Ten Things That Everybody Knows About The Foreign Corrupt Practices Act ― And That Aren’t So!

Ten Things That Everybody Knows AboutThe Foreign Corrupt Practices Act

― And That Aren’t So!

Simeon M. KriesbergMayer, Brown, Rowe & Maw LLP

Washington, [email protected]

May 23, 2006

Introduction• Twain: “It Ain’t What You Don’t Know that

Gets You Into Trouble. It’s What You Know for Sure that Just Ain’t So.”

• Worst Case: You are Guided by Your Misconceptions.

• Best Practices: You are Guided by Sound Knowledge of What the Law Says and How It is Applied.

• Ten Common Misconceptions about the FCPA that Can Cause Real Trouble.

1

1. The FCPA is an Antibribery Statute.• Apart from Antibribery Provisions, The FCPA Has

Accounting Provisions that Provide Independent Grounds for Liability.

• Accounting Provisions Include Books and Records Provisions and Internal Controls Provisions.

• Books and Records Must Accurately and Fairly Reflect Transactions and Dispositions of Assets.

• Internal Controls Must Suffice to Provide Reasonable Assurances that Transactions are Executed in Accordance with Management Authorizations.

• Bribery is Not a Predicate for Liability under the Accounting Provisions.

2

2. The FCPA Bars Americans from Foreign Bribery.• The FCPA is a Species of Securities Law.• Any Issuer of Securities Registered with the

SEC is Subject to the FCPA, Regardless of Country of Incorporation.

• Foreign Subsidiaries or Joint Ventures of an Issuer, Controlled in Fact by the Issuer, are Also Subject to the FCPA.

• Foreign Nationals Who Commit Acts in the United States in Furtherance of Prohibited Activities are Also Subject to the FCPA.

3

3. The FCPA Bars Bribes of Foreign Government Officials.• The FCPA Bars Bribes Also of Foreign

Political Parties, Party Officials, and Candidates.

• The FCPA Bars Bribes Also of Officials of Public International Organizations.

• The FCPA Bars Bribes Also of These Foreign Parties Even if the Purpose is to Influence U.S. Government Officials.

4

4. The FCPA Focuses on Payments to Induce a Foreign Official to Do an Unlawful Act.• The FCPA Also Bars Payments to Influence

A Lawful Act by a Foreign Official, or to Induce an Official to Refrain from Acting.

• The FCPA Also Bars Payments to Secure an Improper Advantage.

5

5. Compliance with the FCPA Means Not Making Payments to Foreign Officials.• Giving Anything of Value Can Be a

Violation: Gifts in Kind, Entertainment, Travel Expenses.

• Charitable Donations to an Organization in which a Foreign Official or Official’s Family has an Interest Can be a Violation.

6

6. The FCPA Bars All Corrupt Payments to Foreign Officials.• The FCPA Includes an Express Exception for

Facilitating Payments.• The Exception Applies to Payments Made to

Expedite or Secure Performance of Routine Governmental Action.

• Obtaining Permits, Scheduling Inspections, Supplying Power and Water, and Unloading Cargo Are Examples.

• The Exception Does Not Apply to Decisions to Award or Continue Business.

7

7. The FCPA is a Unique Burden on American Companies.• As Already Noted, Foreign Issuers are As Much

Subject to the FCPA as American Companies.• Furthermore, 1997 OECD Convention on

Combating Bribery of Foreign Public Officials in International Business Transactions Has Made the Playing Field More Even.

• The Convention Has Been Signed by Major European Countries, Japan, Korea, Mexico, Argentina, Brazil, Chile, and Others.

8

8. In Case of FCPA Penalties, Individuals Can Look to Corporate Indemnification.• The FCPA Expressly Bars Indemnification of

Individuals Who Are Penalized.• Penalties Can Be Severe: $10,000 Civil Fine for

Entities and Individuals, $100,000 Criminal Fine and Up to Five Years in Prison for Individuals, $2 Million Criminal Fine for Entities, Plus Other Related Statutes (RICO, Mail and Wire Fraud), Plus Debarment from Government Contracts and Denial of Export Licenses.

• There is No Indemnification for Reputational Damage.

9

9. Corrupt Intent is Crucial to Liability under the FCPA.• Although the Antibribery Provisions Refer to

Corrupt Purposes, Intent is Inferred from the Circumstances, Regardless of Direct Evidence.

• Furthermore, the Accounting Provisions May Be Invoked Even in the Absence of Corrupt Intent (or in the Absence of Questionable Payments).

10

10. The Enforcement Agencies Will Never Discover What a Foreign Agent Did in Some Remote Country.• Competitors and Former Employees Are a

Fertile Source of Information to Enforcement Agencies.

• Thanks to Sarbanes-Oxley Act, SEC Resources for FCPA Enforcement are Extensive.

• The Use of FCPA Allegations and “Whistle-Blowing” as a Weapon in Private Litigation against a Corporation by a Disgruntled Former Employee is Increasingly Common.11

Conclusion• An Effective FCPA Compliance Program

Should Ensure that All Relevant Employees and Agents, at Home and Abroad, Separate FCPA Misconceptions from Reality.

• That Should Help Your Company to Avoid Trouble from What You Don’t Know As Well As From “What You Know for Sure that Just Ain’t So.”

12