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Criminal Litigation

Foreign Corrupt Practices Act 101

By Felicia C. Quentzel – December 11, 2014


The Foreign Corrupt Practices Act (FCPA) is a U.S. law that (1) prohibits corrupt payments to foreign officials (the “anti-bribery provisions”); (2) requires companies with securities traded on U.S. exchanges to maintain accurate books and records (the “books and records” provision); and (3) requires those companies to implement and maintain adequate internal controls over financial operations (the “internal controls” provision). The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) share joint enforcement power over the FCPA.


Anti-bribery provisions. The FCPA’s “anti-bribery provisions,” which are found at 15 U.S.C. §§ 78dd-1, 78dd-2, and 78dd-3, prohibit corrupt payments made to foreign officials to obtain or retain business. Corrupt payments are those payments made with the intent to wrongfully influence the recipient. While the value of the gift may be relevant, it is not determinative. Rather, the purpose of the payment is the relevant consideration under the FCPA. The term “to obtain or retain business” has also been broadly construed. For example, the DOJ and SEC have recently taken enforcement action against companies that offered bribes to obtain customs clearance, permit approval, and other government benefits.


Accounting provisions. The FCPA’s “books and records” and “internal controls” provisions are generally considered easier to enforce than the anti-bribery provisions. These provisions are found at 15 U.S.C. § 78m and require issuers to keep and maintain accurate financial records and to implement internal controls that are sufficient to prevent fraud.


Exceptions and affirmative defenses. In recent years, the DOJ and SEC have taken an aggressive approach with respect to their enforcement power. However, there are recognized limits to this authority. The FCPA contains a “facilitating payments” exception, which exempts from FCPA enforcement “payments to secure routine governmental action.” In addition, there are two recognized affirmative defenses that apply in FCPA enforcement actions: (1) when the improper payments are considered lawful under the laws of the recipient’s country, and (2) when the payments constitute reasonable business expenses.


FCPA Enforcement


FCPA guidance. On November 14, 2012, the DOJ and SEC jointly released a guidance titled FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act. The guidance contains multiple illustrative examples and hypotheticals, as well as a comprehensive digest of relevant FCPA case law and enforcement actions. In addition, the guidance provides illustrations and hypotheticals to assist companies in determining what limitations to impose on travel expenses, entertainment expenses, and gifts in order to maintain compliance. The guidance also largely confirmed that the DOJ and SEC will continue to take an aggressive stance in FCPA enforcement actions.


Definition of “foreign official.” As confirmed in the guidance, the DOJ and SEC have become increasingly aggressive in their FCPA enforcement, particularly with respect to their broad interpretation of the term “foreign official.” For example, in addition to “foreign officials,” the FCPA also applies to payments to foreign political parties, party officials, and candidates for office. In fact, the DOJ and SEC have even recognized that the FCPA applies to employees of an instrumentality of a foreign government.


Jurisdiction. The DOJ and SEC have also taken an aggressive stance with respect to their extraterritorial enforcement power. The DOJ and SEC have taken the position that they can assert jurisdiction over U.S. individuals and businesses, as well as U.S. and foreign-based issuers, for any use of interstate commerce that furthers a corrupt payment to a foreign government official. According to the DOJ and SEC, such jurisdiction can be established through the mere act of sending an email or text message from or to the United States. In addition, the DOJ and SEC have made clear that they can even assert jurisdiction over non-issuer foreign individuals and entities as long as the individuals or entities engage in some act in furtherance of a corrupt payment while inside the United States.


Penalties. Violations of the FCPA can lead to criminal, civil, or administrative enforcement actions. In the past several years, FCPA cases have resulted in the largest criminal and civil penalties ever assessed against companies for FCPA violations. The adequacy of a company’s ethics and compliance program is one of the factors that the DOJ and SEC consider when deciding whether, and to what extent, disciplinary action should be taken against the company. Therefore, companies should implement and maintain robust compliance programs to avoid excessive penalties. The cases below are just some of the examples of the excessive penalties some companies have paid in recent years to settle criminal and civil FCPA charges.


In December 2008, Siemens AG and three of its subsidiaries agreed to pay a combined criminal penalty of $450 million to the DOJ to resolve FCPA charges, the largest FCPA-related monetary penalty ever assessed against a company. Siemens also agreed to pay $350 million in disgorgement of profits to the SEC to settle civil FCPA charges arising from the same conduct. Similarly, in March 2010, BAE Systems plc agreed to pay a $400 million criminal penalty to the DOJ to resolve criminal FCPA charges. In May 2013, Total S.A. agreed to pay a $245 million monetary penalty to the DOJ and an additional $153 million in disgorgement and prejudgment interest to the SEC to settle criminal and civil FCPA charges.


Conclusion

As illustrated by recent enforcement actions, the DOJ and SEC have been increasingly aggressive in their enforcement of potential FCPA violations. While the joint DOJ and SEC FCPA guidance resolved some of the ambiguity surrounding FCPA enforcement, it broke little new ground and largely maintained the status quo. Therefore, as long as the FCPA remains one of the government’s top enforcement priorities, practitioners should not expect the DOJ and SEC to impose limits on their ability to ensnare conduct all over the world.


Keywords: criminal litigation, FCPA, anti-bribery, SEC, DOJ, extraterritorial enforcement


Felicia C. Quentzel is with McKenna Long & Aldridge LLP in Washington, D.C.


 
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