- Member Services
- Member Search
- TBA Member Benefits
- Government Affairs Update
- Law Practice Management
- Legal Links
- Local Rules of Court
- Opinion Search
- Tennessee Rules of Professional Conduct
- Update Information
- Celebrate Pro Bono
- Corporate Counsel Pro Bono Initiative
- Government Affairs Update
- Law Student Outreach
- Leadership Law
- Public Education
- Tennessee High School Mock Trial
- TBA Mentoring Program
- Tennessee Youth Courts
- 2014 TBA Annual Convention
- TBA Groups
- ABA Resource Committee
- Attorney Well Being Committee
- Access to Justice Committee
- CLE Committee
- Committee on Racial and Ethnic Diversity
- Committee on the Judiciary
- Ethics and Professional Responsibility
- Governmental Affairs Committee
- Judicial Campaign Code of Conduct Committee
- Leadership Law
- Legal-Medical Relations Committee
- Long Range Planning
- Mentoring Committee
- Public Education Committee
- Special Committee on Conservatorship Practice and Procedure
- Tennessee Bar Journal Editorial Board
- Unauthorized Practice of Law
- Special Committee on Law Practice by Foreign Lawyers
- Leadership Law Alumni
- Tennessee Legal Organizations
- Young Lawyers Division
- YLD Fellows
- TBALL Class of 2014
- Access to Justice
- Access to Justice Committee
- Attorney Web Pages
- Celebrate Pro Bono
- Corporate Counsel Pro Bono Initiative
- Corporate Council Pro Bono Initiative Award Nomination
- Apply for a Corporate Council Pro Bono Initiative Grant
- CCPBI Sponsorship Information
- 2014 CCPBI Award Winners
- 2013 CCPBI Award Winners
- 2012 CCPBI Award Winners
- 2011 CCPBI Award Winners
- 2010 CCPBI Award Winners
- 2009 CCPBI Award Winners
- 2008 CCPBI Award Winners
- Disaster Relief Resources
- Finding an Attorney
- Hometown Support: Legal Help For Our Military
- I Want to Do Pro Bono
- Justice for All
- Member Search
- The TBA
Is That a Crime?
Understanding Risks and Obligations in the Foreign Corrupt Practices Act
If you represent individuals or businesses that conduct any business internationally or are affiliated with foreign entities, you need to know about the FCPA - and what your clients can do to reduce their civil and criminal liability exposure.
Entertaining clients is a common, often obligatory, business practice. Meals paid for by the business, tickets to pro sporting events, and holiday gifts are just some of the many ways businesses show their appreciation to their clients. Many businesses donate to a client's favored charity. And it is not unusual for a business to hire relatives of its clients.
Moreover, many companies retain third-party agents familiar with a local territory or to lobby foreign officials for favorable policies and laws. Some companies may do business with foreign companies without investigating the political party affiliations of the foreign companies' executives. Finally, many companies that are considering acquiring, or being acquired by, another business may do virtually no due diligence on entertainment expenses and third-party contracts. None of these examples is unusual, so why are all these seemingly innocuous practices introducing a discussion of foreign corruption?
Because when a business operates internationally, each of these acts can lead to felony criminal liability and enormous financial exposure for the business and its officers and employees due to the strict and sometimes surprising requirements of the once little enforced U.S. Foreign Corrupt Practices Act (FCPA).
Though the FCPA was enacted three decades ago, it was rarely enforced until recently, and therefore has garnered minimal attention from many attorneys and businesspersons. Yet in January 2009, the Los Angeles Times reported that "Justice Department officials say enforcement of the FCPA is second only to fighting terrorism in terms of priority." FCPA prosecutions have spiked dramatically in the last three years. Penalties are also increasing exponentially: since December 2008 alone, companies have agreed to pay more than $1.3 billion to the U.S. government pursuant to settlements under the FCPA. In 2008, a number of individuals received prison sentences and agreed to pay multimillion dollar settlements for FCPA violations. News reports indicate that the DOJ and SEC are currently investigating companies and individuals in a wide variety of industries including health care, pharmaceuticals, medical devices, transportation, entertainment, energy and manufacturing.
