Guidance from law enforcement and regulators on their priorities and expectations is a valuable tool for managing risk for businesses and individuals. On August 14, 2020, the U.S. Department of Justice ("DOJ") released its Foreign Corrupt Practices Act ("FCPA") Opinion Procedure Release No. 20-01 (the "Release"), the first in the last six years. In the Release, the DOJ advised that it would not presently pursue any enforcement action against a proposed transaction between a U.S.-based investment advising firm and a publicly-owned foreign investment bank. In doing so, the DOJ offered useful insight into how businesses can best conduct themselves when dealing with foreign public entities.
The FCPA Opinion Procedure
As discussed in our previous post, the FCPA, like the Canadian equivalent Corruption of Foreign Public Officials Act (the "CFPOA"), makes it a domestic offence to engage in foreign bribery overseas. It is the principal statute in the U.S. governing foreign corruption and bribery. Canadian companies, in addition to being subject to the CFPOA, may also be subject to the FCPA if, among other things, they conduct business in the U.S. or are traded on U.S. exchanges. While the CFPOA is a criminal statute falling within the purview of federal law enforcement, enforcement of the FCPA is undertaken both civilly by the Securities and Exchange Commission and criminally by the DOJ.
Under the DOJ's FCPA Opinion Procedure, requests can be made by companies subject to the FCPA for an Opinion from the Attorney General about whether specified and prospective (but not hypothetical) conduct conforms with the DOJ's enforcement policy. Opinions are not binding on anyone except the Requestor, and only to the extent that the Requestor disclosed accurate and complete facts. Requests have become less prevalent in recent years since Opinions are publicly available (and can therefore raise confidentiality concerns), and because the process can be long and burdensome. More information on the Opinion Procedure can be found here [PDF].
In the present case, the Requestor, a multinational U.S.-based investment advising firm, sought the DOJ's opinion on a US$237,500 payment to be made to an office of a foreign government-owned investment bank, in exchange for services in relation to the purchase of a portfolio of assets from another office of the same foreign investment bank. The DOJ determined it did not presently intend to take any enforcement action with respect to the proposed fee payment. It found no information displaying a corrupt intent to offer, promise, or pay anything of value to a "foreign official."
In addition to serving as guidance to Canadian companies subject to the FCPA, the Release also acts as a resource for best practices in complying with the CFPOA (in particular since the Canadian government has not issued formal guidance regarding foreign corruption compliance). The reasons underlying the DOJ's decision reflect several best practices that companies should follow when doing business with public entities, either domestically or abroad. Key considerations by the DOJ in declining to pursue any enforcement action included the following:
- Payments should be made to an entity, not to an individual: For the purposes of the Opinion, the DOJ assumed that the office of the foreign investment bank receiving the payment was an instrumentality of a foreign government and that its employees would be deemed "foreign officials" under the FCPA. However, since the payment was to be made to the foreign investment bank itself, not to an individual or employee, it did not reflect a corrupt intent to influence a foreign official. When doing business with public entities, payment should always be made to the entity itself through a valid and properly documented form of payment rather than to an individual.
- Payments should be formal and transparent: The DOJ found no indication that the funds would be diverted to any other entity or individual other than the office of the foreign investment bank. The Chief Compliance Officer of the foreign investment bank certified to the Requestor that the payment would be made into its corporate bank account and would only be used for the benefit and general corporate purposes of the office. Companies should ensure all payments to public entities are made to a proper destination through legitimate and formal bank channels.
- Payments should be properly documented: While the Requestor did not have a signed advisory agreement with the office of the foreign investment bank receiving payment for its services, it did have a draft agreement specifying an advisory fee of 0.5 percent of the value of the assets to be acquired. Payments to public entities should always be made through a properly executed memorandum of understanding, and companies should keep paper records for each step of any transaction.
- Payments should be reasonable and commensurate with the value of services received: The DOJ found the Requestor sought and received specific and legitimate analytical and advisory services from the office of the foreign investment bank related to its acquisition of the portfolio of assets. The intended payment was commensurate with those services and was commercially reasonable. Companies should ensure that the value of any payments made to public entities is in line with industry standards, and should be prepared to demonstrate that legitimate goods or services were received in exchange for payment.
While it is often necessary or commercially reasonable to do business with public entities, there is inherent risk involved when doing so, particularly when those entities are owned by foreign governments. As such, companies should employ a high level of diligence when doing business with government entities or entities owned by government. Companies should exercise a particularly high degree of scrutiny when asked by government to contract with a specific local partner or government body. The above best practices, as reflected in the Release, provide helpful guidance and key considerations companies should adhere to while ensuring any payments made to government are for a legitimate business purpose and will not be perceived to be for the purposes of corruption.
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.