Long-Awaited FCPA Guidance Offers Clarity But Few Revelations

by Morgan Lewis
Contact

[authors: George J. Terwilliger III, Eric Kraeutler, Eric W. Sitarchuk, Benjamin D. Klein, and Dallas Kaplan]

Interagency guide provides a blend of statutory interpretation, case analysis, and practice recommendations for corporations and their advisors but lacks definitive answers to many FCPA questions.

On November 14, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) released "A Resource Guide to the U.S. Foreign Corrupt Practices Act"[1] (Guidance)—the regulators' long-anticipated guide to the Foreign Corrupt Practices Act's (FCPA's) criminal and civil enforcement provisions.

Although the Guidance—which Assistant Attorney General Lanny Breuer championed as "the boldest manifestation of [the DOJ's] transparent approach to enforcement"[2]—is essentially a nonbinding compilation of past positions taken by the regulators,[3] it does blend statutory interpretation, case analysis, and practice recommendations in a comprehensive and teachable manner. Key Guidance takeaways are summarized below.

Key Takeaways from the Guidance

Definition of "Foreign Official" – Focus on Ownership and Control for "Instrumentalities"

The focus of the Guidance's section on "foreign officials" concerns when a government "instrumentality" constitutes a foreign official for the purposes of the FCPA. The Guidance provides the following assistance for making this determination:

  • Whether a particular entity constitutes an "instrumentality" under the FCPA requires a fact-specific analysis of an entity's ownership, control, status, and function.[4]
  • A nonexclusive list of factors to be considered in determining whether a foreign entity is an "instrumentality," which includes the following:
    • The foreign state's extent of ownership or control of the entity
    • The foreign state's characterization of the entity and its employees
    • The circumstances surrounding the entity's creation
    • The level of financial support by the foreign state[5]
  • No one factor is dispositive, but, as a practical matter, an entity is unlikely to qualify as an "instrumentality" if a government does not own or control a majority of its shares—although past enforcement actions have demonstrated that an entity may qualify as an "instrumentality" even absent 50% ownership by a foreign government.[6]

Gifts and Expenses – Focus on Intent

The Guidance reiterates that the critical element in giving a thing of value is a finding of corrupt intent—the intent to improperly influence a government official.[7] However, the Guidance offers the following new practical guidance as to what gift-giving may be considered corrupt intent:

  • Appropriate gift-giving practices include transparency, proper recordation in the giver's books and records, and gifts that are provided only to reflect esteem and are permitted under local law.[8]
  • Provision of items of nominal value, such as cups of coffee, taxi fare, and company promotional items are unlikely to ever evidence corrupt intent, and neither the DOJ nor the SEC has pursued an enforcement action on the basis of such conduct. Reasonable meal and entertainment expenses, without more, also are unlikely to influence government officials.[9]
  • Examples of improper travel and entertainment expenses include the following:
    • A $12,000 birthday trip for a government decisionmaker from Mexico that included visits to wineries and dinners
    • A trip to Italy for eight Iraqi government officials that consisted primarily of sightseeing and included $1,000 in "pocket money"
    • A trip to Paris for a government official and his wife that consisted primarily of tourist activities and involved a chauffeur-driven vehicle[10]

Charitable Contributions

The Guidance makes clear that charitable contributions are often a hallmark of legitimate community outreach and are not prohibited by the FCPA. Such contributions, however, may trigger scrutiny by regulators. The following are explained in the Guidance:

  • Charitable contributions should not be used as a pretense for funneling bribes to foreign officials or as a vehicle to conceal corrupt payments to foreign officials.[11]
  • Proper due diligence and controls for charitable giving are critical, and, in the past, the DOJ has approved charitable giving in foreign countries where appropriate diligence is implemented.[12]
  • Questions companies should consider when making charitable contributions in foreign countries include, among others, the following:
    • What is the purpose of the payment?
    • Is the payment at the request of the foreign official?
    • Is a foreign official associated with the charity, and, if so, can the foreign official make decisions regarding a company's business in the country?[13]

