What constitutes a bribe under the FCPA? This question was posed to FCPA expert Tom Fox in an interview series by Corporate Compliance Insights. To echo his statements, there are three key criteria to consider: Is there “anything of value” being exchanged? Is there “corrupt intent?” Lastly, is there an attempt to “obtain or retain business?” These terms seem broad, but perhaps some examples from past FCPA violations help to illustrate the point.
The term “anything of value” refers to illegal payments made to foreign officials to influence their decisions on awarding business. In the movies, these payments are often portrayed as cash stuffed into a briefcase. In reality, however, bribes can often come in the form of cash, cash equivalents, gifts, travel and entertainment, payment of medical expenses, or even donations to charitable organizations when there is no legitimate business purpose involved.
Over the past three years, certain industries, such as Oil & Gas and Pharmaceuticals, have had some common illegal payment types. As I mentioned in my last blog, Oil & Gas FCPA violations typically involve the payment of a cash equivalent surcharge or kickbacks to a third-party broker, as in the case of Parker Drilling Company. For Pharmaceutical FCPA violations, it is common to hear about payments for leisure trips made by doctors to visit family or go sightseeing, as in the case of Pfizer. Payments in the form of gifts are fairly common across many industries. In Ralph Lauren’s violation, these gifts included the giving of perfumes, handbags, and apparel to government officials. In Orthofix International’s violation, the gifts (referred to as “chocolates” internally… screwed up, huh?) included the giving of laptops, televisions, and appliances to foreign officials. These bribes, if recorded in the books at all, are often misrepresented as “legal fees,”“business developments fees,” or “donations or grants.”
I know what you’re thinking: “So I’m supposed to tell my employees that ‘anything of value’ can literally mean any payment type, no matter how small?” Well, technically yes, but the key is to focus on whether the payment was made with the intention to promote the business. For example, reasonable travel and expense costs for legitimate business purposes, such as paying for flights and business lunches for officials who want to inspect your facilities, are allowed. However, if the intention is to induce an official to abuse their position by offering them non-business related payments, then that is considered a bribe.
Also, special consideration has to be given to facilitating payments, which are modest payments made to low-level government employees to take care of routine governmental actions, such as processing governmental paperwork or releasing goods held in customs. These payments are allowed, as long as payment is modest and the matter at hand is non-discretionary, meaning the official has the authority to act or not act on the manner. In any case, employees should be advised to consult with the legal department if they are in doubt about a situation.
The FCPA has a wide scope contains very broad restrictions. Therefore, just having an FCPA policy is not enough; employees need FCPA training to provide clarity to terms such as “anything of value” in a complex regulatory environment. In the Stryker case last year, although the SEC acknowledged that Stryker had a corporate anti-corruption policy in place, they alleged that the policy was not adequately implemented at the regional and national levels abroad. Indeed, the SEC emphasized what it described as Stryker’s decentralized structure, which allowed foreign country managers to operate with great autonomy. This case cost Stryker more than $13 million in disgorgement, interest, and penalty.
Based on stories past FCPA violations, we can observe that there are some common red flags employees need to watch out for – expensive expediting fees, no documentation of the payment on the invoice, or paying a third party through an offshore location. Employees need to be made aware, via FCPA training, to keep these situations top of mind.