Confusing “Guidance” from DOJ and SEC on Third Party Liability

by Michael Volkov
Contact

http://corruptioncrimecompliance.com/wp-content/uploads/2012/11/imagesCAAQ2Q0H.jpgThe FCPA Guidance is a terrific contribution to FCPA law and policy.  I have the utmost respect and admiration for the DOJ and SEC professionals who enforce this law.  They are true public servants. 

A testament to the importance of the FCPA Guidance is the absence of any meaningful or persuasive criticism of the FCPA Guidance.  Of course, the FCPA Paparazzi will try and strike fear in the hearts of corporate counsel and compliance officers in a misguided effort to “market” legal services.  FCPA bloggers sometimes confuse “commentary” with agenda-driven interpretations and analysis.  Criticisms are not persuasive unless grounded in an accurate interpretation of the law. 

In this context, I turn to the FCPA Guidance on third party liability.  Initially, there is nothing that strikes me as “wrong” or in error in the portions of the guidance explaining the law as it applies to third party liability.  The description is fair and accurate and the list of “red flags” is also helpful (see FCPA Guidance at pp. 21-23).

My concern is later in the FCPA Guidance (pp. 31-32) in Scenario 1 which involves potential successor liability for third-party conduct in the acquisition of a company not previously subject to the FCPA. 

Specifically, the situation involves Company A’s due diligence prior to the acquisition of a Foreign Company in which it discovers that Foreign Company has made “potentially improper payments” in the form of excessive commissions to a third party agent related to a government contract. 

The FCPA Guidance blesses Company A’s decision to disclose the “potentially improper payments,” to suspend and terminate the employees involved, and the third-party agent and makes sure that the payments have stopped. 

Perhaps I am being hyper-technical here, but the FCPA Guidance confuses the difference between a red flag and a violation of the FCPA.  The payment of “excessive commissions” to a third party is certainly a red flag but without any evidence that the third party made, promised or attempted to make an illegal bribe to a foreign official, no violation has occurred.  It may be bad business to pay excessive commissions but it is not a violation of the FCPA.  A red flag is not a violation of the law but, if unaddressed, it can expose a company to liability if a bribe is subsequently paid.   

The distinction is made even clearer in Scenario 2 on page 31 of the FCPA Guidance in which Company A learns post-closing that Foreign Company’s sales revenues depended on payment of excessive commissions to a third party agent “to make the right person happy at Foreign Government Agency” and that such payments have to continue in order for Company A to retain the business under the contract.  

Under Scenario 2, and in contrast to Scenario 1, there is evidence cited in the hypothetical that the third party agent made payments to a foreign official to retain business, and that the scheme continued after the acquisition so that Foreign Company’s business did not suffer.

Maybe I am making a mountain out of a molehill but it is important to focus on what the FCPA prohibits.  A criminal violation of the FCPA requires proof beyond a reasonable doubt of an offer to pay, a payment, a promise to pay, or an authorization to pay money or anything of value to a “foreign official.” 

In the absence of proof that a third party made such an offer, a payment or promised to pay money or anything of value to a foreign official (with corrupt intent to induce the foreign official to act contrary to his or her official responsibilities, in order to obtain or retain business), the payment of an “excessive commission” to a third party agent does not violate the FCPA.    

To the extent that the FCPA Guidance suggests otherwise, it should be corrected or clarified.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

Written by:

Michael Volkov
Contact
more
less

The Volkov Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!