Many Tennessee businesses and individuals are directly or indirectly involved in overseas business " using third-party foreign sales agents, operating foreign facilities, importing or exporting goods, outsourcing services or owning or being owned by foreign affiliates. As a result, Tennessee in-house counsel, outside corporate counsel, employment attorneys, plaintiffs' attorneys and criminal defense attorneys are more likely than ever to have clients affected by the FCPA. This article provides a basic primer on the FCPA and outlines steps companies and individuals can take to reduce their FCPA exposure.
An FCPA Primer
A. What is the FCPA and to Whom Does It Apply?
The FCPA is a federal law that includes two general sets of provisions:
- Anti-bribery: These provisions prohibit directly or indirectly offering "anything of value" to any foreign official for the purpose of influencing the decision of that official to do anything that assists the offeror in the obtaining or retaining of business. The interpretation of the statutory language is exceptionally broad. Local custom is no defense, and there is no exception for de minimis payments.
- "Books and Records": These provisions require companies 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." There is no materiality threshold. Additionally, companies must maintain a system of internal compliance controls that "provides reasonable assurances that transactions are executed in accordance" with GAAP.
The FCPA is enforced by both the DOJ and the SEC. The DOJ handles all criminal enforcement and all civil enforcement against domestic concerns and foreign persons who violate the FCPA within U.S. territory. The SEC's authority extends to "books and records" suits against issuers.
The jurisdiction prescribed by the FCPA is far-reaching. The anti-bribery provisions apply to "domestic concerns" and "issuers." "Issuers" includes those companies that have a class of securities registered pursuant to, or that are required to file reports under, the Securities Exchange Act of 1934. As defined by the FCPA, "domestic concerns" includes American individuals, resident aliens and entities " including attorneys and law firms. The FCPA also applies to any person (including a foreign individual or entity) who engages in prohibited activity within the territory of the United States.
Significantly, a company can be held vicariously liable for the conduct of its employees, subsidiaries, joint ventures and third-party agents. Many smaller companies operating abroad do not have extensive foreign operations, but instead hire local consultants who "know the lay of the land." If firms deliberately ignore the actions of their agents, they can be found vicariously liable for the agents' actions, even if the agents are not subject to the FCPA.
The determination of "deliberate ignorance" turns on whether a firm adequately investigated the third-party's connections to the government, particularly if certain "red flags" turn up. Red flags include a third-party's failure to certify compliance with the FCPA, unusual payment patterns or financial arrangements, a history of corruption in the country, lack of transparency in expenses and accounting records, apparent lack of qualifications or resources to perform the services offered, and whether the third-party has been recommended by an official of the potential governmental customer.
Finally, many FCPA problems come to light during mergers and acquisitions. Because an acquirer may be liable for violations committed by its target, corporate counsel are increasingly insisting on FCPA due diligence. When previously unknown FCPA violations are uncovered, they can cause major headaches for both sides.
For example, in one of the most significant prosecutions arising out of an M&A transaction, Titan Corporation entered into merger discussions with Lockheed Martin. As part of the merger agreement, Titan represented that it had not taken any action that would cause the company to be in violation of the FCPA. During due diligence, attorneys discovered that one of Titan's agents had made improper payments in violation of the FCPA. In the wake of these discoveries, Titan offered to reduce the purchase price by $179 million. Despite Titan's concession, Lockheed walked away from the deal, leaving Titan to settle with the government for $28.5 million.
1. The Anti-bribery Provisions: What Constitutes "Bribery" May Surprise You
The elements of a bribery violation are: (1) the payment (or offer of) (2) anything of value (3) to any foreign official, foreign political party official, candidate for foreign office, or any other person, while knowing that all or part of the payment will be passed on to one of the above (4) "corruptly" (5) for the purpose of obtaining or retaining business for or with any person.
