On 14 November 2012, the United States Department of Justice and Securities and Exchange Commission published FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act. The Guide covers most of the important aspects of the FCPA. It also goes over guiding principles with respect to enforcement. It provides several clarifications, and useful case studies.
GUIDANCE ON INTERNAL COMPLIANCE POLICIES AND PROCEDURE
All companies operating abroad should have in place policies and procedures aimed at preventing and dealing with corruption. The Guide sets out ten components of an effective compliance program:
- A commitment from senior management to anti-corruption and ethical business practices, and a clearly articulated policy against corruption.
- A code of conduct, and compliance policies and procedures, that are clear, concise, accessible in the local language (if need be) and tailored to the level of risk assessed. Policies should deal with use of third parties, gifts, hospitality expenses, charitable and political donations, and facilitation payments.
- Oversight, autonomy, and resources: Senior executives should oversee and implement the compliance program, and be given autonomy from management and sufficient resources.
- Mechanisms should be in place to identify transactions where there is a higher risk of corruption and to apply the necessary procedures in those cases.
- Training and continuing advice: Policies and procedures should be communicated to employees and agents.
- Incentives and disciplinary measures: Employees should be disciplined for breaches of policies and procedures.
- Third party due diligence and payments: Third parties should be properly scrutinized in accordance with the identified level of risk.
- Confidential reporting in internal investigations (whistleblowing).
- Continuous improvement: Periodic testing and review.
- Mergers and acquisitions: Pre-acquisition due diligence and post-acquisition integration.
A compliance program (or the lack of one) may influence whether charges under the FCPA should be resolved through a deferred prosecution agreement or a non-prosecution agreement, as well as the length of any such agreement. It may also affect the amount of any fine.
Effective compliance programs are tailored to the company’s specific business and the risks associated with it. They are dynamic, and evolve as the business and markets change. The Department and Commission do not have formulaic requirements for compliance programs. They employ a common-sense and pragmatic approach to evaluating programs, asking:
- Is the company’s compliance program well-designed?
- Is the company applying it in good faith?
- Is it working?
The Department and Commission recognize that a violation of the FCPA does not necessarily mean that the company’s compliance program is not generally effective. They understand that “no compliance program can ever prevent all criminal activity by a corporation’s employees”, and do not hold companies to a standard of perfection.
The Guide provides useful information on the possible resolutions of charges under the FCPA, including injunctions. In a deferred prosecution agreement the Department files a charge with the court, but requests that the prosecution be deferred, to allow the company to demonstrate its good conduct. In a non-prosecution agreement the Department maintains the right to file charges but does not do so, again to allow the company to demonstrate its good conduct.
INVESTIGATION AND CHARGING CONSIDERATIONS
Nine factors are considered in conducting an investigation and determining whether to charge a company, including its timely and voluntary disclosure of wrongdoing, its willingness to cooperate in the investigation, and the effectiveness of its compliance program. This further emphasises the need for a robust program. (A robust program is also a way of establishing the due diligence defence under the UK Bribery Act.)
Resolving an FCPA charge is guided by the Principles of Federal Prosecution (for individuals) and the Principles of Federal Prosecution of Business Organizations (for companies).
Both the Department and the Commission also place a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA charges. Specifically, they consider whether the company made voluntary and timely disclosure, as well as its willingness to provide relevant information and evidence, and identify relevant actors, inside and outside the company, including senior executives.
WHO CAN BE PROSECUTED?
The bribery provisions of the FCPA apply to all companies with a class of securities listed on a US securities exchange or quoted in the over-the-counter market in the US and required to file periodic reports with the Commission. Foreign companies with American Depository Receipts listed on a US exchange are also covered. Officers, directors, employees, agents and shareholders acting on behalf of a company (whether US or foreign nationals) can also be prosecuted.
The FCPA has broad extraterritorial jurisdiction and many of the most high profile cases have been brought against foreign companies. The FCPA’s anti-bribery provisions apply to conduct both inside and outside the US. Companies, as well as their officers, directors, employees, agents and shareholders, may be prosecuted for using the US mail or any means of interstate commerce in furtherance of a corrupt payment to a foreign official. Merely placing a telephone call, or sending an e-mail, text message or fax from, to or through the US, involves interstate commerce – as do sending a wire transfer from or to a US bank, otherwise using the US banking system, traveling across state borders and travelling to or from the US.
Governments can organize very differently. Many operate through state-owned and state controlled entities, particularly in areas like aerospace and defence manufacturing, banking and finance, healthcare and life sciences, energy and extractive industries, telecommunications, and transportation. The Department and Commission adopt a broad definition of who is a “foreign official” under the FCPA, including officials of state-owned enterprises, to respond to this variability.
The FCPA allows companies to provide reasonable and bona fide travel and lodging expenses to foreign officials, where they are directly related to the promotion, demonstration, or explanation of a company’s products or services, or to its execution or performance of a contract with a foreign government or agency. Whether any particular expense qualifies requires a fact specific analysis. The following list of safeguards may be helpful in evaluating whether a particular expense is appropriate or risks violating the FCPA:
- Do not select the officials who will participate in a proposed trip or program (or select them based on pre-determined, merit based criteria).
- Pay all costs directly to travel and lodging vendors (or reimburse them only on presentation of receipts)
- Do not advance funds or reimburse in cash.
- Ensure any stipends are reasonable approximations of costs likely to be incurred and that expenses are limited to those that are necessary and reasonable.
- Ensure the expenses are transparent, both within the company and to the foreign government.
- Do not condition payment on any action by the foreign official.
- Obtain written confirmation that payment is not against local law.
- Provide no compensation, stipends or spending money beyond what is necessary to pay for actual expenses.
- Ensure expenses incurred on behalf of the foreign officials are accurately recorded in the company’s books.
The FCPA’s bribery prohibition contains a narrow exception for “facilitating or expediting payments” made in furtherance of routine governmental action. However, a facilitation payment does not include acts within an official’s discretion or that would be a misuse of their office. For example, paying an official a small amount to have the power turned on at a factory might be a facilitating payment. Paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not. (While there is a similar exception under Canadian law, there is not under the UK Bribery Act.)
WHAT CANADIAN BUSINESSES NEED TO KNOW
The threat of prosecution of a Canadian company by the Department or Commission under the FCPA is real. The Guide provides an excellent framework around which to build a robust internal compliance program that can curb corruption, and prevent charges from being brought or allow your business to negotiate favourable resolution of charges. Following the Guide’s policies and procedures can also offer protection against charges from other enforcement authorities around the world, including Canada.