On November 15, 2012, the U.S. Justice Department and Securities and Exchange Commission published its long-awaited guidance entitled "A Resource Guide to the U.S. Foreign Corrupt Practices Act" (the "Guidance", available at http://www.justice.gov/criminal/fraud/fcpa/guidance/ ). The Foreign Corrupt Practices Act, or FCPA, prohibits U.S. nationals – natural persons and companies – as well as their subsidiaries, officers, directors, employees, and agents, and non-U.S. persons committing relevant acts in the U.S. from bribing, or offering to bribe foreign officials. The FCPA also contains accounting provisions requiring books and records to reflect transactions accurately.

Although the Guidance is not binding and in most parts reiterates legal interpretations adopted previously by the DOJ and the SEC, it provides valuable insights into DOJ and SEC enforcement practices. This is the first time that the DOJ and SEC have issued formalized interpretations of the FCPA and recommendations for compliance programs. As such, this document represents an important step in an ongoing process of providing more clarity and transparency to the business community.

The Guidance provides interpretations of the key provisions of the FCPA and uses detailed hypothetical situations to assist in identifying when and why conduct may run afoul of the FCPA. The Guidance offers insight into several issues that may be of particular value to at-risk companies and individuals, including:

  • The Guidance reinforces the agencies' broad interpretation of the FCPA. It observes that "placing a telephone call or sending an email, text message or fax from, to, or through the United States involves interstate commerce—as does sending a wire transfer from or to a US bank or otherwise using the US banking system."1
  • Examples of payments made to assist in retaining or obtaining business include: influencing the procurement process, evading taxes or penalties, and obtaining exceptions to regulations.
  • The Guidance lists the elements of an effective compliance program: commitment from senior management; a clearly articulated policy against anti-corruption; code of conduct and compliance policies and procedures; adequate accounting controls; access to resources; routine risk assessment procedures and training.2
  • The Guidance stresses the importance of senior management commitment to prevent corruption. It reinforces that the board of directors and senior executives have affirmative obligations to effectively implement the compliance program. "Within a business organization, compliance begins with the board of directors and senior executives setting the proper tone for the rest of the company", notes the Guidance.3
  • Notably, unlike the UK regulator's interpretation of the UK Bribery Act, the Guidance does not provide "safe harbor" defense based upon an adequate compliance program. The Guidance does not endorse any such suggestion. Instead, it reinforces that the FCPA contains only two affirmative defenses: (1) the payments are lawful under the written laws of the foreign country in question and (2) the payments are reasonable and bona fide promotional expenses.
  • The Guidance emphasizes the importance of pre-acquisition diligence but does not provide much practical insight as to the level of due diligence that the agencies would view as appropriate. The Guidance confirms the SEC and DOJ's prior approach with respect to successor liability noting that successor liability "is an integral component of corporate law" and an acquisition itself does not "create liability where none existed before."4
  • The Guidance adds definitional clarity to the FCPA's use of the term "anything of value": "the FCPA does not contain a minimum threshold amount for corrupt gifts or payments. Indeed, what might be considered a modest payment in the United States could be a larger and much more significant amount in a foreign country."5 The Guidance adds, however, that for a gift or other payment to violate the statute, "the payor must have corrupt intent—that is, the intent to improperly influence the government official."6
  • The Guidance offers clarity and certain level of comfort on "Gifts, Travel and Entertainment", an area of particular concern for companies doing business abroad. For example, in reference to one hypothetical, the Guidance states that the provision of business class airfare for lengthy flights for foreign officials, which is also provided for the company's own employees, as well as moderately priced meals and entertainment, would not constitute violation of the FCPA.7 It provides that "a small gift or token of esteem or gratitude is often an appropriate way for business people to display respect or each other."8 The Guidance adds that "some hallmarks of appropriate gift-giving are when the gift is given openly and transparently, properly recorded in the giver's books and records, provided only to reflect esteem or gratitude, and permitted under local law. Items of nominal value, such as cab fare, reasonable meals and entertainment expenses, or company promotional items, are unlikely to improperly influence an official, and, as a result, are not, without more, items that have resulted in enforcement action by DOJ or SEC."9 This aspect of the Guidance would be particularly important to companies doing business in China, where the business culture values courtesies provided to Chinese government officials or employees of state-owned enterprises as a way to build
  • The Guidance suggests five questions to be considered in evaluating proposed charitable contributions in foreign countries: (i) what is the purpose of the payment; (ii) is the payment consistent with the company's internal guidelines on charitable giving; (iii) is the payment at the request of a foreign official; (iv) is a foreign official associated with the charity and, if so, can the foreign official make decisions regarding your business in that country; and (v) is the payment conditioned upon receiving business or other benefits.10
  • The Guidance provides limited clarity to the FCPA's use of "instrumentality" by noting that it is "broad" in scope and includes both "state-owned and state-controlled entities."11 Whether a particular entity constitutes an "instrumentality" is "a fact-specific analysis of an entity's ownership, control, status and function."12 The Guide also notes that companies may violate the FCPA if they give payments or gifts to third parties, such as the foreign official's family members, as an indirect way of corruptly influencing a foreign official.13
  • The Guidance clarifies the agencies' position on payments made under threat of extortion and duress by acknowledging that "[b]usinesses operating in high-risk countries may face real threats of violence or harm to their employees, and payments made in response to imminent threats to health or safety do not violate the FCPA."14
  • The Guidance identifies nine factors on which DOJ relies in conducting an investigation, determining whether to bring charges and negotiating plea and other arrangements: (1) the nature and seriousness of the offense, including the risk of harm to the public; (2) the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management; (3) the corporation's history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it; (4) the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents; (5) the existence and effectiveness of the corporation's pre-existing compliance program; (6) the corporation's remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution, and cooperate with the relevant government agencies; (7) collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution; (8) the adequacy of the prosecution of individuals responsible for the corporation's malfeasance; and (9) the adequacy of remedies such as civil or regulatory enforcement actions.
  • The Guidance explains that DOJ follows the Principles of Federal Prosecution and the Principles of Federal Prosecution of Business Organizations, which are set forth in the US Attorneys' Manual. SEC enforcement decisions are based on factors such as: the statutes or rules potentially violated; the egregiousness and magnitude of the potential violation; whether the potentially harmed group is particularly vulnerable or at risk; whether the conduct is ongoing; whether the conduct can be investigated efficiently within the statute of limitations period; and whether other authorities might be better suited to investigate the conduct.

Although the Guidance expressly provides that it is not legally binding, as a practical matter it will help companies understand the agencies' enforcement priorities and design compliance programs to minimize the risk of FCPA violations and investigations.

Footnotes

1 Guidance at p. 11.

2 Id. at pp. 57-60.

3 Id. at p. 57.

4 Id. at p. 31.

5 Id. at p. 15.

6 Id. at p. 15.

7 Id. at p. 18.

8 Id. at p. 15.

9 Id. at p. 15.

10 Id. at p. 19.

11 Id. at p. 20.

12 Id. at p. 20.

13 Id. at p. 19.

14 Id. at p. 27.

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.