Canada: United States DOJ/SEC Release Guidance On Foreign Corrupt Practices Act

Last Updated: November 20 2012

Article by Mark Morrison, Michael Dixon, Paul Schabas and Jennifer Newton (Student-at-Law)

The U.S. Foreign Corrupt Practices Act (the FCPA) is widely regarded as landmark legislation in the combat of corruption around the globe. On November 14, 2012, the Criminal Division of the U.S. Department of Justice (the DOJ) and the Enforcement Division of the U.S. Securities and Exchange Commission (the SEC) took an unprecedented step in releasing A Resource Guide to the U.S. Foreign Corrupt Practices Act (the Guide).

The Guide provides useful information for companies considering anti-corruption merger and acquisition (M&A) due diligence. This guidance is relevant to Canadian companies with international operations, given the similarities between the FCPA and the Canadian Corruption of Foreign Public Officials Act (CFPOA) and the broad jurisdictional approach historically taken by the DOJ on FCPA matters.

Scope of the Guide

The Guide reviews the federal authority of the DOJ and the SEC to enforce the FCPA and shines light on the position of the FCPA within the international landscape. The Guide is relevant for enterprises of all sizes – from small businesses to multinational corporations – participating in transactions abroad.

The Guide sets out the enforcement practices of the DOJ and SEC through a collection of hypothetical examples. The six hypotheticals contained within the Guide address questions regarding jurisdiction under the FCPA; the treatment of gifts, travel and entertainment expenses; facilitating payments; third-party vetting; and successor liability involving acquired companies that were not previously subject to the FCPA.

M&A Guidance

The Guide identifies a number of tips to reduce the FCPA risk in the context of M&A. Most fundamentally, the Guide highlights the benefits of conducting thorough anti-corruption due diligence. In particular, the Guide outlines that where an acquiring company has conducted extensive due diligence, yet does not uncover the conduct of the acquired company that contravenes the FCPA until after the acquisition, the DOJ and SEC are unlikely to prosecute the acquiring company. For a further discussion of the benefits of anti-corruption due diligence, please refer to our July 2010 Blakes Bulletin: Importance of Anti-Corruption Due Diligence for International Transactions.

The Guide also addresses the manner in which the FCPA applies to successor liability in the context of M&A. In situations where the acquired company was not previously subject to the FCPA, but has engaged in conduct that contravenes the FCPA prior to the acquisition, the DOJ and the SEC have no jurisdiction to bring a case for pre-acquisition misconduct. The acquisition of a company does not create jurisdiction where none existed before.

The DOJ also advised in the Guide that, in past cases where acquiring companies had only a limited ability to conduct pre-acquisition due diligence on a foreign company, but then conducted post acquisition due diligence which revealed conduct in contravention of the FCPA on the part of the foreign acquired company, the DOJ and SEC have declined to prosecute the acquiring company. Important considerations for the DOJ and SEC included where the acquiring company had taken prompt action to remediate the problem, reported the misconduct to the DOJ, and ensured that the misconduct was immediately stopped.

The Guide also highlights that in a merger between companies that are subject to the FCPA, and where pre-merger due diligence reveals that both companies have contravened the FCPA, the merger does not eliminate liability.

Facilitation Payments Clarified

The Guide clarifies the narrow exception within the FCPAfor facilitation payments made in furtherance of routine governmental action. Where a small, one-time payment is made to obtain a routine, non-discretionary governmental service, there is no violation of the FCPA. The Guide notes, however, that a facilitation payment may still violate local law in the countries where the company is operating. Conversely, a payment designed to corruptly influence a foreign official into a discretionary act, such as the approval of a permit, violates the FCPA. The CFPOA is similar to the FCPA in that it also allows for facilitation payments; however, for companies with U.K. operations, it is important to note that the U.K. Bribery Act does not allow for facilitation payments.

Gifts, Travel and Entertainment Expenses Clarified

The Guide outlines that the DOJ and the SEC have not focused their enforcement efforts on the payment of reasonable travel and entertainment expenses. Rather, the Guide indicates that cases will be brought where a corrupt payment of travel and entertainment expenses occurs in conjunction with other conduct indicative of systematic bribery or corrupt intent.


The Guide is significant in that it shines light on DOJ and SEC enforcement priorities and strategies to avoid enforcement, especially in the M&A context.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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