For many years, Jones Day has advised multinational corporations
and their boards and executives regarding compliance with the U.S.
Foreign Corrupt Practices Act. Jones Day has led, and is leading,
international investigations regarding suspected violations of the
FCPA. Our experienced attorneys have appeared and are currently
appearing before the U.S. Department of Justice, the U.S.
Securities and Exchange Commission, and other federal, state, and
foreign government entities on behalf of clients regarding
anti-corruption matters. Jones Day's broad experience across a
wide variety of industries makes us well positioned to understand
the particular problems companies face. Moreover, our experienced
team of former government attorneys and experienced trial
attorneys, our 37 offices around the world, and our One Firm
approach provide clients with a wealth of experience in handling
global anti-corruption matters and compliance efforts. This
publication provides our collective thoughts and observations on
the DOJ's and SEC's recent FCPA guidance document.
Jones Day also regularly assists multinational companies in
avoiding problems before they arise by helping them to design and
implement effective corporate compliance programs that include
best-in-class anti-corruption measures. We advise corporations on
how to conduct effective anti-corruption due diligence in corporate
transactions, and we defend the company, the board of directors and
individual employees against allegations of wrongdoing by the
government or private plaintiffs.
The Jones Day attorneys who work on these global anti-corruption
measures and responses reviewed with great interest the recently
released guidance from the DOJ and SEC regarding the FCPA. Much of
what we see in the document echoes the conversations that we have
on a daily and weekly basis with our colleagues in the U.S.
enforcement community, and captures some of the most frequent
questions posed to us by our clients. Other pieces of information
in the guidance are newer and, we hope, will clarify and make more
consistent the positions taken by prosecutors and regulators in
FCPA cases.
Enclosed for our clients and friends are our summary observations
regarding the guidance and our thoughts about where we go from
here. Also enclosed, at the back of this publication, is a short
"crib sheet" for clients that summarizes the main points
in the guidance and provides page numbers for ease of reference, as
many clients have expressed to us that they find the 120-page
document too long to digest.
We hope that you will find these materials helpful, and that you
will call one of the many experienced Jones Day practitioners
listed at the back of this piece if you wish to discuss
further.
Charles Carberry Jones Day Corporate Criminal |
Peter Romatowski Jones Day Securities Enforcement and |
DOJ/SEC's RESOURCE GUIDE TO THE FOREIGN CORRUPT
PRACTICES ACT:
Jones Day Summary and Analysis
A full year after promising written guidance regarding enforcement of and compliance with the Foreign Corrupt Practices Act, the U.S. Department of Justice and the Securities and Exchange Commission issued on November 14, 2012, A Resource Guide to the U.S. Foreign Corrupt Practices Act (the "Guidance"). The 120-page document has been rightly criticized for offering little new by way of substance. Instead, the Guidance is primarily a compilation of restated policy pronouncements issued by enforcement authorities in other contexts. While it addresses "big picture" FCPA issues, the Guidance is notable primarily for what it does not say, belying the assertion by the Assistant Attorney General that the publication constitutes "perhaps the boldest manifestation of [the government's] transparent approach to enforcement."
The Guidance: What It Says
The Guidance does not break new ground by offering any new
policy pronouncements, but it does contain useful guidance for
companies seeking to comply with the FCPA. The Guidance provides a
comprehensive and easily read summary of government policy on the
FCPA. It also pulls together into a single location guidelines that
had not previously been stated clearly by U.S. enforcement
authorities and guidelines that had only been stated orally. And,
in certain respects, the Guidance provides a vehicle for the DOJ
and SEC to state explicitly certain policies that otherwise must be
teased out of anecdotal information arising from corporate
prosecutions.
Permissible Business Courtesies. Corporate
compliance departments often spend enormous amounts of time and
effort on defining the proper limits to and approving expenditures
on travel, entertainment, and gift-giving involving putative
foreign officials. When a company is doing business in a foreign
country with substantial government involvement in the private
economy, the FCPA provides little statutory basis for
distinguishing between prohibited corrupt payments and legitimate
corporate hospitality (all of which is intended to influence the
recipient foreign official). Although the amounts at issue tend to
be small, the frequency with which the issue arises is high, and
the available government guidance on the issue has been
scant.
While the Guidance does not answer all of the nagging questions
relating to business courtesies, it does for the first time provide
a government-sanctioned framework for evaluating corporate
hospitality. To start, the Guidance explicitly recognizes the
legitimacy of the practice, stating that "[a] small gift or
token of esteem or gratitude is often an appropriate way for
business people to display respect for each other." (pg. 15)
On the other end of the spectrum, the Guidance states obviously
that improper benefits include such things as "a $12,000
birthday trip for a government decision-maker" and a
"trip to Italy for eight" officials consisting
"primarily of sightseeing" and including "$1,000 in
'pocket money' for each official." (pg. 16)
Most helpfully, the Guidance identifies the specific
"hallmarks of appropriate gift-giving" as being that the
gift is:
- "[G]iven openly and transparently,"
- "[P]roperly recorded in the giver's books and records,"
- "[P]rovided only to reflect esteem or gratitude, and"
- "[P]ermitted under local law."
