme to deprive another of the right of honest services,”24 and because the Supreme Court has explicitly approved thuse of wire fraud charges to punish foreign conduct.25 The use of the RICO or antitrust laws, however, would be a more complicated endeavor than using the FCPA ac-counting provision or the Travel Act. Therefore we think it likely that government enforcement actions will ini-tially focus on the latter two statutes, as well as mail and wire fraud charges.
While common sense would suggest that statutes de-signed for domestic law enforcement would have a nar-rower jurisdictional reach than an explicitly foreign-oriented law like the FCPA, the extraordinarily aggres-sive view of enforcement jurisdiction exhibited by the DOJ and SEC in recent years shows that even the slight-est jurisdictional “hook” could result in an enforcement action. Thus, to the extent that private commercial brib-ery might involve even the slightest uses of the U.S. mail system, phone or internet or banking system, compa-nies should assume that the federal enforcement au-thorities believe they have jurisdiction to investigate and punish.
The increased internationalization of anti-corruption enforcement will pose significant challenges to corpora-tions doing business abroad. Despite sometimes dubi-ous claims to jurisdiction, U.S. enforcement officials are increasingly monitoring what U.S. companies do outside the U.S. borders. While companies have sometimes struggled with implementing FCPA compliance, the somewhat limited scope of traditional FCPA enforce-ment has allowed companies to pay particular and spe-cialized attention to matters involving government cus-tomers or government officials. An expansion of the en-forcement mandate to dealings that do not involve the government imposes additional burdens on the legal and compliance departments of corporations. In addi-tion, the line between legitimate promotional or enter-tainment expenses, which can be difficult to draw even in relation to government officials, will be even harder to police when the counter parties do not, like government officials, generally make publicly available their rules for accepting such. Finally, increased visibility of state pri-vate commercial bribery statutes, combined with the extraordinary fines and penalties extracted by enforce-ment authorities in recent years, may well lead to ag-gressive prosecution of private commercial bribery by state Attorneys General.
Despite these challenges, companies have no choice but to begin preparing for the possibility of overseas com-mercial bribery enforcement, whether from the U.S. gov-ernment or from the countries in which they do busi-ness. In addition to updating their relevant policies and procedures to explicitly prohibit private commercial bribery, companies should begin to consider how they can best educate and monitor their foreign employ-ees.26 Because the scope of relevant transactions will be much larger than just those involving government officials, companies should work towards greater integra-tion of their sales and accounting functions and their compliance function. Only by creating a true culture of compliance can a company hope to prevent foreign pvate commercial bribery.