1. WHAT IS THE FOREIGN CORRUPT PRACTICES ACT (“FCPA”)?
Congress enacted the FCPA to bring a halt to the rampant bribery of foreign government officials. The FCPA has two main areas of focus:.
- Anti-Bribery Provisions: Prohibits the offering or paying of a bribe or anything else of value to a foreign government or political party official in order to obtain or retain business or secure any improper advantage.
- Books and Records Provisions: Requires companies that trade on U.S. exchanges to make and keep accurate books, records and accounts of all payments and to devise and maintain reasonable internal accounting controls for preventing and detecting FCPA violations.
2. DOES THE FCPA APPLY TO ME?
The FCPA applies to U.S. companies conducting business abroad, most foreign subsidiaries of U.S. companies, U.S. companies seeking to acquire a foreign entity or U.S. companies that employ foreign vendors or agents. Even non-U.S. companies with securities that trade on U.S. exchanges are subject to the FCPA. The FCPA also applies to all U.S. citizens and any resident alien who works for any of the above-mentioned companies. Even if none of the above applies, any U.S. nexus to a corrupt payment, an e-mail, phone call or even dollar-denominated banking transaction, may be enough to confer jurisdiction.
The scope of the anti-bribery provisions of the FCPA is broad. What most would consider normal business entertainment or accommodations may run afoul of the FCPA. Furthermore, companies acquiring even minority positions in another company are expected to perform FCPA due diligence or face potential liability.
3. WHY SHOULD I BE CONCERNED?
Over the last five years, there has been a dramatic increase in FCPA enforcement activity. Since 2005, the U.S. Department of Justice (“DOJ”) has brought more than 60 new prosecutions -- more than the number of prosecutions brought between the FCPA’s enactment in 1977 and 2005. In 2009, DOJ conducted approximately 140 active FCPA investigations, with significant fines levied in many of these cases.
In 2010 alone, BAE Systems plc, the multinational defense contractor, and Daimler AG, the car manufacturer, agreed to guilty pleas, deferred prosecution agreements, and huge penalties. Over $180 million in DOJ and SEC fines were levied against Daimler. And, BAE agreed to a criminal fine of $400 million to U.S. authorities and £30 million to the U.K. Serious Fraud Office, which illustrates the trend of increased cooperation in overseas bribery investigations and prosecutions, as other countries join the U.S. in active anti-corruption enforcement.
Also in January, 2010, DOJ indicted 22 employees of small- and medium-sized military and law enforcement supply companies for FCPA violations. Following 2.5 years of undercover operations, the “sting” represented the single largest investigation and prosecution of individuals as well as DOJ’s first use of undercover law enforcement techniques.
The DOJ and SEC have recently increased the number of attorneys and investigators dedicated to FCPA enforcement, using inter-departmental task forces, with their targets set on industries such as the pharmaceutical, medical device, and “life sciences” industries. Given enhanced resources and record high fines, FCPA enforcement will certainly remain vigorous in 2010 and beyond.
4. WHAT SHOULD I BE LOOKING FOR?
The issues below do not automatically mean there is an FCPA problem, but they do indicate areas of heightened concern that need to be examined closely.
- The transaction is in, or involves, a country known for corrupt payments, such as China and Nigeria;
- Your sales representative or agent is requesting an unusually high commission or fee;
- Government officials or their relatives are being entertained;
- Unusual contract terms or payment arrangements such as requests for payment in cash, bearer instruments, or “upfront payments;”
- The use of shell or holding companies;
- A foreign customer’s insistence on the use of a particular agent; and
- When the role or function of an agent or middleman is not clear.
5. WHAT CAN I DO TO PROTECT MY ORGANIZATION?
Implement a comprehensive and vigorous compliance plan. Corporations can be found criminally or civilly liable through the acts of an employee or agent, even if that person is acting against company policy. Because any corporation may find itself with a rogue employee or agent, the most effective way for a corporation to avoid or mitigate liability is through a comprehensive and vigorous compliance program.
Perform training. Any corporation that conducts business with foreign governmental entities should institute such a program in their U.S. and non-U.S. operations to educate the managers and employees about the FCPA and to create and maintain a culture of FCPA compliance.
Monitor and audit your compliance. An effective compliance program is far more than policies in a binder. Effective controls must be designed and maintained. All relevant managers, employees and agents, such as independent sales representatives, must receive regular training. Periodic audits must be conducted, and any violations of the policy or the law should be dealt with appropriately. Finally, a senior manager should have direct responsibility over the program.
Review your foreign agents and affiliates. Take stock of your internal controls and procedures, including those for your non-U.S. affiliates. Consider an FCPA review of your transactions. Ensure that your organization is tracking, vetting and appropriately monitoring such things as promotional accounts, charitable giving, entertainment expenses, payments to middlemen, agents or distributors outside the United States.
6. WHAT SHOULD I DO IF A POTENTIAL FCPA VIOLATION SURFACES?
An organization’s response must be swift. Retain counsel, preserve all electronic data, ensure that no hard copies of documents are destroyed and conduct a thorough inquiry.
If you discover the potential violation before the government does, you must consider the benefits of voluntary disclosure. Although the FCPA does not mandate disclosure of violations, voluntary disclosures frequently enable the corporation to either avoid prosecution or obtain significant mitigation of civil and criminal penalties. Before a corporation self reports, however, it is crucial that you seek advice of counsel experts in the FCPA.