(pg. 15) In addition, the Guidance specifically suggests that
organizations, particularly large ones, use automated systems
"with clear monetary limits and annual limitations" in
implementing compliance programs related to "routine gifts,
travel and entertainment." (pg. 58) Together, these aspects of
the Guidance provide a road map to companies seeking to avoid
"[d]evoting a disproportionate amount of time to policing
modest entertainment and gift-giving," thereby freeing the
compliance department to focus on more significant expenditures and
risk areas. (pg. 58)
Likewise with respect to travel, the Guidance provides useful advice to companies seeking to comply with the FCPA's affirmative defense for "reasonable and bona fide travel and lodging expenses ... related to the promotion, demonstration, or explanation of a company's products or services." (pg. 24) As with gifts, this is an area where companies have been hard-pressed to set limits that will withstand government scrutiny. The Guidance therefore gathers together and clearly states the safeguards that it has deemed in the past to be appropriate in relation to travel expenditures:
- Do not select the particular officials who will participate in the party's proposed trip or program or else select them based on pre-determined, merit-based criteria.
- Pay all costs directly to travel and lodging vendors and/or reimburse costs only upon presentation of a receipt.
- Do not advance funds or pay for reimbursements in cash.
- Ensure that any stipends are reasonable approximations of costs likely to be incurredand/or that expenses are limited to those that are necessary and reasonable.
- Ensure the expenditures are transparent, both within the company and to the foreign government.
- Do not condition payment of expenses on any action by the foreign official.
- Obtain written confirmation that payment of the expenses is not contrary to local law.
- Provide no additional compensation, stipends, or spending money beyond what is necessary to pay for actual expenses incurred.
- Ensure that costs and expenses on behalf of the foreign officials will be accurately recorded in the company's books and records.
(pg. 24 (footnotes omitted)).
The examples that the Guidance provides regarding gifts, travel,
and entertainment are equally instructive. In the form of
hypotheticals, the Guidance advises readers that the FCPA is not
violated when representatives of a U.S. company:
- Pay for a "moderate bar tab" for customers, including government officials at an industry trade show.
- Present "a moderately priced crystal vase" to the General Manager of a government-owned customer "as a wedding gift and token of esteem."
- Cover business class airfare for employees of a government customer to inspect company facilities in the United States, consistent with internal company guidelines for reimbursing the cost of lengthy international flights.
(pgs. 17-18) By contrast, the Guidance states that the FCPA
obviously would not permit first-class airfare for the officials to
travel, with spouses, to Las Vegas on a vacation. All of the above
is consistent with prior guidance from DOJ and SEC but is
nonetheless helpful in its specificity. In particular, the
Guidance's use of internal policies as a yardstick for the
reasonableness of travel expenses (in this example, class of
travel) ratifies a common compliance practice of treating
expenditures for visiting officials in a manner similar to a
company's own employees.
Corporate Mergers and Acquisitions. The Guidance
likewise suggests important best practices to be followed regarding
a company's merger with or acquisition of other companies. The
most significant developments in this regard are the Guidance's
advice regarding the liability an acquiring company does, and does
not, acquire in a merger or acquisition and the use of due
diligence to minimize that successor liability.
Successor Liability.In the Guidance, the
DOJ explicitly recognizes the applicability of several important
limitations on successor liability. First, the Guidance recognizes
that if a U.S. "issuer were to acquire a foreign company that
was not previously subject to the FCPA's jurisdiction, the mere
acquisition of that foreign company would not retroactively create
FCPA liability for the acquiring issuer." (pg. 28) This, of
course, merely restates a basic premise of corporate and criminal
law. It is, however, one that is regularly misunderstood, and the
inclusion in the Guidance can only help to clarify the
matter.
Second, the Guidance seems to recognize implicitly that an
acquiring company should not become responsible for the prior
violations of an acquired company with which it does not merge. The
Guidance proposes a hypothetical fact scenario in which
"Company A" does not discover bribery by "Company
B" until after its acquisition, notwithstanding
"extensive due diligence." Once it discovers the bribery,
however, Company A "makes certain that the illegal payments
stop, ... voluntarily discloses the misconduct to DOJ and
SEC," and implements robust remedial compliance measures.