Because these elements are far broader and more ambiguous than they appear, a fact-intensive analysis is often required in order to determine whether a particular activity runs afoul of the FCPA. For this reason, many companies develop compliance polices specific to their business practices and the foreign jurisdictions in which they operate. They also rely on counsel opinions for situations not expressly covered by black-letter policies. The following examples illustrate why the requirements of the FCPA statute are not always intuitive:
- "Anything of Value" and the Offer
The FCPA prohibits not only consummated bribes, but also unaccepted offers of bribes. "Anything of value" indeed means anything. Common "things of value" that may trip up companies and employees include travel expenses (e.g., first or business class flights), entertainment expenses (e.g., expensive meals) and jobs for relatives of officials.
- "Obtaining or retaining business"
This element has been expansively interpreted. For example, in United States v. Kay, the court held that making payments to officials to reduce customs expenses and taxes can constitute a violation of the FCPA. The Kay defendants unsuccessfully argued that such payments did not assist them in "obtaining or retaining business" but rather simply lowered the company's tax burden.
- "Foreign official"
The requirement that the recipient of the bribe or offer be a "foreign official" is also broader than it appears. Though the term is not statutorily defined, it has been expansively interpreted. Employees of state-run industries may be foreign officials for FCPA purposes. For example, physicians in state-run hospitals have been considered "foreign officials" under the FCPA. In countries like China, where many prominent businesspersons are also members of the Communist Party, reimbursement to such foreign businesspersons of otherwise legitimate expenses may violate the FCPA, because "political party officials" are considered "foreign officials" under the statute.
Though the requisite intent " "corrupt" " sounds particularly nefarious, it usually plays little substantive role in an analysis of an FCPA issue. Typically, if enforcers can establish that payment was made to an official "for the purpose of obtaining or retaining business" to which the defendant was not otherwise entitled, enforcers will infer corrupt intent.
- The Statutory Exception and Defenses " Don't Bet on Them
Considering the massive penalties and difficult language of the FCPA, defense counsel might hope for statutorily-provided exceptions and defenses. Though the FCPA has both, they provide little shelter for defendants.
2. Book-keeping Provisions - When a Lack of Sufficient Detail Can Be a Felony
There are two aspects of the accounting provisions: record-keeping and internal accounting controls. The core requirement of the record-keeping provisions is that every issuer "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." All transactions are covered, not only foreign transactions - and there is no materiality standard.
Records must contain more than just the financial details of the transaction itself. Employees are also required to include information necessary to call a reviewer's attention to any possible illegality or impropriety. For example, in a recent case, a company was found to have bribed the manager of a private steel mill. Though the company was not charged with a violation of the anti-bribery provision for this particular act (because there was no foreign official involved), the SEC charged the company with a violation of the books and records provisions, since the bribes were inaccurately recorded as "sales commissions" or "rebates." Put bluntly, the SEC found that the bribes should have been recorded as bribes.
Companies must also maintain adequate internal accounting controls. Issuers are required to "devise and maintain a system" that "provides[s] reasonable assurances that ... transactions are executed in accordance with the management's general or specific authorization." Specifically, transactions must provide "reasonable assurances" that:
- transactions are executed, and access to assets is permitted, only according to management's authorization;
- transactions are recorded as necessary to (i) permit preparation of financial statements in conformity with GAAP or any other criteria applicable to such statements and (ii) to maintain accountability for assets; and
- the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
The records must be sufficient to "satisfy prudent officials [as it would in] the conduct of their own affairs."
B. What Are the Consequences of an FCPA Enforcement Action or Violation?
The costs of responding to a government investigation " much less being found liable " are often staggering. Siemens paid more than $850 million in fees and costs to its U.S. law firm and accounting firm " or $50 million more than the amount it agreed to pay to the U.S. government. Companies and individuals also face the loss of reputation associated with being charged under an anti-bribery statute. Moreover, FCPA charges are often only part of a more extensive indictment. Frequently, defendants will also find themselves facing mail, wire and tax fraud charges.
The actual penalties that can be imposed for FCPA violations are also severe. They include:
- For companies " felony convictions, fines of up to $2 million per violation, disgorgement, denial of export licenses, and debarment from doing business with the U.S. government.
