Blog fcpa 4 28-2014

Copyright © IntegTree (2014)www.IntegTree.com

Anti-Corruption:The Foreign Corrupt Practices Act

Dr. Nitish Singh & Thomas J. Bussen (J.D./MBA)E-mail: [email protected]

http://www.integtree.com/

mailto:[email protected]


Introduction

• This presentation summarizes the Three Part Series on the FCPA released by The Ethics & Compliance Professors.

• View the first paper by clicking here. To access Parts Two and Three, join our complementary subscribers list by clicking here.


http://www.ethicsresources.org/

http://www.ethicsresources.org/fcpa-announcement-part-one/

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An FCPA Overview

• The Foreign Corrupt Practices Act (FCPA) prohibits the bribery of a Foreign Official.

• Enforcement of the FCPA is up, way up. This includes not only fines, but also jail sentences.

• FCPA violations may be brought concurrently with other claims.

• Understanding how the FCPA is interpreted and applies in practice is therefore essential.



Prominent FCPA Cases

Selected Settlements in overseas bribery cases since 2008:– Siemens A.G. fined $1.2 billion by US and EU– Kellogg, Brown and Root LLC fined $579 million– BAE fined $400 million– Alcoa fined $384 million in 2014



Who is Subject to the FCPA

• The anti-bribery provisions apply to “issuers”, “domestic concerns”, and any “person” that bribes a foreign official.– Issuers: Companies registered with the SEC or foreign

companies with shares on the US stock exchange. – Domestic concerns: Virtually any business operating in the

United States. – Persons: Anybody, including foreign corporate concerns, whose

corrupt act occurs, in any part, within the United States. • Cases are regularly brought against U.S. & foreign

corporations and individuals



When is a Payment a “Bribe”?

• The FCPA applies only to payments intended to induce or influence a foreign official to improperly use her position “to assist ... in obtaining or retaining business for or with, or directing business to, any person.”

• The corrupt act need not actually succeed, so long as the requisite intent is present.

• And executives who authorize others to do their bidding – a “pay whoever you need to, but don’t tell me about it” mentality– may be liable even if such a bribe is not paid.



What is a “Foreign Official”

• A foreign official includes any employee of a foreign government or department thereof. But it also includes “instrumentalities” of a foreign government. – Instrumentalities: Many states own or control

companies within the country either wholly or in part. Where the state exercises control over the company, employees thereof are foreign officials.



Exceptions to the FCPA

• The “Facilitating payment” defense: Grease payments, as they’re also known, facilitate the performance of a routine governmental action by a foreign official. – This “narrow exception” only applies to non-discretionary

acts such as obtaining permits, telephone service, water or power.

– Erroneously relying on the facilitating payment exception is a prominent danger to companies.

• A payment made in response to a threat to one’s physical safety is not considered a FCPA violation



Actions Subject to Additional Scrutiny:Gift Giving

• A gift is, by definition, provided without expectation for reciprocal treatment.– But if the “gift” is intended to improperly influence a

governmental official, it is a bribe. • This is true regardless of the size of the gift

• An area of particular risk is in those countries where corruption and a culture of gift giving are both present.

• Consider requiring that employees receive express consent from an authorized individual prior to providing a gift on behalf of your organization



Actions Subject to Additional Scrutiny:Charitable Giving & Due Diligence

• Charitable giving is permissible as long as it is not done with intent to improperly influence a government official.

• In some cases, individuals abroad may set up sham charities to funnel money for their own purposes. – Companies may engage in due diligence to ascertain the legitimacy

of the charity to which contributions are made.– Due diligence investigations may include a review of the

organization’s ownership, management structure and operations. • Identify whether any owners or managers are governmental officials, or

close friends or family of officials, such that there may be an improper relationship.

• Consider requesting key corporate documents, including access to books and records.



Actions Subject to Additional Scrutiny:Third Party Risks

• The vast majority of FCPA cases involve conduct by third parties, including agents operating on behalf of a company, partners, and acquisition prospects



Actions Subject to Additional Scrutiny:Third Party Agents & Due Diligence

Areas of inquiry and red flags. Determine whether the third party agent:

• Has a history of improper payment practices, or a criminal history.• Does not have in place an adequate compliance program or refuses to certify compliance and/or

allow audit clauses in contracts. • Fails to provide verifiable information about its services or principles.• Provides lavish gifts or hospitality to leads/contacts.• Is in a different line of business than that for which it has been engaged, lacks experience in the field

or industry, or is inadequately staffed to perform the work.• Provides a vague plan for performing the work or suggests a reliance on contacts or relationships.• Demands a fee, commission or volume discount which is unusually high compared to the market

rate, is based on a success fee or bonus, or the third party requests an unusual advance payment.• Offers to submit or submits inflated, inaccurate or suspicious invoices.• Requests unusual payment structures, such as cash, cash equivalent or bearer instrument

payments, or payment to an offshore financial center, a third party (including to a charity), or a shell company.



Actions Subject to Additional Scrutiny:Foreign Company Acquisitions & Due Diligence

Consider the following prior to acquisition:• Review company’s sales and financial data,

customer contracts, and third-party and distributor agreements;

• Perform a risk-based analysis of customer base; • Perform an audit of selected transactions engaged

in by company; and • Ascertain compliance efforts and any corruption

issues that surfaced over the past 10 years.



Why Do You Care?• The law is unsettled in many areas and enforcement is a serious

threat.• The last five years have seen more cases brought under the FCPA

than in all previous years combined• Companies face criminal and civil penalties, and private lawsuits, as

well as the loss of licensure to contract with the Federal government, export products, and more.

• Companies may face lawsuits abroad if found liable under the FCPA (as with Siemens A.G.). Corruption is illegal in every country, and several countries have regulations similar to the FCPA

• To be found liable under the FCPA, the corrupt act need not actually succeed in its purpose. Mere intent will suffice.



What Can You Do to Comply?• Put in place internal controls to monitor your

worldwide transactions• Audit your organization's risk exposure based on

areas and industries of operation.• Train your workforce to recognize and avoid FCPA

violations, and to report observed violations. • Train your workforce on the intricacies of the

FCPA and the most commonly misunderstood aspects, including the permissible exceptions to payments of foreign officials.



About the Author

• Thomas (JD/MBA/Certified in Ethics and Compliance) is the VP of IntegTree and Adjunct Faculty at St. Louis University's Cook School of Business. He honed his skills working as a trial lawyer for an AV Rated law firm. As Co-Instructor for St. Louis University’s Certificate in Compliance and Ethics, Thomas works with lawyers and executives from around the world. Look for his forthcoming book, co-authored with Dr. Nitish Singh, Compliance Management: A How to Guide for Executives, Lawyers and Other Compliance Professionals.

• IntegTree specializes in the worldwide localization of ethics and compliance programs, regulatory and ethical training, and psychometric testing to provide deep insights to improve existing compliance programs.


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Disclaimer:

• This material is confidential and proprietary to IntegTree LLC and may not be reproduced, published or disclosed to others without the express authorization of IntegTree LLC. IntegTree LLC is not a law firm and is not engaged in providing legal or other similar professional advice or services. In providing our services, IntegTree LLC attempts to provide its clients with “effective practices” in light of then-current laws and/or regulations. IntegTree’s services should not replace advice from your in-house or outside counsel or their opinions concerning company practices.


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