Under these circumstances, the Guidance opines: "Absent
unusual circumstances not contemplated by this hypothetical, DOJ
and SEC are unlikely to prosecute Company A for the pre-acquisition
misconduct of Company B, provided that Company B still exists in a
form that would allow it to be prosecuted separately (i.e., Company
B is a subsidiary of Company A)." (pg. 33)
Under the facts of this hypothetical, the Guidance reaches the
correct legal conclusion regarding the consequences of
pre-acquisition conduct by a corporate entity that has not been
merged into the acquiring company. That is, as to actions that took
place entirely before the acquisition, the new sole shareholder
(i.e., the acquiring company) does not become liable merely by
virtue of the corporate transaction. The Guidance potentially comes
up short, however, in recognizing that some unspecified
"unusual circumstances" could exist under which the
acquiring company would become liable for the pre-acquisition
conduct of the acquired company. Assuming that these "unusual
circumstances" are sufficiently circumscribed, though, the
Guidance confirms an important safeguard to companies seeking to
limit properly their responsibility for the pre-acquisition conduct
of their subsidiaries. It also acts as a reminder of the importance
in this context of maintaining the corporate separateness of
acquired subsidiaries.
The corollary lesson to be drawn from this aspect of the Guidance
is that an acquiring company that discovers pre-acquisition
misconduct at a subsidiary has a strong incentive to remedy the
conduct and disclose it voluntarily to authorities. If the DOJ and
SEC are taken at their word, an acquiring company minimizes the
exposure to itself (and, by extension, to its directors, officers,
and employees) when it draws a clear distinction between itself and
the misbehaving subsidiary in these circumstances, and when it
assists the government in bringing an action against the
subsidiary. This encouragement of self-disclosure is not
accidental.
Risk-Based Due
Diligence. The Guidance provides
specific and detailed advice regarding the steps a company can take
to minimize its liability in the context of a merger or
acquisition. The Guidance states that "DOJ and SEC encourage
companies engaging in mergers and acquisitions to" take the
following steps:
- Conduct thorough risk-based FCPA and anti-corruption due diligence on potential new business acquisitions;
- Ensure that the acquiring company's code of conduct and compliance policies and procedures regarding the FCPA and other anti-corruption laws apply as quickly as is practicable to newly acquired businesses or merged entities;
- Train the directors, officers, and employees of newly acquired businesses or merged entities, and when appropriate, train agents and business partners, on the FCPA and other relevant anti-corruption laws and the company's code of conduct and compliance policies and procedures;
- Conduct an FCPA-specific audit of all newly acquired or merged businesses as quickly as practicable; and
- Disclose any corrupt payments discovered as part of its due diligence of newly acquired entities or merged entities.
(pg. 29) Here again, the Guidance does not depart from what has
been apparent DOJ and SEC policy in recent years, but helpfully
makes that policy explicit, providing companies with a
readily-available checklist for pre-acquisition and post-closing
diligence.
Duress Defense. The Guidance provides comfort for
companies facing the infrequent, but significant, circumstance of
"real threats of violence or harm to their employees."
The Guidance assures those companies that "payments made in
response to imminent threats to health or safety do not violate the
FCPA," provided they are properly recorded in the books and
records of the company. (pg. 27) While companies presumably would
have reached the same conclusion as a purely practical matter, it
is helpful for the DOJ and SEC to recognize as much.
This defense, according to the regulators, has some important
limitations. As the Guidance and pre-existing policy make clear,
DOJ and SEC do not consider threats of economic harm sufficient to
justify corrupt payments to foreign officials. (pg. 27) And, the
Guidance is silent on the question of whether payments in response
to threats of physical violence could be prosecuted as violations
of other laws, such as the prohibition against supporting
designated terrorist organizations.
Corporate Compliance Programs. The Guidance
provides a list of so-called "Hallmarks of Effective
Compliance Programs." The "hallmarks" are a summary
of guidance contained in prior publications, including the
DOJ's U.S. Attorney Manual, the SEC's Seaboard Report, the
Federal Sentencing Guidelines, and Press Releases. (pgs. 56-61;
endnotes 302-326) The Guidance, however, also includes fairly
detailed guidance regarding the government's expectations for
effective programs by including reference to what many
practitioners would call "best practices" in some areas.