Affirmative Defenses – Bona Fide Expenditures

The Guidance provides advice regarding both the local law and bona fide business expenditure affirmative defenses, with a particular focus on safeguards that will help to ensure that expenses are appropriate (bona fide). Such safeguards include:

  • Not selecting the particular officials who will participate in the proposed trip or program, or selecting them using predetermined, merit-based criteria
  • Paying all costs directly to travel and lodging vendors and/or reimbursing costs only upon presentation of a receipt
  • Not advancing funds or paying for reimbursements in cash[14]

Corporate Liability – Parents, Successors, and Agents

The Guidance provides a lengthy discussion of corporate liability and reaffirms the regulators' long-held positions that general principles of corporate criminal and civil liability apply to the FCPA, including principles of successor liability and agency liability under a theory of respondeat superior. Highlights of these discussions include the following:

  • Proof of "willfulness" is not required to establish corporate criminal or civil liability, although proof of corrupt intent is.[15]
  • A company will remain liable for the acts of its agents, including employees, for acts undertaken within the scope of their employment and intended, at least in part, to benefit the company.[16]
  • Regulators have taken action in the past against successors in interest generally in cases involving egregious and sustained violations or where the successor company directly participated in the violations or failed to stop them from continuing postacquisition.[17]

In listing what is critical to determining successor liability, the Guidance places emphasis on preacquisition due diligence adequately designed to detect improper conduct and implement remedial steps to ensure that such conduct does not continue.[18]

Payments to Third Parties

The Guidance reiterates that corrupt payments made to third parties or intermediaries are prohibited under the FCPA and provides that common red flags include excess commissions to third parties, unreasonably large discounts to distributors, "consulting agreements" that only vaguely describe the terms of service, and third parties that are closely affiliated with a foreign government official.[19]

The Guidance emphasizes the need for appropriate due diligence and vetting before engaging third parties. Guiding principles for such programs include the following:

  • Companies should understand the qualifications of their third-party business partners, including their reputations and relationships with government officials.
  • Companies should have an understanding of the business rationale for including the third party, including its role and the services to be performed, and ensure their payment terms compare to typical terms in the industry and country.
  • Companies should monitor third-party relationships, such as by updating due diligence, exercising audit rights, providing training, and requesting annual compliance certifications.[20]

Hallmarks of Effective Compliance Programs

The Guidance emphasizes the importance of effective anticorruption compliance programs and notes that regulators often consider the adequacy of a company's program when determining what action, if any, to take. Recognizing there is no "one size fits all" approach,[21] a message that was recently reinforced by Kara Brockmeyer, the chief of the SEC's FCPA Unit, and Charles Duross, the deputy chief of the DOJ's Fraud Section,[22] the Guidance provides a list of elements for an effective program:

  • Commitment from senior management and clearly articulated policy against corruption[23]
  • An updated code of conduct and compliance policies and procedures that outline internal control requirements, audit practices, and disciplinary procedures[24]
  • Dedicated executives with oversight responsibilities of the compliance program who are vested with sufficient authority, autonomy, and resources to ensure the program is implemented effectively[25]
  • Programs that may be tailored for relative risk of a given transaction[26]
  • Steps to ensure relevant policies and procedures have been communicated, including through periodic training for employees and business partners[27]
  • Implementation through appropriate disciplinary procedures and incentives for ethical and lawful behavior[28]
  • Third-party due diligence and the extent to which third parties and agents are informed of the company's program and commitment to ethical conduct[29]
  • Mechanism for confidential reporting and effective procedures for investigating whistleblower tips when made[30]
  • Programs that evolve and are updated based on the company's business model, its industry, and the environment in which it operates[31]

In addition to these hallmarks, the Guidance also endorses compliance program advice issued by other federal agencies, including the U.S. Departments of Commerce and State, as well as those published by international agencies and multinational organizations.[32]

Declinations Decisions – Real-World Examples

One of the Guidance's distinctive features is its presentation of six anonymized cases in which regulators declined to take enforcement action.[33] In each of those cases, the companies in question either self-reported the offending conduct or voluntarily disclosed that the conduct had occurred. In addition, all of the companies conducted thorough internal investigations, revised their compliance programs, and proactively remediated the violations by terminating employees, severing third-party relationships, and/or withdrawing bid proposals. In several of the cases, declinations were attributed in part to existing robust compliance programs and effective internal controls.

