U.S. Government Issues Guidance on Foreign Corrupt Practices Act

by McDermott Will & Emery

[authors: Obiamaka P. Madubuko, Michael S. Stanek, and Jennifer R. Taylor]

The resource guide issued by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) on November 14, 2012, addresses important topics for those doing business across the globe.  This new guidance does not alter the DOJ and SEC’s focus on aggressively pursuing Foreign Corrupt Practices Act anti-bribery and accounting violations, so companies must continue to focus on maintaining a robust compliance program and assessing risk worldwide.

On November 14, 2012, the Criminal Division of the U.S. Department of Justice (DOJ) and the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) issued a resource guide for the Foreign Corrupt Practices Act (FCPA) (the Guidance).  This long-awaited Guidance from the DOJ and SEC addresses a number of important topics for those doing business across the globe.  While much of the Guidance is not a departure from the positions taken by the U.S. government in recent cases, it does represent a helpful resource and tool to which companies can refer when analyzing their own FCPA risk and the government’s view on FCPA compliance.

The Current FCPA Enforcement Landscape

Enacted in 1977, the FCPA prohibits the bribery of foreign officials.  Enforcement of the FCPA remained largely dormant for many years, but in the past decade, FCPA enforcement has dramatically increased.  For example, financial sanctions imposed by the SEC and DOJ have exceeded $500 million in each of the last four years, culminating in record-breaking sanctions of more than $1 billion in 2010.  Given the aggressive enforcement environment in the United States, the lack of clarity in the statutory law and a relative dearth of case precedent (as most FCPA cases are resolved through settlement rather than by the courts), there was a great need for additional clarity from the DOJ and SEC. 

New Guidance Explained

The Guidance is broad in scope and offers no revolutionary shifts in FCPA interpretation or enforcement.  It explains the government’s position on jurisdictional questions, such as who may be subject to the FCPA, and describes the FCPA’s key provisions.  It also provides numerous case references and hypothetical scenarios to address various FCPA compliance issues, such as FCPA due diligence, facilitation payments, cooperation credit and successor liability. 

Below is a brief summary of some of the many topics addressed in the 120-page Guidance.  Click here for a complete copy of the Guidance.

FCPA Jurisdiction

The Guidance reminds us of the FCPA’s broad reach.  For example, making a phone call or sending an e-mail to or from the United States as it relates to a corrupt payment scheme may be enough to trigger the FCPA jurisdictional nexus requirement. 

Prosecuting Foreign Non-Issuers and Individuals Under Aiding & Abetting and Conspiracy Charges

The Guidance explains that in FCPA conspiracy cases, the United States generally has jurisdiction over all the conspirators where at least one conspirator is an issuer or domestic concern, or commits a reasonably foreseeable overt act within the United States.  That means that foreign nationals and companies may be prosecuted for agreeing to commit an FCPA violation even if they could not be independently charged with a substantive FCPA violation.

Unfair Business Advantage

The Guidance clarifies that an “unfair business advantage” is the payment of bribes to secure commercial advantages, such as favorable tax treatment, reduction or elimination of customs duties, government action to prevent competitors from entering a market, or circumvention of a licensing or permit requirement. 

Reasonable and Monitored Gifts and Hospitalities

The Guidance indicates that the DOJ and SEC expect larger companies to develop and implement gift-giving rules and policies with clear monetary thresholds and annual limits.  Reasonable business courtesies and expenses, such as providing business class airfare as it relates to travel for a legitimate business purpose, or limited entertainment and meal expenses, are permissible.

Facilitation Payments a Narrow Exception

The Guidance explains that the FCPA has a narrow exception for “facilitating or expediting payments” made in furtherance of routine governmental action.  This exception applies only when a payment is made to further “routine governmental action” that involves non-discretionary acts, such as processing visas; providing police protection or mail service; and supplying utilities such as phone service, power and water.  Routine government action does not include a decision to award new business or to continue business with a particular party, or to make discretionary decisions that would constitute misuse of an official’s office (e.g., paying an inspector to overlook the lack of a valid permit or necessary license). 

“Foreign Official” and “Instrumentality of Foreign Government” Definition

The Guidance emphasized that employees and officers of state-owned or controlled entities are considered “foreign officials” for FCPA purposes under the “instrumentality of a foreign government” category.  Entities will be considered an “instrumentality of a foreign government” if government control is 50 percent or greater, or if the government retains or exercises “control” over the organization at issue.  Factors to consider in this determination include the following:

  • Degree of control (including where officers and directors come from, and who appoints them)
  • The foreign state’s characterization of the entity and its employees
  • The circumstances of the entity’s creation
  • The purpose of the entity’s activities
  • The exclusive or controlling power vested in the entity to administer its designated functions
  • The level of financial support by foreign state (e.g., through subsidies, special tax treatment, government fees, loans and direct budgetary support)
  • The entity’s provision of services to the jurisdiction’s residents
  • Whether the governmental end or purpose is expressed in the policies of the foreign government
  • The general perception that the entity is performing official or governmental functions

Economic Coercion 

Situations involving extortion or duress where there is an imminent threat of physical harm will not give rise to FCPA liability, because such payments cannot be said to have been made with a corrupt intent.  However, the Guidance goes on to explain that mere economic coercion (such as a demand by a government official for gaining entry into a market) does not amount to extortion and is barred by the FCPA.  Thus, arguments that it is impossible to do business in Country A without paying bribes, or that “everyone does it,” are not proper defenses to an FCPA violation.

FCPA Due Diligence 

The Guidance reminds entities of the importance of conducting risk-based due diligence on third parties and in cross-border M&A deals and foreign joint ventures.  The Guidance states that the U.S. government expects companies to assess a number of factors in determining whether heightened FCPA-related due diligence is appropriate, including whether the market is a high-risk country, the size and significance of the deal to the company, whether the company has experience and a comfort level in dealing with a proposed third party, a consultant’s ties to political and government leaders, the fee structure of the contract and the degree of vagueness of the services to be provided.

Limitation on Successor Liability

The Guidance notes that parent companies will not face FCPA successor liability in cases where the DOJ or SEC would have lacked jurisdiction over a target company’s conduct.  While successor liability remains a concern for U.S. companies acquiring foreign assets, and this portion of the Guidance appears to limit FCPA liability under certain circumstances, it should be noted that the Guidance framed this issue in the context of a hypothetical where the acquiring company undertook extensive pre-deal due diligence and self reported the violations to the government. 

Successful Compliance Programs’ Effects, Self-Reporting and Cooperation Credit 

The government acknowledges that the effectiveness of a company’s compliance program is a significant factor in reaching a settlement.  The effectiveness of a compliance program can determine whether a deferred prosecution agreement (DPA) or non-prosecution agreement (NPA) is appropriate.  Effective compliance programs can also reduce the fine amount and affect the determination of whether the government will require a corporate monitor.  The Guidance encourages companies to self-report FCPA violations they uncover, because the government places a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA matters.


As the breadth of the government’s Guidance indicates, FCPA enforcement will remain an important enforcement priority for DOJ and the SEC.  The new Guidance will not alter or limit the DOJ and SEC’s focus on aggressively pursuing FCPA anti-bribery and accounting violations.  Companies must continue to focus on maintaining a robust compliance program and must continually assess risk worldwide.  Companies—both U.S. and international—must be prepared to promptly and appropriately react to anti-corruption law red flags and potential violations or weaknesses.


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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