Looking at this guidance from a different angle, a compliance
program that fails to include these "hallmarks" may be
viewed skeptically by the DOJ and SEC. The "Hallmarks of
Effective Compliance Programs" are as follows:
- A proper "tone at the top" with the board of directors and senior executives demonstrating a commitment to compliance that is reinforced and implemented by middle managers and employees at all levels of the company. This should include unambiguous communication from senior management about the requirements for compliance that is "scrupulously followed" and disseminated throughout the organization. (pg. 57)
- The code of conduct should take into account the company's specific business model and be written, clear, concise, accessible to all employees and agents, and available in local languages. (pgs. 57-58)
- At least one senior executive, who has authority within the organization and autonomy from management, should be responsible for the oversight and implementation of the company's compliance program. (pg. 58)
- Risk assessment should drive decisions about the amount of human and financial resources allocated to the program, and the management of those resources. Attention should focus on risks associated, for example, with large government bids, questionable payments to third-party consultants, or excessive discounts to resellers and distributors rather than low-risk activities, such as modest entertainment or gift-giving. (pgs. 58-59)
- Periodic training on compliance policies and procedures should be provided to all directors, officers, relevant employees, and, where appropriate, agents and business partners. Moreover, specific audiences in higher risk functions should receive targeted and specific training. (pg. 59)
- There should be appropriate and clear disciplinary procedures that are applied "reliably and promptly" and should be commensurate with the severity of the conduct. A company should be providing positive incentives to employees in all functions for compliant conduct, and include related standards in employee performance criteria. (pgs. 59-60)
- There should be policies and procedures relating to the risks associated with third-parties, including the capacity for on-going monitoring and the ability to address any "red flags" that may surface during the course of the third-party relationship. (pgs. 60-61)
- An effective compliance program provides a mechanism for the reporting of suspected wrongdoing, protects whistleblowers from retaliation, and has in place an efficient, reliable, and properly funded process for investigating the allegation. (pg. 61)
- An effective compliance program "constantly evolve[s]" to reflect the changes to the company's business over time, including changes to the environment in which the company operates, the nature of its customers, the laws that govern the company's actions, and the standards of the company's industry. As a result, management should at least annually conduct a formal review of the effectiveness of the program and address any weaknesses. (pgs. 61-62)
For a company whose compliance program contains these
"hallmarks" of effectiveness, the Guidance provides some
encouragement, stating that the DOJ "may decline to pursue
charges against a company based on the company's effective
compliance program, or may otherwise seek to reward a company for
its program, even when that program did not prevent the underlying
FCPA violation that gave rise to the investigation." (pg.
56)
However, the Guidance notes that "individual companies have
different compliance needs" and that "there is no
one-size-fits-all program." (pg. 57) Importantly, the Guidance
still leaves it to the company to determine what
"reasonable" internal controls are. (pg. 58) Moreover,
when determining what compliance controls are
"reasonable," a company should be mindful that an
effective compliance program is one that addresses risk, is
implemented fully, and is enforced consistently, as a program that
merely "employ[s] a 'check-the-box' approach may be
insufficient." (pg. 57)
Books and Records Provisions. The Guidance
confirms that the DOJ and SEC continue to view the books and
records provisions of the FCPA as separate and distinct from
bribery violations under the FCPA. The Guidance notes that the
provisions apply to any circumstance in which the company's
books and records do not accurately reflect the company's
assets, liabilities, and transactions. It also reiterates the
importance of recording transactions with reasonable detail. The
Guidance emphasizes that mischaracterizing transactions in the
company's books and records has facilitated concealment of
bribe payments in past cases. The Guidance provides examples of
bribes that were mischaracterized on a company's books and
records:
- Commissions or Royalties
- Consulting Fees
- Sales and Marketing Expenses
- Scientific Incentives or Studies
- Travel and Entertainment Expenses
- Rebates or Discounts
- After Sales Service Fees
- Miscellaneous Expenses
- Petty Cash Withdrawals
- Free Goods
- Intercompany Accounts
- Supplier/Vendor Payments
- Write-Offs
- "Customs Intervention" Payments
The Guidance: What It Doesn't Say
Perhaps most important for corporations and their counsel in
assessing the DOJ and SEC's guidance is to understand what the
document does not say. Certain questions are, unsurprisingly, left
unanswered. Many of these are matters of judgment while others are
areas that the DOJ and SEC simply chose to leave vague, giving the
government the most discretion possible in later enforcement
actions.
Credit for Self-Reporting. One question not
clearly resolved by the Guidance is what value or credit entities
receive for self-reporting a potential FCPA issue to the
government. The Guidance points to broad factors listed in
pre-existing guidance such as the Sentencing Guidelines, DOJ's
Principles of Federal Prosecution of Business Organizations and the
SEC's Seaboard Report. What the Guidance does not do is provide
any kind of measurement for how cooperation will be assessed or
what credit will be given, and it does not address the conclusion
of many (including a recent NYU study) that there is no observable
difference in penalties between cases that are self-reported and
those discovered by the government on its own.
Clients that are considering whether to self-report potential
violations of the FCPA are in much the same boat that they were
before the Guidance was released. There is no legal requirement to
self-report violations of the statute. The DOJ and SEC warn
corporations that they will be treated more harshly if they fail to
self-report, and more leniently in a self-reporting scenario. But
the objective evidence and the experience of investigative and
defense counsel during investigations suggest that the outcome of
an investigation depends most heavily on the seriousness of the
underlying facts, and less on whether or not the company
self-reported those facts. For example, the six examples of
declinations cited in the Guidance were all self-reported, but they
also involved amounts that were characterized by the government as
small (or detected before the payment was made). (pgs. 77-79) The
outcome also depends, at least in part, on the views of the
individual prosecutors or regulators who are leading the inquiry,
what other similar cases have recently been decided, timing, and
many other factors that affect every government
investigation.