For further discussion on the highlights discussed above, as well as analysis of the Guidance's impact on FCPA reform efforts and recent FCPA actions, please visit http://www.morganlewis.com/pubs/SummaryDOJ-SECResourceGuidetoFCPA.pdf.

Morgan Lewis's White Collar Practice

Morgan Lewis's national and international White Collar Practice features dozens of former prosecutors and former high-level government officials whose experience representing companies and individuals covers a broad array of substantive white collar and government enforcement areas, including, among others:

  • Antitrust
  • Congressional investigations
  • Environmental
  • False Claims Act
  • FCPA
  • Financial fraud
  • Healthcare fraud
  • Industrial accidents and workplace safety
  • Import/export regulations
  • Money laundering
  • Qui tam
  • Securities fraud/SEC enforcement
  • Tax

If you have any questions regarding this LawFlash, or require assistance with any issue relating to the defense of a government enforcement matter, please contact any of the authors, George J. Terwilliger, III (202.739.5988; gterwilliger@morganlewis.com), Eric Kraeutler (215.963.4848; ekraeutler@morganlewis.com), Eric W. Sitarchuk (215.963.5840; esitarchuk@morganlewis.com), Benjamin D. Klein (202.739.5394; bklein@morganlewis.com), or Dallas Kaplan (202.739.5407; dkaplan@morganlewis.com), or any of our white collar practitioners:


[1]. Crim. Div. of the U.S. Dep't of Justice & Enforcement Div. of the U.S. Sec. & Exch. Comm'n, A Resource Guide to the U.S. Foreign Corrupt Practices Act (Nov. 14, 2012), available here [hereinafter FCPA Guidance]. See also U.S. Dep't of Justice, A Resource Guide to the U.S. Foreign Corrupt Practices Act Fact Sheet (Nov. 14, 2012), available here.

[2]. Lanny A. Breuer, Assistant Attorney Gen., U.S. Dep't of Justice, Remarks at the American Conference Institute's 28th National Conference on the Foreign Corrupt Practices Act (Nov. 16, 2012), available here.

[3]. A disclaimer on an unnumbered page toward the front of the Guidance reads, in relevant part, as follows:

[The Guidance] is non-binding, informal, and summary in nature, and the information contained herein does not constitute rules or regulations. As such, it is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, that are enforceable at law by any party, in any criminal, civil, or administrative matter. It is not intended to substitute for the advice of legal counsel on specific issues related to the FCPA. It does not in any way limit the enforcement intentions or litigating positions of the U.S. Department of Justice, the U.S. Securities and Exchange Commission, or any other U.S. government agency.

[4]. FCPA Guidance, supra note 1, at 20.

[5]. Id.

[6]. Id.

[7]. Id. at 15.

[8]. Id.

[9]. Id.

[10]. Id. at 16.

[11]. Id. at 18, 19.

[12]. Id. at 19.

[13]. Id.

[14]. Id. at 24.

[15]. Id. at 14.

[16]. Id. at 27.

[17]. Id. at 28.

[18]. See id. at 28, 62.

[19]. Id. at 22.

[20]. Id. at 60.

[21]. Id. at 57.

[22]. Kara Brockmeyer, Chief, Foreign Corrupt Practices Unit, U.S. Sec. & Exch. Comm'n. & Charles Duross, Deputy Chief, Foreign Corrupt Practices Unit, U.S. Dep't of Justice, Panel Discussion at the American Conference Institute's 28th National Conference on the FCPA: The U.S. DOJ and SEC Speak on the Key FCPA Cases of 2012 and Current Enforcement Priorities (Nov. 15, 2012).

[23]. FCPA Guidance, supra note 1, at 57.

[24]. Id. at 58.

[25]. Id.

[26]. Id. at 59.

[27]. Id.

[28]. Id. at 59–60.

[29]. Id. at 60.

[30]. Id. at 61.

[31]. Id. at 62.

[32]. Id. at 63.

[33]. Id. at 77–79.

 

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.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis
Contact
more
less

Morgan Lewis 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!