At last! We now have official guidance in one place from the United States Department of Justice and the Securities and Exchange Commission regarding the Foreign Corrupt Practices Act (“FCPA”). A lengthy memorandum was released November 14, 2012, accompanied by a joint press conference. Here is a link to the memo: http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf
Much of the memo is familiar, reciting past successes and long-held governmental policies. But there is also some of the practical advice that the U.S. Chamber of Commerce and other groups have been seeking for years. The memo includes various hypotheticals that may be most helpful to small and midsized companies with fewer dollars to spend on compliance programs.
Always of concern to corporate compliance departments — large or small — are gifts, travel and entertainment. Example: a $12,000 birthday trip for a Mexican government official that included visits to wineries and dinner. Is that improper? Yes, per the memo. How about $10,000 spent on dinner, drinks and entertainment for a government official? Yes, again. A trip to Italy for eight Iraqi government officials, consisting primarily of sightseeing and $1,000 in “pocket money” for each? Or, a trip to Paris for a government official and wife, consisting primarily of touring in a chauffeured vehicle? Same answer: they are FCPA violations.
Of the 120 pages in the memo, 35 are devoted to FCPA’s anti-bribery provisions and merely eight to the accounting provisions. Questions critical to complying with the law are posed: What does “corruptly” mean? How are payments to third parties treated? What are facilitating or expediting payments? Answers are drawn from actual cases.
One question arises frequently and continues to be debated: who is a foreign official? In several prominent cases, defendants have argued that employees of state-owned companies are not covered. The Government disagrees. The guidance offers no bright line, however. Robert Khuzami, the SEC’s top enforcer, said they declined to draw any bright line rules because control of an enterprise can occur in different ways. There are “many indirect ways of ownership and control.” Would less than 50% control indicate not covered by FCPA? Per Assistant Attorney General Larry Brewer, that is likely, but there might be “specific factors” that may put such an enterprise within FCPA’s coverage.
What if you are forced to make a payment against your will? The memo answers with this: “Situations involving extortion or duress will not give rise to FCPA liability because a payment is made in response to true extortionate demands under imminent threat of physical harm cannot be said to have been made with corrupt intent or for the purpose of obtaining or retaining business.” However, mere “economic extortion” is not “extortion.”
The memo discusses parent-subsidiary and successor liability, including some “practical tips” to reduce M&A risk. There is no plan to keep updating the guidance. The memo is a useful resource tool that gathers in one place a lot of information that is often difficult to find.