Nonetheless, in our experience self-reporting still can have
significant value. It is not the right answer in every case and is
a decision that requires careful evaluation of the facts and
circumstances by the company's leadership. In our experience,
self-reporting impacts the dynamic between the company and the U.S.
government throughout the course of the review. Self-reporting
casts current management and the board of directors in the best
possible light under difficult circumstances, giving defense
counsel an opportunity to show the government at the very start of
the review that the company wishes "to do the right
thing." DOJ and SEC tend to give a self-reporting company more
latitude in deciding how to get to the bottom of the facts, and at
least facially they attempt to work with the company and its
counsel to reach an appropriate and just resolution that takes into
account the company's self-reporting. Individual corporate
leaders or board members frequently take comfort, in a
self-reporting setting, that their own conduct will be viewed in
light of the decision to self-report. Moreover, the new Dodd-Frank
whistleblower provisions have also impacted the dynamic in deciding
whether to self report because of the possibility that a
whistleblower will go to the government in advance of the
company.
The dark side of self-reporting, of course, is that DOJ and SEC
will look harshly at facts that present potential violations of the
statute no matter how the case came to their attention. They will
ask questions about when the company learned of the facts, how it
responded, how long it took for the company to self-report, and
whether adequate remediation was performed. They may also ask the
company to expand an investigation that is already broad and
expensive. And, at the end of the matter, the DOJ and SEC will want
significant penalties for companies where violations occurred,
whether or not the case began with self-reporting.
Corporate Exposure Resulting from Third Parties, JVs, and
Others. General concepts of agency, piercing the corporate
veil, and successor liability apply to the FCPA no less than to any
other regulatory statute. DOJ and SEC also will pursue corporations
on theories of conspiracy and aiding and abetting in appropriate
cases.
The Guidance identifies common red flags associated with
third-party transactions from which the government may infer
willful blindness. The list includes examples such as excessive
commissions to third-party agents and unreasonably large discounts
to third-party distributors. As discussed above, the strength of a
company's corporate compliance program (or the absence thereof)
should play a major role in any analysis of the imputed knowledge
issue.
Where a subsidiary involves itself in an FCPA violation, the
Guidance makes it clear that DOJ and SEC will not hesitate to
proceed against the corporate parent. Unless the parent directly
participates in the violation, a case of that kind often will turn
on whether the officers and agents of the parent essentially
controlled the actions of the subsidiary. Any analysis of that
issue will be heavily fact-intensive. It is therefore not
surprising that the Guidance offers scant clarification of what
facts will and will not suffice to prove control. Based on the one
example cited, heightened risk certainly will arise where the
subsidiary's president serves on the parent's senior
management team, where the parent's in-house lawyers review and
approve the subsidiary's third-party relationships, where that
approval ignores a documented lack of due diligence, and where one
of the parent's officers approves a corrupt payment. Whether
the parent would face liability absent the latter approval is far
more difficult to say—and not addressed by the
Guidance.
The Guidance also fails to distinguish between a due diligence
review of an agent or a distributor on the one hand and a customer
or a supplier on the other.1 Although customers and
suppliers are mentioned in many non-prosecution agreements and
deferred prosecution agreements as "business partners,"
companies may have thousands of customers and suppliers, rendering
it unrealistic to conduct the same type of due diligence of such
entities as would be required for an agent or a distributor.
Furthermore, the Guidance does not create a compliance
defense.2 A corporation may conduct a due diligence
check of a third party as part of a robust corporate compliance
program and still be liable for an FCPA violation committed by that
party.Given the widely publicized, massive recoveries in recent
cases arising from corrupt payments by intermediaries of joint
ventures, it is somewhat surprising that the Guidance does not
explicitly caution corporations against the dangers arising from
such ventures. In a joint venture setting, conspiracy principles
may pose the greatest risk, but those principles have their limits.
On page 12, and again at page 34, the Guidance cites Pinkerton
v. United States , 328 U.S. 640, 647-48 (1946), and carefully
notes that conspiracy liability (and jurisdiction premised on that
liability) cannot extend beyond "reasonably foreseeable"
acts of co-conspirators in furtherance of a substantive offense.
These concepts of foreseeability and reasonableness are firmly
rooted in both international law and American due
process.3 They may ultimately curb some future
prosecution of a company that prefers to seek a ruling, rather than
a settlement.
