The Department of Justice (DOJ) is investigating corruption and bribery conduct at unprecedented levels. In January, DOJ conducted a massive sting operation netting 22 individuals in Las Vegas. Just this month, the UK Serious Fraud Office, working in conjunction with DOJ, settled a multitude of corruption charges with mega-defense contractor BAE Systems, PLC. Under terms of the settlement, BAE will reportedly plead guilty in the U.K. and U.S. and pay fines totaling £30 million (a record criminal fine in the U.K.) and $400 million. The Las Vegas sting and the BAE settlement demonstrate DOJ’s new, aggressive approach to the FCPA. Where DOJ used to conduct investigations in the U.S. before indictments, the Las Vegas sting demonstrates DOJ’s willingness to indict first and ask questions later. The BAE settlement shows tremendous aggressive behavior across international borders. In fact, the criminal information filed against BAE shows that the majority of the alleged illegal activity took place outside of the U.S.
Corporations, executives and employees need to understand the scope of the FCPA, as well as monitor DOJ’s new efforts to enforce the FCPA. The DOJ is scrutinizing FCPA corporate compliance policies during investigations of allegedly corrupt payments.
The FCPA
Congress passed the FCPA in 1977 to curb the participation of domestic corporations in the U.S., foreign subsidiaries of U.S. corporations, and individuals in the corruption of foreign governments. In its broadest terms, the FCPA criminalizes corrupt payments – defined broadly as “anything of value” – to a foreign government official that are intended to obtain or maintain business. The FCPA also sets certain record-keeping requirements applicable to all publically traded companies to maintain books and records that accurately reflect business transactions and to maintain effective internal controls.
The FCPA is jointly enforced by DOJ and the U.S. Securities Exchange Commission (“SEC”). One of most common misconceptions of the FCPA is that conduct outside of the U.S. cannot violate the FCPA – this is completely untrue. There is no requirement that the U.S. Government establish a territorial connection to the U.S. Conduct that takes place entirely outside of the U.S. by a U.S. corporation, its subsidiary, or an individual, can be the basis for FCPA violations. For example, Christian Sapsizian, a French citizen, was sentenced to 30-months in prison in 2008 for bribes arranged and paid outside of the U.S. Sapsizian was arrested during a layover at a Florida airport while traveling to Paris. According to DOJ, jurisdiction was appropriate in the U.S. because his former employer had American depositary receipts listed in the U.S. and Sapsizian had caused related payments to be wired from U.S. banks. In this respect, the FCPA places a tremendous burden on corporations and corporate management to monitor the conduct of employees and subsidiaries around the world.
The FCPA specifically prohibits corrupt payments to foreign government officials to obtain or maintain business with that government. Payments or gifts to a foreign corporation, a corporate officer, or local agent who are not government officials are not prohibited. Likewise, gifts to officials who have no control over whether business will be awarded or maintained also do not violate the FCPA. However, payments to foreign officials, whether they are direct or through third-parties or labeled as “fees” or “commissions,” will violate the FCPA if they are intended to obtain or maintain business from the foreign official’s government.
The FCPA obligates U.S. companies to ensure subsidiaries, employees, agents and distributors act properly. FCPA violations can be based on the wrongful acts of others under the FCPA’s third-party payment provisions, which prohibit improper payments made to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly to any foreign official.” Like other elements of the FCPA, the “knowledge” requirement is broad and can be satisfied by willful blindness even if a company does not have actual knowledge that an improper payment has been made to a foreign official.
The FCPA sets forth an important exception for payments intended to “grease” a foreign government, or to otherwise facilitate or expedite services. Payments will only qualify under this exception to expedite or secure the performance of a routine governmental action. Acceptable payments might include, for example, payments made to speed up the issuance of permits or licenses, or process paperwork. Congress deliberately intended to permit “grease payments” which “merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action.” (1977 Legislative History – House Report.) Note that the definition of “foreign official” does not include government employees whose duties are ministerial or clerical. Congress wrote: “While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments.” (Id.).
The two affirmative defenses to the FCPA are those instances in which the payment to a foreign official is: (i) lawful under the written laws and regulations of the foreign country; or (ii) a reasonable and bona fide expenditure directly related to the promotion, demonstration, or explanation of products or services or the execution or performance of a contract. The burden of proof belongs solely to the company.
Corporations, LLCs, LLPs, and sole proprietorships are subject to a fine of up to $2,000,000; officers, directors, stockholders, employees, and agents are subject to a fine of up to $100,000 and imprisonment for up to five years for FCPA violations. Under the Alternative Fines Act, these fines may be higher — the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment.
FCPA COMPLIANCE PROGRAM
A well-developed compliance program will help a corporation avoid FCPA liability. In the event of a DOJ investigation, the compliance program will also assist a corporation in defending potential liability.
As an initial matter, a corporation must conduct an internal audit of its policies, procedures and operations. The internal audit should examine all overseas or foreign operations involving foreign officials. The corporation should understand which employees or agents communicate with foreign officials. Additionally, an assessment should be made of all the foreign countries where the corporation conducts business, as well as the anti-corruption and anti-bribery laws of those countries.
Next, the corporation should clearly outline its FCPA compliance management and governance. Designate an executive or form a committee to oversee FCPA compliance. Set corporate policies and statements describing its commitment to lawful practices and condemning corrupt practices. Moreover, the corporation should issue guidelines with respect to certain real-life situations, so that employees have a protocol to follow when faced with those situations.
Each component of the FCPA compliance program should be set forth in clear, written documents that are easy to read and understand – as it will be relied upon by employees. We recommend conducting annual FCPA training and compliance, complete with educational materials. Each employee should be required to attend the training and compliance program and accurate records of the employee’s attendance should be maintained.
FCPA compliance necessitates regular and systematic monitoring to ensure effectiveness. Monitoring should be well documented by the corporation. Moreover, the corporation should require that employees complete well-documented due diligence for foreign deals, including background investigations into the foreign agents, discussions with references and searches of publically available records to ensure no history of illegal activity. The corporation should also require that foreign agents and partners provide written certification of FCPA compliance, and, where possible, include FCPA compliance representations within a contract with the agent.
Finally, a corporation must establish a clear method for reporting FCPA violations. Each violation must be investigated and documented. If warranted, disciplinary measures should be brought or the activity should be self-reported by the corporation to law enforcement.
The FCPA, and U.S. and foreign anti-corruption and anti-bribery laws, are complex criminal issues that combine both written laws and government policies. A well-structured and proactive FCPA compliance will help corporations limit their exposure to fines and other penalties.
Our attorneys regularly advise multi-national corporations and manufacturers on FCPA, anti-corruption and anti-bribery compliance programs, as well as DOJ investigations and prosecutions. For more information contact John F. Renzulli.