CLIENT ALERT: New DOJ and SEC Foreign Corrupt Practices Act Guide a Useful Company Resource
On November 14, 2012, the U.S. Department of Justice (“DOJ”) and the Enforcement Division of the U.S. Securities and Exchange Commission (“SEC”) released A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Guide”) -- a long awaited statement setting forth the policies and practices of the DOJ and SEC regarding the U.S. Foreign Corrupt Practices Act (“FCPA” or the “Act”). While the Guide does not establish any new policies or delineate any bright-line rules with respect to the more ambiguous provisions of the Act, it does provide a useful compendium of the Government’s existing FCPA policy.
A. Practical Guidance for Companies
Although the FCPA has been on the books for 35 years, there has been little formal guidance to help companies seeking to comply with the Act. The 120-page Guide is a step towards rectifying this problem. For the first time, the DOJ and SEC have combined, in a single document, information that had previously been scattered across various informal opinions, court filings and judicial decisions.
Written in lay terms, the Guide seeks to provide answers to common questions about the FCPA in an accessible format. The Guide makes use of frequently asked questions, lists of factors companies can consider and hypothetical situations to explain how the Government enforces the Act. For example, the Guide includes numerous lists for companies to consider, such as: five “questions to consider when making charitable payments in a foreign country;” four “examples of improper travel and entertainment;” eight “common red flags associated with third parties;” and fourteen common accounting terms that “bribes have been mischaracterized as.” In addition, the Guide provides numerous real life examples of what company conduct the agencies have prosecuted and explanations of where those companies went wrong. All of this is supported by a robust appendix with over 400 endnotes.
B. Activity Prohibited by the FCPA
The FCPA only applies to payments that are made with corrupt intent to foreign government officials for the purpose of “obtaining or retaining business.” The Guide explains that this means the FCPA prohibits payments or offers of payment made with the intent of wrongfully influencing a government official in order to provide the giver with business or an advantage in conducting business. No matter how small the payment, if given with corrupt intent, it is prohibited. One interesting example describes a company prosecuted after it made promises to pay bribes (in order to gain a contract), even though it never actually paid any of the promised bribes.
On the other hand, the Guide notes that small gifts or tokens of esteem or gratitude, made without corrupt intent, are acceptable. The critical factor is the purpose of the gift. Items of nominal value, such as cab fare or company promotional items, are unlikely to improperly influence an official and thus are acceptable. However, the larger the gift, the more likely it is that such gift will be considered as given to gain improper influence.
The FCPA includes a “narrow” exemption for “grease” payments, which are payments made in furtherance of routine government action where the government official has no discretion. The Guide explains that routine government action includes processing visas, providing police protection or mail services and supplying utilities like phone or power services. Under this exception, the Government will examine whether the payment was made improperly to sway an official’s discretionary choice or, rather, permissibly in order to prompt the official to do a job that he is already required to perform.
The Guide warns that numerous FCPA enforcement actions have resulted from corrupt payment of travel and entertainment expenses. Reasonable meals and entertainment expenses are acceptable. Similarly, paying airfare for an official to review a company’s facilities or to provide training is also acceptable. Not permitted, for example, is paying $10,000 for intimate dinners or trips to places like Las Vegas with no business purpose other than entertainment.
To avoid issues, the Guide suggests that companies include in their code of conduct clear and easily accessible guidelines and processes for gift-giving, travel and entertainment.
C. Who is a Foreign Official
The FCPA “broadly applies to corrupt payments to ‘any’ officer or employee of a foreign government and to those acting on the foreign government’s behalf.” The Guide repeats the long held position of the DOJ and SEC that the FCPA applies broadly to any government official, regardless of the official’s rank or function.
Moreover, the FCPA applies not only to actual government departments or agencies, but also to “instrumentalities of a foreign government,” which the DOJ and SEC interpret to include employees of state-owned or state-controlled companies. Though it does not provide a bright-line rule, the Guide gives a list of factors to be considered when determining whether an entity is owned or controlled by a foreign government. Companies should consider, among other factors, the government’s ownership stake in the company, its control over management, and the government’s internal characterization of the entity and its employees.
D. Effective Compliance Programs
The Guide repeatedly emphasizes the importance of effective anti-corruption compliance programs. Such programs cannot be formulaic and must be tailored to the needs of the specific company. To that end, the Guide identifies what the DOJ and SEC consider the “hallmarks” of effective compliance programs. These include:
- A commitment from senior management: Boards of directors and senior managers should create “a culture of compliance.”
- A code of conduct and compliance policies and procedures: The code of conduct must be “clear, concise, and accessible to all employees.”
- Oversight, autonomy and resources risk assessment: A company should assign responsibility for oversight and implementation of its compliance program to a senior executive, who has both adequate authority and autonomy.
- Risk assessment: Companies must recognize which transactions or countries present greater risks and design programs that focus resources on addressing such risks.
- Training and continuing advice: For a compliance program to be effective, a company must reinforce it with regular in-person or web-based training.
- Third-party due diligence and payments: Companies must regularly conduct due diligence on any potential third-party agents, consultants or distributors and continually monitor their activities.
- Confidential reporting and internal investigation: Companies should allow for confidential reporting by employees and effectively investigate all reports.
- Periodic testing and review: Companies must regularly review their compliance and training programs to make improvements where needed.
The Guide further discusses what companies can do as part of their merger and acquisition procedures to limit any FCPA exposure. Specifically, it suggests that companies conduct thorough due diligence focused on potential corruption issues. Alternatively, when a company cannot gain comfort through due diligence, it can seek an opinion from the DOJ in anticipation of a potential acquisition. The Guide also addresses how the Government has handled successor liability, noting that the DOJ and SEC often have “declined to take action against [acquiring] companies that voluntarily disclosed and remediated conduct” as part of a merger and acquisition process.
With its simple language and numerous examples, the Guide will help companies understand how they should interact with foreign officials. Nonetheless, the Guide does not resolve many of the ambiguities that currently exist, nor does it establish any new bright-line rules that many of the FCPA commentators, and their corporate clients, had previously sought. Even though establishing and implementing proper procedures is still a tricky undertaking, the Guide will provide valuable guidance to companies regarding their FCPA exposure and allocation of anti-corruption resources.
If you would like to discuss how the Guide or the FCPA affects your company, please contact the Olshan attorney with whom you regularly work or one of the attorneys listed below.