New US government FCPA guidelines provide important compliance insights for foreign as well as US companies
On November 14, 2012, the US Department of Justice (“DOJ”) and the US Securities and Exchange Commission (“SEC”) issued their long-awaited “Resource Guide to the US Foreign Corrupt Practices Act” (“FCPA”). A copy of the Guide may be found at: http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.
As expected, the 120-page Guide does not reflect a substantial relaxation of the agencies’ current enforcement policies, nor is it intended to bind the agencies in any way. The Guide, however, does provide many useful clarifications of enforcement approaches that heretofore could only be discerned by a close review of numerous case settlements, agency advisory opinions and officials’ speeches and articles.
We summarize some of the most significant points in the Guide, although this post is not intended to be a comprehensive introduction to the many FCPA compliance issues that regularly arise. The Guide does, however, provide a summary of the FCPA’s substantive prohibitions applicable to companies and individuals with a US connection along with a summary of FCPA’s demanding “books and records” provisions applicable to US and foreign companies whose shares are traded on the New York Stock Exchange or the NASDAQ exchange. As a result, the Guide will become the first, but by no means the only, resource to consult when analyzing sophisticated compliance issues.
Before summarizing specific points, we do note that even for foreign companies not now subject to the FCPA’s broad jurisdictional reach, the Guide is important. There are two fundamental reasons why this is so:
- The Guide will likely serve as a template for other nations in their implementation and enforcement of their comparable anti-corruption laws.
- When foreign entities deal with US companies, whether as agents, distributors, or joint venture partners or as possible acquisition targets, the US companies will likely insist that they adhere to FCPA norms.
The Guide is particularly useful in providing detailed discussions, often by means of analysis of hypotheticals, that address a range of issues. This post first identifies some of these issues and then provides brief comments:
- Jurisdiction under the FCPA. US parent companies can be liable for the acts of their foreign subsidiaries and others beyond the reach of the FCPA under theories of agency or respondeat superior.
- The treatment of gifts, travel, and entertainment expenses. The agencies’ enforcement efforts will focus primarily on payments of real and substantial value that clearly represent an unambiguous intent to bribe a foreign government official in order to obtain or retain business, according to the head of the SEC’s Enforcement Division. A problematic payment would include a week-long side trips to Las Vegas following a permitted factory tour, for example.
- The use of so-called “facilitation payments.” This is only a very narrow FCPA exception involving small payments to hasten the performance of routine, non-discretionary functions such as installing service from a state-owned telecom provider; in any event, such payments are frequently illegal under the relevant foreign country’s laws.
- Successor liability involving acquired companies. DOJ and the SEC will not ordinarily seek to apply FCPA to problematic pre-acquisition activities of a company not subject to the FCPA. But for this potential safe harbor to apply, the acquiring company subject to FCPA jurisdiction must conduct extensive due diligence before and after the acquisition. If the acquired company continues bribery activity after the acquisition, the enforcement agencies will assert FCPA liability unless, at least in some instances, the acquiring company immediately stopped the practice and voluntarily disclosed the situation to DOJ/SEC.
- Pre-hiring due diligence review of foreign agents, distributors and joint venture partners. The Guide reinforces the focus on red flags that should, at a minimum, give a company pause before entering the relationship. As in other international regulatory contexts, there is a premium on knowing your customer (“KYC”) ie your prospective agent, partner, etc.
- When a foreign person is considered a foreign government official. This will include any employee of a state-owned or state-controlled company, including many oil companies and telecom providers in developing countries.
This posting and the materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
Cameron LLP has substantial experience advising US and foreign companies on FCPA compliance matters and government investigations and on similar matters arising under the laws of other countries. We would be pleased to be of assistance to current and potential clients when compliance questions arise. In such event, please contact Sandy Sierck or Tom Skilton at our firm.