United States: The United States Foreign Corrupt Practices Act – Best Practices For Compliance In The Face Of Increased Enforcement

Across the globe, investigations by regulators of pharmaceutical and biotech companies continue to grow. Companies need to evolve and adapt to reduce risk when conducting business on a global scale. Among the areas of greatest exposure for pharmaceutical and biotech companies conducting business on a multi-national level is the United States Foreign Corrupt Practices Act (FCPA or the Act), which is comprised of two sets of provisions: 1) anti-bribery provisions; and 2) accounting provisions. The anti-bribery provisions of the FCPA, the subject of this article, prohibit companies from bribing foreign officials to obtain or retain business.

Just what this entails will be described in greater detail below, but what is important to note at the on-set is that in the past ten years, FCPA enforcement has been increasingly aggressive. Fines and penalties are at an all-time high, and individuals charged are more likely to see jail time. This article will focus on the best practices, including a robust compliance program, which businesses should implement in order to minimize the risk of running afoul of the FCPA.

Just what is prohibited under the Anti-Bribery provisions?

The FCPA's anti-bribery provisions prohibit the offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to a foreign official in order to obtain or retain business.

As we will see when looking at the definition of key terms, this prohibition is quite broad. It is equally broad in its application.

The anti-bribery provisions apply to:

  • public and private companies alike;
  • including foreign subsidiaries of U.S. corporations;
  • and their officers, directors, employees, agents, and independent contractors acting on their behalf; as well as
  • non-U.S. individuals and companies who violate the FCPA while on U.S. territory.

So what does all that mean to my business?

To recap, the FCPA prohibits the payment or offer of money or anything of value to a foreign official to obtain or retain business. In order to fully grasp how broad the prohibition against bribing foreign officials is, we must understand key definitions in the Act.

Anything Of Value – "Anything of value," is interpreted very broadly, with no consideration for the amount, materiality, or even definite possibility of the giving actually taking place. Anything of value is interpreted to include tangible and intangible property, promises for future considerations, or an interest in something that has not yet even occurred.

Specific examples include:

  • executive training programs at U.S. universities,
  • charitable contributions,
  • valuable information,
  • sport outings,
  • discounts,
  • college scholarships,
  • future employment promises, and
  • transportation of household goods.

As you can see, almost anything can be interpreted as a "thing of value."

Foreign Official – "Foreign official" is one of the most difficult phrases to limit or define in the Act. Approximately 2/3 of enforcement actions involve whether an individual is a foreign official under the FCPA. Foreign official has been interpreted to include the following:

  • Agencies and state owned or state controlled entities and their employees, g., hospitals, communications firms, energy companies;
  • Public international organizations, g., UN, IMF, Red Cross
  • Relatives/ advisors/ consultants/ candidates/political parties
  • Joint ventures in which "foreign officials" participate

Improper Payment "To Obtain Or Retain Business"- The definition of "to obtain or retain business" is so broadly interpreted, there is little chance of an accused successfully arguing that a payment was not for the corrupt purpose of obtaining or retaining of business.

Examples of any business advantage, the payment for which can lead to FCPA liability include:

  • permits,
  • licenses,
  • certifications, or even
  • tax rebates.

Because the meaning of the phrase is so broad, it is almost impossible to determine what payments may fall within the statutory exemption for grease payment, discussed below. Therefore, a robust compliance program removes all decisions regarding payments to the FCPA compliance program administrator, legal counsel or CFO.

Are there no exceptions?

The provisions do contain one exception and two affirmative defenses, but they are so narrowly interpreted, the prudent business person will not rely on them.

Exception for Facilitation Payments – The FCPA contains an exception for facilitating or "grease" payments. In order to fall under this exception, the payment must be to low-level foreign officials who perform "routine governmental actions." Examples might include such things as the processing of applications for permits/licenses/ visas, police protection, power supply, cargo handling, inspection scheduling. However, it cannot be overstated that, in light of the vigorous nature of enforcement and lack of guidance on what exactly is a grease payment, no payment to a government official, should be allowed unless pre-approved by FCPA management. Even then, the payment should be properly documented.

Affirmative Defenses – The FCPA contains two affirmative defenses. The first applies only if the payment, gift, offer, or promise was lawful under the foreign country's law. However, the foreign country's law must be expressly "stated and written," and "negative implication, custom, or tacit approval" are not sufficient. The second affirmative defense is that the payment, gift, offer, or promise was a "reasonable and bona fide expenditure" that is directly related to the "promotion, demonstration, or explanation of products or services; or the execution or performance of a contract." The Act's examples include expenses such as travel and lodging. As you can see, the defenses are also narrow and very specific. Necessity is NOT a defense. Rather than rely on the exception of one of the defenses, it is more prudent to disallow any payment to a foreign official unless preapproved by the FCPA plan administrator or other top management.

How can I assess my company's risk?

Companies doing business internationally should be ever vigilant of situations that place them at higher risk of violations:

  • Foreign business
  • High risk countries
  • Business contacts with entities in which relatives or political associates of government officials are employed or have an ownership interest
  • Negative background information
  • High commissions/consulting payments
  • Cash payments
  • Convoluted payments

What, then, can I do to protect my company? Implementing a robust compliance program

This ambiguous, broad, and aggressive interpretation of the FCPA's anti-bribery provisions and increased enforcement call for companies doing business abroad to implement an aggressive compliance program and other best practices.

It is important to include the elements that the enforcement agencies have recognized as effective in such a program.

Elements of an effective, robust compliance program include:

  • Written Program
  • Board Oversight
  • Plan Management (Choose one or more people from top management who will be assigned ultimate responsibility for administering the compliance plan.)
  • Operating and Reporting (Individuals who report to the plan manager(s) must be delegated day-to-day responsibility for the program.
  • Communicating and Training (All new employees must be trained, and those directly involved in international aspects of company business must be retrained periodically.)
  • Monitoring and Evaluating (Steps must be taken to periodically ensure that the plan is followed, evaluate the effectiveness of the program and publicize a system for employees to report concerns, preferably with an anonymous option to do so.)
  • Consistent Enforcement

Summing it up

The broad interpretations of the FCPA and zealous enforcement call for vigilance on the part of companies engaged in international business. Constant assessment of risk, a vigorous compliance program and the implementation of other best practices can help these companies avoid FCPA anti-bribery violations.

Originally posted by the Pharmaceutical Compliance Monitor

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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