Prosecutorial Discretion. While the Guidance
provides substantial insight into how certain factual scenarios and
statutory terms may be viewed by DOJ and SEC, it makes plain that
the publication is not binding on line prosecutors or staff
attorneys and creates no new substantive rights for targets or
defendants. Essentially, prosecutors and regulators retain the
right to exercise prosecutorial discretion which may well vary
between offices and individuals. Unfortunately, the Guidance does
not establish bright line guidance to restrict potentially
over-broad interpretations of statutory terms and jurisdictional
boundaries.
How the Guidance Interacts with UK Bribery Act Guidance
The Guidance makes it plain that there will be occasions when
strict compliance with the FCPA will not necessarily ensure
compliance with other national legislation. In particular, it cites
the UK Bribery Act 2010 ("UKBA") and notes that the UKBA
does not make an exception for facilitation payments whereas the
FCPA does.
This is not the only difference between the two regimes. We
offer a table on page 9 of the attached PDF that sets out a
simplified comparison between some of the key areas covered by the
two Acts.
There will also be occasions when a corporate entity potentially
has liability under both the FCPA and the UKBA. The case of
Innospec, which is referred to on a number of occasions within the
Guidance, is an example of a company that had to deal both with the
DOJ and the UK Serious Fraud Office.
The following is a brief summary of the major legislative
provisions of the UKBA. The UKBA creates three general
offenses:
- Paying a bribe, contrary to section 1 UKBA;
- Receiving a bribe, contrary to section 2 UKBA; and
- Bribing an overseas public official, contrary to section 6 UKBA.
The offenses of paying a bribe (section 1) and receiving a bribe
(section 2) apply equally to transactions with private individuals
as they do to transactions with government officials.
Additionally, any corporate entity that carries on any part of its
business in the UK commits an offense in violation of section 7
UKBA if it fails to prevent persons associated with it from
committing acts which, if committed in the UK, would constitute
offenses contrary to sections 1 and 6.
There is no statutory definition of what constitutes carrying on
"a part of" a business in the UK. Guidance issued by the
UK Ministry of Justice suggests that a bare listing on a UK
exchange would not be sufficient to satisfy the test, but the UKBA
is drafted widely and there is, to date, no case law to assist
corporations and their advisors in deciding where the bar is likely
to be set.
The definition of "associated persons" is likewise
broad. It includes employees, agents, consultants and joint venture
partners.
The only defense available to a corporation facing prosecution for
the section 7 offense is that it had in place adequate procedures
to prevent bribery. The UK Ministry of Justice has issued guidance
on what constitutes "adequate
procedures."4
FCPA Enforcement and Compliance: Where We Go From Here
In the hours (and even the minutes) following the release of the
Guidance, commentators quickly issued pronouncements regarding
whether or not the guidance will change the landscape of FCPA
enforcement and compliance. Similar to the desire of the media to
declare a "winner" in a presidential debate, publications
offered immediate opinions on whether or not the Guidance will
alter how companies behave or how prosecutors and regulators will
evaluate those companies and corporate leadership and
employees.
In our view, the Guidance is critically important because it
represents the official words of the U.S. government regarding FCPA
interpretation. The role of counsel, now, whether in an
investigation or compliance setting, is to understand what the
Guidance says and to help companies interpret it in light of
counsel's experience and judgment. The Guidance is not,
however, a complete "how to" guide that companies can use
to solve all of their issues and questions in the area of
anti-corruption. It is a tool that must now be used and considered
carefully, and which counsel can use on companies' behalf when
making arguments to DOJ and SEC about how the company tried to
comply.
At the end of the day, corporations are best positioned against
corruption, however, not through adherence to a publication from
DOJ or SEC, but through thoughtful and reasonable assessment of the
risks attendant to their business, drafting and communicating
effective policies that address those risks, monitoring compliance
with policies, enforcing rules when policies are violated, and
ensuring that issues of non-compliance are considered and addressed
responsibly. When this cycle is complete, companies should
"rinse and repeat" and begin the process again through a
living, breathing compliance structure that leadership supports and
employees understand and embrace.
As defense and investigative counsel, it is the paradox of our
role that the best result for our clients—the end of the
investigation and the resolution of compliance issues—makes
us obsolete. This comes with the territory, and the best clients
know and understand that our work is designed to remove outside
counsel from the process as quickly, efficiently, and early as
possible so that the company can focus on running its business.
While the completion of the review to the benefit of the client is
always our goal, we do not believe, however, that the Guidance
eliminates the difficult issues that companies must address, and
many questions remain even after examining the guidance in detail.
As always, we stand at the ready to assist our clients in working
through these issues and to improve each client's position.
APPENDIX
DOJ/SEC's RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT:
A Jones Day Crib Sheet
FCPA RESOURCE GUIDE: WHAT IS IT?
