Those responsible for compliance at multinational corporations are by now well aware of the increased global efforts to combat corruption—including increased activity by US enforcement authorities under the Foreign Corrupt Practices Act ("FCPA"). Among other things, applicable anti-corruption laws prohibit providing anything of value to a "government official" in return for a business benefit. One area that has long been fraught with risk—knowing whether you area dealing with a "government official"—has recently become more challenging due to the governmental bailouts of the automotive, banking, and financial services industries throughout Europe. The challenge is even greater because, under the FCPA, a corporation does not need to "know" that it is dealing with a government official in order for liability to arise.
Much like the US government's decision to provide funding to its major banks (e.g., Citibank, Bank of America), automakers (e.g., General Motors, Chevrolet), and insurance companies (e.g., AIG), countries in Western Europe are investing billions of dollars in the private sector to stave off further economic decline, protect jobs, and help stimulate their economies. In exchange for this financial investment, European governments (which include the United Kingdom, France, Germany, Austria, the Netherlands, Brussels, Luxembourg, Italy, and Spain) are obtaining ownership stakes in the troubled corporations, up to 100% in some cases. For example:
- On March 9, 2009, Iceland nationalized the Straumur-Burdaras Investment Bank, seizing 100% control of the last remaining independent investment bank in the country. The Icelandic government had previously nationalized Iceland's other three major investment banks as a result of the global credit crisis.
- Germany provided €87 billion in loan guarantees to Hypo Real Estate Holding AG, a real estate financing bank, and is preparing the legal framework to nationalize the financial services corporation.
- In October 2008, the British government announced £37 billion of new capital for UK's biggest banks, including Lloyds TSB Group PLC and HBOS PLC. In exchange for that investment, and following a merger of Lloyds and HBOS, the British government held a 43% interest in the newly formed Lloyds Banking Group PLC. In March 2009, the government pledged to insure up to £250 billion in assets held by the Lloyds Banking Group in exchange for a 65-77% ownership stake in the bank.
- Subjecting itself to scrutiny from the European Union, France gave a €3 billion low-interest loan to car manufacturer Renault S.A. in exchange for Renault's pledge not to close factories or engage in mass layoffs in France for one year. Unlike other government bailout funds, the French government has not sought an ownership interest in Renault.
A potentially unforeseen side-effect of these economic actions is that public investment in the private sector may have transformed what were previously private corporate employees into a new category of "government officials" under the FCPA. Corporations that do business with these newly governmental or quasi-governmental businesses may potentially expose themselves to increased liability under the FCPA, regardless of whether they know they are dealing with a foreign "government official." Depending on the percentage of the foreign government's ownership interest and the control exerted over the troubled business entity, US enforcement authorities may find that some or all of that entity's executives, board members, and employees are foreign "government officials" for purposes of FCPA liability. As with many other questions under the FCPA, we can expect the US Department of Justice to take an expansive view of the law.
In light of these recent events, businesses should:
- Reassess the company's level of exposure and risk, especially with respect to doing business with any overseas entity that has received government funds;
- Reexamine company policies to make sure they adequately protect the company in this new public sector environment; and
- Redouble efforts to provide compliance communications and training to employees and agents.
Before doing business with any of these entities, companies may also choose to seek informal guidance from outside counsel, and/or seek a formal opinion from the US Department of Justice.