Foreign Corrupt Practices Act (FCPA)

Foreign Corrupt Practices Act (FCPA)

FCPA Overview • Enacted in 1977 to deal with questionable payments to foreign officials • Purposes • Halt bribery of foreign officials • Restore public confidence in American business system • Promote stronger foreign legal regimes • Enforced by Department of Justice and Securities and Exchange Commission Augmented by international anti-corruption laws

FCPA Overview (cont’d) • Enacted in 1977 to deal with questionable payments to foreign officials • Purposes • Halt bribery of foreign officials • Restore public confidence in American business system • Promote stronger foreign legal regimes • Enforced by Department of Justice and Securities and Exchange Commission Augmented by international anti-corruption laws

Pop Quiz! • In which of the following ways does the FCPA "level the playing field" for U.S. companies doing business internationally? • By encouraging other countries to regulate bribery in a manner similar to the FCPA. • By allowing U.S. companies to pay bribes if other countries allow them. • By regulating bribery in all countries through one law: the FCPA.

The Importance of Compliance • Recent FCPA prosecutions: • KBR/Halliburton (2009): $559 million settlement and possible prison sentence • Siemens (2008): $800 million to settle U.S. charges and $850 million to settle related charges in Germany • Baker Hughes (2007): $44 million • Vetco International (2007): $26 million

The Importance of Compliance (cont’d) • You and the Company can be implicated in bribery or corruption activities that were carried out by others without your direct knowledge • Involvement in any type of bribery or corruption activity is costly: • Creates adverse publicity • Hurts employee morale • Consumes management time and legal fees • Can lead to substantial penalties • Employees can face possible prison terms

Scope of the FCPA • FCPA prohibits individuals and companies from bribing foreign officials directly or indirectly • Broad application: • Any citizen or resident of the U.S. • Any U.S. business entity and certain foreign entities • Any act in furtherance of unlawful payments anywhere in the world FCPA could apply to any individual, any company, any officer, employee or agent of that company, and any stockholder acting on behalf of that company

Prohibited Recipients • Prohibited recipients include — • Any foreign official, political party, party official, or candidate • Any third person who will use payment to gain influence with foreign official Foreign official includes — • Officers and employees of foreign government • Departments, instrumentalities or agencies of foreign government • Anyone acting in an official capacity for foreign government • Officers and employees of public international organizations • Officers and employees of state-owned or -controlled enterprises • Members of a royal family or a legislative body

Corrupt Payments • FCPA prohibits an offer, payment, promise or authorization of giving "anything of value" • Bribe need not be successful or accepted • Anything of value • Charitable donations and entertainment-related items • Something of benefit to official's family • Value of payment or gift is immaterial

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Intent and the "Knowing" Standard • FCPA prohibits payments made with intent to influence the recipient to misuse an official position in order to secure an improper advantage • Corrupt intent is determined in hindsight Company may not bypass FCPA by making payments through intermediaries FCPA prohibits corrupt payments made while knowing that all or portion will be given or offered — directly or indirectly — to foreign official

Pop Quiz! • While your sales staff works to get a contract with the procurement department in a small foreign country, you become friendly with other government officials in that country and offer to fly them to the U.S. to see a World Series baseball game. Is this likely to be a problem? • Yes, since it appears that you’re trying to influence the foreign officials to help your company win the contract. • Maybe, if the foreign officials accept your offer and come to the game. • No, because your sales staff is working to win the contract; you’re just developing relationships.

Due Diligence and Red Flags • We must use due diligence when negotiating international business relationships • Red flags: • History of corruption in the country • Associate's shareholders, directors, officers or relatives are foreign officials • Associate was recommended by a government official • Associate refuses to disclose other parties • Associate appears to lack resources or qualifications

Due Diligence and Red Flags (cont’d) • Red flags: • Reputation of a business associate • Unusually high commissions or fees • Unusual payment patterns • Request for payment outside of the country where the associate resides or the services are performed • Request for payments to third parties or checks made out to "cash" Don't ignore red flags — report them to your supervisor or the Legal Department

Pop Quiz! • Our Company is bidding on a huge contract for which we need a special license from the Canadian Ministry of Tourism, Culture and Recreation. It so happens that one of our Company's employees went to college with the Tourism Minister's daughter. She has offered to "make the right introductions" that would help us secure the license, but she has asked for a $20,000 payment to be deposited into a Bermuda bank account. How many red flags, if any, do you see in this offer? • None. • One. • Two. • Three. • Four.

Exceptions and Defenses • Facilitating payments facilitate or expedite routine governmental action • Providing police protection or mail delivery • Obtaining permits, licenses, or other official documents • Processing governmental papers • Scheduling inspections • Providing phone, power, water, cargo loading, etc. • Protecting perishable products from deterioration

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Exceptions and Defenses (cont’d) • Defenses • Payment was lawful under the laws or regulations of the foreign official's country • Laws/regulations must be written • Payment was spent on demonstration or performance of contract • Must be reasonable and bona fide

Accounting and Recordkeeping • Accounting and recordkeeping provisions apply to public companies • Requirements: • Keep records that accurately and fairly reflect all transactions • Maintain internal accounting controls • Perform audits at reasonable intervals • Take appropriate action on discrepancies • We must maintain records for all expenditures

Pop Quiz! • The Company has retained a consultant to help prepare a bid for a contract with a foreign government. In order to avoid any hassles, the consultant's commission will be shown in the Company books as "office supplies and services," rather than "commissions and fees." Which of the following is the most accurate? • As long as the amount of the commission is accurately recorded in the Company's books, the Company would not be violating the FCPA. • As long as the consultant doesn't bribe any foreign government officials, the Company would not be violating the FCPA. C. As long as the consultant's fee could be considered "office supplies and services," the Company would not be violating the FCPA. D. If the Company is a public company, it would probably violate the FCPA if it accounted for the consultant's commission in this way.

Penalties for FCPA Violations • Accounting and recordkeeping provisions apply to public companies • Companies may be fined up to $2 million • Individuals may be fined up to $100,000 and imprisoned • Fines on individuals may not be paid by employer • Civil and criminal forfeiture of property • Debarment • Private actions under RICO

Penalties for FCPA Violations (cont’d) • Accounting and recordkeeping provisions apply to public companies • Companies may be fined up to $2 million • Individuals may be fined up to $100,000 and imprisoned • Fines on individuals may not be paid by employer • Civil and criminal forfeiture of property • Debarment • Private actions under RICO

Final Quiz

Questions?

Thank you for participating! This course and the related materials were developed by WeComply, Inc. and the Association of Corporate Counsel.

Foreign Corrupt Practices Act (FCPA)