On November 14, 2012, the U.S. Department of Justice
("DOJ") and the U.S. Securities and Exchange Commission
("SEC") released their long-awaited guidance on
enforcement of the U.S. Foreign Corrupt Practices Act
("FCPA"). At 120 pages, the Resource Guide to the
U.S. Foreign Corrupt Practices Act (the "Guide") is
designed, in the words of the SEC Director of Enforcement, so that
"[p]ublic company officers can put this on their desk ...
and understand what it is we're doing in this space, and run
their companies accordingly."
The Guide is nonbinding, informal guidance designed to summarize
the FCPA's provisions and to provide insight into DOJ and SEC
enforcement practices.
ANTI-BRIBERY PROVISIONS (PAGES 10-35)
Jurisdiction (pages 10-12)
- The FCPA anti-bribery provisions prohibit U.S. persons and businesses and U.S. and foreign public companies listed on U.S. exchanges or who are required to file periodic reports with the SEC from making corrupt payments to foreign officials to obtain or retain business.
- Foreign persons and businesses may be liable under the FCPA for acts in furtherance of a corrupt payment while in the territory of the United States.
The Business Purpose Test (pages 12-14)
- The FCPA applies to payments intended to induce or influence a foreign official to use his or her position to assist in obtaining or retaining business for or with, or directing any business to, any person.
- This provision is broadly interpreted to include (a) winning a contract; (b) influencing the procurement process; (c) circumventing the rules for importation of products; (d) gaining access to non-public bid tender information; (e) evading taxes or penalties; (f) influencing the adjudication of lawsuits or enforcement actions; (g) obtaining exceptions to regulation; and (h) avoiding contract termination.
"Anything of Value" (pages 14-19)
- The FCPA prohibits bribes in the form of a corrupt offer, payment, promise to pay, or authorization of the giving of anything of value to a foreign official.
- In addition to cash, the FCPA prohibits gifts, travel, entertainment, and other things of value.
- Corruptly given charitable contributions are also prohibited.
- Gifts and contributions should only be made where (a) given openly and transparently; (b) properly recorded in the giver's books and records; (c) provided only to reflect esteem or gratitude; and (d) permitted under local law.
Foreign Officials (pages 19-21)
The FCPA broadly applies to corrupt payments to "any" officer or employee of a foreign government and to those acting on the foreign government's behalf, including both high ranking officials and low-level employees.
- Payments to foreign governments are not prohibited, but companies should take steps to ensure that no monies are used for corrupt purposes or for the personal benefit of foreign officials.
- The FCPA also prohibits payments to officers or employees of instrumentalities of foreign governments, which includes state-owned or state-controlled entities.
- Case law interpreting "instrumentality" is only beginning to develop, but the clear trend thus far is for courts to reject arguments that Congress did not intend "instrumentality" to cover state-owned commercial entities.
Payments to Third Parties (pages 21-23)
- The FCPA expressly prohibits corrupt payments knowingly made through third parties or intermediaries, and companies cannot avoid liability by remaining deliberately ignorant of the actions of third parties.
- Companies can reduce FCPA risks associated with third parties by implementing effective compliance programs that include due diligence of prospective foreign agents.
- Facilitating or Expediting Payments.
Facilitating Payments (pages 25-26)
- The FCPA contains a narrow exception for facilitating or expediting payments made in furtherance of routine governmental action involving nondiscretionary acts.
- If the payment's purpose is to make an official exercise discretion in favor of the company making the payment, then the facilitating payments exception cannot apply.
Principles of Corporate Liability for Anti-Bribery Violations (pages 27-33)
- Parents may be liable for bribes paid by their subsidiary through traditional agency principles if the parent exercise control over the subsidiary. In addition, a parent may be liable for the actions of its subsidiary if the parent participated in the activity.
- The Guide notes that in a significant number of instances, DOJ and SEC have declined to take action against companies that voluntarily disclosed and remediated conduct and cooperated with DOJ and SEC in the merger and acquisition context. Successor companies have been held liable in situations where the violations were egregious and sustained or where the successor directly participated in or failed to stop the misconduct.
- Successor liability does not create liability where none previously existed. An issuer's acquisition of a foreign company does not retroactively create FCPA jurisdiction for the acquiring issuer.
Statute of Limitations (pages 34-35)
- In both criminal and civil FCPA enforcement actions, the statute of limitations is five years.
- In cases involving conspiracies, the government may be able to reach conduct occurring before the five-year limitations period if an act in furtherance of the conspiracy occurred within the five-year limitations period.
ACCOUNTING PROVISIONS—BOOKS AND RECORDS (pages 38-45)
The FCPA's accounting provisions apply to every issuer that
has a class of securities registered pursuant to Section 12 of the
Exchange Act or that is required to file annual or other periodic
reports pursuant to Section 15(d) of the Exchange Act. Individuals
may also face liability for aiding and abetting or causing an
issuer's violation of the accounting provisions.
