LEGAL ALERT – Were Our Predications Correct? Reviewing DOJ’s Guidance Regarding the Foreign Corrupt Practices Act

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On November 8, 2012, we opined in the Global Connection as to what to expect from the anticipated Department of Justice (DOJ) and Securities Exchange Commission (SEC) guidance in regard to the Foreign Corrupt Practices Act (FCPA). Six days later, on November 14, 2012, DOJ finally issued A Resource Guide to the U.S. Foreign Corrupt Practices Act (Guide). Upon request, Snell & Wilmer will provide you a bound copy of the Guide along with the firm’s recent FCPA enforcement articles from its experienced team of former U.S. Attorneys, federal and state prosecutors, and military prosecutors.

First, the Guide is just that, a guide. Only Congress can initiate revisions to federal statutes. Therefore, at the end of the day, the FCPA still establishes detailed accounting and recordkeeping standards to prevent (and punish) bribery activities. An FCPA offender may still be punished up to $2 million and five years in jail. The Guide only provides clarification as how the DOJ and the SEC will enforce the FCPA. This clarification is meant to allow businesses and individuals a better sense as to how to conduct honest international trade.

In our last article, we hypothesized that the Guide would be more detailed than the “Lay Person’s Guide,” but that the guidance would still require a reader to be versed in legalese and FCPA compliance to decipher. In all fairness, the Guide is written for the layman and is easy to read. However, the Guide makes passing references to certain cases (without citations) and other consent agreements that need to be appreciated on case specifics. Therefore, to understand the context of these case examples, a business is required to delve further into the analysis, rather than relying on the Guide’s interpretation of those cases.

Although not unpredictable, we also suggested previously that the Guide would reinforce the DOJ’s and SEC’s heightened FCPA enforcement environment. The Guide spends a great deal of time on the current environment and the possible punishments associated with the failure to comply with the FCPA (and related laws, such as the Travel Act, anti-money laundering statutes, fraud laws and export controls).

In regard to our prediction that the Guide would highlight multi-jurisdictional cooperation in regard to investigations and cooperation of bribery allegations, we were “half” correct. The Guide primarily concentrated on the inter-agency efforts at the federal level. The Guide did not reference local coordination at the individual state or municipal level, especially in regard to parallel local laws that prohibit bribery.

Further, although the Guide gave a concise background on the international agreements that the United States has ratified and how the United States rates under the review sections of these agreements, the Guide did not discuss the coordination occurring at the front-line enforcement and prosecutorial level. However, based on recent cases, it is clear that DOJ is actively working with its foreign law enforcement agencies to investigate bribery. Thus, if a business agent is “questioned” in a foreign country, it is possible that the United States law enforcement is also working on the matter and may be invited as a “guest” to participate in meeting.

As expected, the Guide did provide a more clear definition of “Foreign Official.” In our article, we were hopeful that the Guide would provide specific examples, e.g., sovereign wealth funds, healthcare facilities, etc. But, other than references to past enforcement cases dealing with utilities, the telecommunications industry, and oil industry, the Guide did not provide an exhaustive list. Rather, the Guide provides a long list of “factors” that will go into determining that the “Foreign Official” was actually an agent of a foreign government. In addition to highlighting the broad scope of who qualifies as a “Foreign Official,” the Guide reiterated that donations to governments generally (i.e., community impact donations, etc.) are not actually used for the personal benefit of a “Foreign Official.” Further, the Guide also took the opportunity to actually define other terms, including “corruptly,” “willfully,” and “anything of value.” These are key terms that businesses have grappled with in attempting to comply with the FCPA.

Unfortunately, the Guide did not explicitly announce that DOJ would relax successor liability enforcement (i.e., punishment) so long as the acquiring company aggressively integrates the acquired company into its compliance program and voluntarily reports any violations. Rather, the Guide encouraged such actions and referenced prior cases where the acquiring company received a reduced punishment (civil and criminal) because of these efforts.

But, the Guide did provide several hypotheticals and practical tips on addressing and minimizing successor liability. For example, although not highlighted by our forecasting article, the Guide specifically highlighted the need for due diligence prior to the acquisition to minimize successor liability. Although, surprisingly, only briefly mentioned in the successor liability discussion (but, still discussed procedurally elsewhere), it appears that utilization of DOJ’s “opinion” request option before an acquisition occurs could limit such liability.

As expected, DOJ did not discuss the voluntary disclosure process. Unlike other agencies, such as DDTC, OFAC and BIS, there is no specific guidance on what type of information should be disclosed to the SEC or DOJ. Further, although only (cursory reiterating) several times that a voluntary disclosure “may” result in mitigation, there is still no guarantee at a reduced civil or criminal penalty. Simply, the level of egregious behavior and the businesses’ response (and timely report) will be the driving factors as to investigation, civil and/or criminal enforcement and eventual penalty. However, as referenced in our previous article, a recent study revealed that there were no tangible benefits in regard to such voluntary disclosure when compared against punishments to companies and individuals who did not disclose.[1]

As expected, the Guide did reiterate the need for a compliance program and it did specifically highlight, without quantifying, the punishment mitigation potential by having such a program. However, the Guide falls short of providing an actual affirmative defense to any FCPA violation. As we referenced previously, to effectuate an actual affirmative defense, there would need to be a statutory revision or regulatory notice period.

As we expected in our previous forecast, the Guide did reference several “best practices” for a business to comply with the FCPA, to include a written policy, training, “standards of conduct” clauses in all agreements, accounting procedures and regular audits. Further, the Guide references several other sources that discuss “best practices,” to include sources from the World Bank, United Nations, International Chamber of Commerce and Transparency International. Thus, any compliance program will not only need to meet the “best practices” of the Guide, but also these other references to ensure maximization of any mitigation potential.

Finally, the Guide drives home the need for businesses to conduct risk assessments and monitor regularly whether there have been changes to that risk assessment. For example, as explained by the Guide, a risk assessment for a hotel company with properties solely in the United States and which only purchases in the United States would lead to the conclusion that little to no risk of FCPA violations. On the other hand, a hotel company with properties in China and Mexico, for example, which purchases new hotel properties in China and Mexico and/or also purchases products from throughout the world, would have a high risk of FCPA violations. Likewise, a hotel company that was solely domestic in the United States, but decides to expand internationally should engage in a new risk assessment.

The Guide does not change the current enforcement and compliance environment regarding foreign transactions. However, as we have stated previously, it is important for businesses and individuals who continue to take advantage of global opportunities to review the Guide, and referenced secondary sources, and ensure that all foreign transaction policies are updated and reiterated.

The Guide is a valuable resource that should be a part of any legal, compliance, or accounting department of a company doing business internationally. If you are interested in receiving a free copy of the bound Guide with additional reference material, please contact Brett Johnson at bwjohnson@swlaw.com or 602.382.6312.

[1] Choi, S. and Davis, K. (Jul. 2012), Foreign Affairs and Enforcement of the Foreign Corrupt Practices Act, NYU School of Law, Public Law Research Paper No. 12-35.

Topics:  Compliance, DOJ, FCPA, FCPA Resource Guide, SEC

Published In: Administrative Agency Updates, General Business Updates, Criminal Law Updates, International Trade Updates, Securities Updates

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.

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