In Part One of this two-part blog series, we discussed the U.S. Foreign Corrupt Practices Act (FCPA or Act)1, a federal law that aims to prevent U.S. businesses from engaging in bribery and other corrupt acts in their transactions with foreign governments.
Part Two: Defenses & Compliance
In this second part, we explore defenses available under the Act
and review best practices for compliance. There are two affirmative
defenses provided under the Act:
- Local Law Defense – applies to a payment made to a foreign official that is lawful under the written laws of the applicable foreign country. Since most foreign jurisdictions do not expressly permit corrupt payments under their laws, this defense arises infrequently. Local practice or custom (e.g., a foreign country does not traditionally prosecute such corrupt payments) does not qualify for the local law defense. Likewise, the fact that other companies may have made similar payments in the past is also not considered a defense under the Act.
- Reasonable and Bona Fide Expenditure Defense – allows payment of a foreign official's reasonable and bona fide travel and lodging expenses that are directly related to the promotion, demonstration, or explanation of a company's products or services, or are related to a company's execution or performance of a contract with a foreign government or agency. For example, travel-related expenses incurred while visiting company facilities or operations (e.g., for training or product demonstrations) are likely permissible under the Act; whereas trips that are primarily for personal entertainment do not qualify as bona fide business expenses and will likely violate the FCPA.
The Act also contains a narrow exception for any facilitating or expediting payments made in furtherance of routine governmental action. The so-called "routine governmental action" exception applies to non-discretionary acts, such as obtaining permits or licenses to do business in a foreign country, processing visas or other governmental papers, providing police protection, or supplying phone service, power, and other utilities. Under this exception, paying a small amount to a foreign official to get water turned on at a factory could well be a facilitating payment, whereas paying an official to ignore code violations at the same factory would not qualify.
Small gifts to a government official to celebrate a special occasion, such as a marriage or birth of a child, are also permissible.
Best Practices for Compliance
Avoiding any appearance of impropriety is a good strategy for
companies engaged in global commerce. For example, when inviting
officials from a foreign jurisdiction to visit your company,
consider sending a general invitation in lieu of hand-selecting
particular officials to participate. Likewise, extravagant
undertakings, such as box seats at a championship sporting event or
a suite of rooms at an expensive hotel, are more likely to turn
heads than a dinner celebrating their participation.
Below are 10 FCPA compliance best practices that companies may want to consider adopting for this purpose:
- Adopt a company-wide FCPA compliance policy which applies to all foreign subsidiaries of your company.
- Develop a FCPA compliance program with a focus on training for any employees who might interact with foreign government officials. Maintain documentation of such FCPA training and compliance activities.
- Designate an FCPA compliance officer who is empowered to undertake investigations and help enforce compliance, and who reports to the company's top legal officer or the chief executive officer.
- Develop reporting mechanisms for FCPA violations, including confidential reporting (e.g., hotline).
- Adhere to FCPA accounting principles (e.g., require documentation for all covered expenses; ensure books and records contain reasonable detail) for any transactions with (or dispositions of assets to) foreign governments and their business entities. Avoid advancing funds, or paying cash to, foreign officials.
- Conduct periodic FCPA compliance audits and a review of relevant policies and procedures.
- When engaging third-party intermediaries, agents and business partners who may interact with foreign officials on behalf of your company, require background checks, execute written agreements (with FCPA clauses, audit rights and termination provisions), periodically monitor compliance, and avoid cash payments.
- Avoid doing business with a third-party that has a poor business reputation, insists on keeping its identity confidential, or refuses to disclose the identity of its owners.
- Perform due diligence on a foreign entity of interest to determine if it is partly or wholly owned by a foreign government.
- Pay particular attention when doing business in a country that has a history of bribes, kickbacks, or widespread corruption.
Footnote
1 Pub. L. 95-213, 91 Stat. 1494 (1977), 15 U.S.C. §§78dd-1, et seq.
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.