Covered Conduct (pages 39-41)
- Issuers are required to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer. Companies must never mischaracterize transactions in their books and records.
- Issuers must also devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and preparation of financial statements. The FCPA does not specify a particular set of controls companies are required to implement.
- An effective compliance program is a critical component of an issuer's internal controls.
GUIDING PRINCIPLES OF ENFORCEMENT (pages 52-65)
DOJ's decision whether to pursue an FCPA investigation is
guided by Principles of Federal Prosecution and
Principles of Federal Prosecution of Business
Organizations published in the U.S. Attorney's Manual.
(pages 52-53)
SEC's decision is guided by the SEC's Enforcement
Manual published by the SEC's Enforcement Division. (pages
53-54)
The Effect of Self-Reporting (pages 54-56)
- DOJ and SEC place a high premium on self-reporting, along with cooperation and remedial efforts.
- In criminal matters, DOJ considers the voluntariness and timeliness of a company's disclosure, as well as whether a company's remedial measures were both meaningful and sufficient to illustrate the company's recognition of the seriousness of the misconduct.
- In civil cases, the SEC considers four broad measures of a company's cooperation: (a) self-policing prior to the discovery of the misconduct; (b) prompt self-reporting upon discovery of the misconduct; (c) remediation, including appropriately compensating those adversely affected; and (d) cooperation with law enforcement.
Effective Compliance Programs (pages 56-62)
- Role of Compliance Programs in DOJ and SEC enforcement decisions (page 56)
- DOJ and SEC both view an effective compliance program as a critical component of a company's internal controls and as vital to detecting and preventing FCPA violations.
- Compliance programs should be tailored to each company's specific business and the risks associated with that business.
- The adequacy of a company's compliance program is a key consideration assessed by DOJ and SEC when deciding what, if any, enforcement action to take.
- DOJ and SEC will analyze a company's compliance program by asking (a) Is the program well designed? (b) Is it applied in good faith? and (c) Does it work?
- Hallmarks of an Effective Compliance Program (pages 57-62)
- Commitment from senior management and a clearly articulated policy against corruption
- Code of conduct and compliance policies
- Oversight, autonomy and resources
- Risk assessment
- Training and continuing advice
- Incentives and disciplinary measures
- Third-party due diligence and payments
- Confidential Reporting and Internal Investigations
- Continuous Improvement
FCPA PENALTIES, SANCTIONS, AND REMEDIES (pages 68-72)
For violations of the anti-bribery provisions, the FCPA provides
that corporations and business entities are subject to a fine up to
$2 million. Individuals are subject to a fine of up to $100,000 and
imprisonment up to 5 years. (page 68)
For violations of the accounting provisions, the FCPA provides
that corporations are subject to a fine of up to $25 million.
Individuals are subject to a fine of up to $5 million and
imprisonment up to 20 years. (page 68)
Corporations, business entities, and individuals may also be
subject to a civil penalties of up to $16,000 per violation pursued
by DOJ, and civil penalties up to $500,000 or the gain obtained as
a result of the violation if pursued by SEC. (page 69)
RESOLUTIONS (pages 74-79)
DOJ enforcement actions can be resolved by plea agreements;
deferred prosecution agreements; non-prosecution agreements; and
declinations. (pages 74-75)
SEC enforcement actions can be resolved by injunctive actions and
remedies; administrative actions and remedies; deferred prosecution
agreements; non-prosecution agreements; and termination letters and
declinations. (pages 76-77)
While DOJ and SEC generally do not publicize declinations, the
Guide provides six examples of recent declination decisions. (pages
77-79)
WHISTLEBLOWER PROVISIONS AND PROTECTIONS (pages 82-83)
Companies need to be aware that both the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 contain provisions that incentivize and protect whistleblowers who report possible securities law violations.
DOJ OPINION PROCEDURE (pages 86-87)
DOJ continues to encourage companies to use the DOJ opinion
procedure to determine whether proposed conduct would be prosecuted
by DOJ under the FCPA.
Companies should note that DOJ FCPA opinions relate only
to the anti-bribery provisions.
Footnotes
1.Compare Ministry of Justice, The Bribery Act 2010:
Guidance about procedures which relevant commercial
organizations can put into place to prevent persons associated with
them from bribing, 27, available here (discussing the broad scope of business
relationships covered by the Act and the need to conduct due
diligence proportionate to the risk created by each
relationship).
2.Compare 2010 UK Bribery Act, available here (providing "adequate
procedures" defense to strict liability for failure by a
commercial organization to prevent bribery).
3.See H. Lowell Brown, "Extraterritorial
Jurisdiction Under the 1998 Amendments to the Foreign Corrupt
Practices Act: Does the Government's Reach Now Exceed its
Grasp," 26, N.C. J. Int'l L. & Com. Reg. 239, 328-38
(2001).
4.http://www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.