- For individuals and executives " felony convictions, imprisonment up to five years and fines up to $100,000 per violation, along with disgorgement and debarment.
Note that fines are levied per violation " that is, if a company is paying a customs agent $25 to improperly expedite its shipments ahead of other companies' shipments, each improper payment may result in a $2 million fine. Though these fines may seem hefty enough, they potentially can be even greater. Under the Alternative Fines Act, the government can impose penalties equal to twice the benefit sought by the defendant in making the improper payment.
Companies that violate the FCPA (particularly those without robust compliance programs already in place) will often be required to hire an independent compliance monitor for two to four years. The compliance monitor's duties are to the government, not the company, and the monitor generally is given unfettered access to the company's books and senior management. The monitor reports its findings directly to U.S. enforcers, and the information it gathers is not protected by the attorney-client privilege. Hiring an independent monitor can be costly, not just in attorneys' fees, but in the disruption of the company's business.
As the FCPA has begun to make headlines, plaintiffs' attorneys have begun bringing suits based on FCPA violations. Though the FCPA has no private right of action, plaintiffs have brought RICO, derivative, and federal securities suits predicated on FCPA charges. For example, in In re Immucor Inc. Securities Litigation, shareholder-plaintiffs brought a § 10(b) suit after Immucor's stock dropped in the wake of an FCPA investigation by the SEC. The plaintiffs alleged that Immucor misrepresented the strength of the company's internal accounting controls. The defendants moved to dismiss the complaint, contending that the plaintiffs failed to allege any false or misleading statements. The court denied the motion, holding that the plaintiffs had adequately alleged that Immucor failed to disclose the full extent of its potential FCPA exposure.
Between felony convictions, significant fines, disgorgement and potential exposure to private suits, the message is clear: violating the FCPA can have devastating consequences for both corporations and individuals.
C. Why Is this Law Suddenly Making So Much News?
Though the FCPA has only recently begun to garner regular headlines, its history stretches back to the Watergate era. Corporate participation in a voluntary SEC disclosure program revealed that numerous U.S. companies were paying bribes to government officials to obtain business in developing countries. Congress stated that such bribes were "counter to the moral expectations and values of the American public," "erode[d] public confidence in the integrity of the free market system," "embarrass[ed] friendly governments ... and [lent] credence to the suspicions sown by foreign opponents of the United States ..." The FCPA was intended to enhance America's image abroad and reduce the increased transaction costs imposed by foreign bribes.
Though the original FCPA certainly had teeth, U.S. regulators did not aggressively enforce the statute, likely because in many instances the statute put American companies at a competitive disadvantage with their foreign competitors.
In 1997, however, the Organization for Economic Cooperation and Development (OECD), which includes most developed countries, passed a convention requiring member states to enact legislation prohibiting foreign bribery. As more countries have passed statutes similar to the FCPA and begun enforcing them, U.S. authorities have become much more vigorous in FCPA enforcement. The DOJ FCPA team that previously had the equivalent of only two full-time prosecutors now has as many as a dozen prosecutors dedicated to FCPA enforcement, supported by a special FBI FCPA unit. Government investigators are now using wiretaps, undercover agents, and corporate "moles" to uncover anti-corruption violations.
American enforcers are also now routinely cooperating with foreign enforcement authorities. It is now common for U.S. FCPA enforcement actions to occur in concert with enforcement actions by one or more other signatories to the OECD Convention. For example, in addition to the $800 million Siemens paid to settle FCPA charges, in December 2008 Siemens also paid approximately $800 million in penalties to settle similar charges brought by the German government. Finally, as public awareness of the FCPA grows, enforcers are receiving from whistleblowers and competitors many more reports of alleged FCPA violations. Not surprisingly, once enforcers begin investigating one company, their investigation often encompasses other companies and individuals in the same and related industries.
What Can You Do to Reduce Your Clients' FCPA Exposure?
For companies seeking to avoid liability for FCPA violations committed by its employees or other agents,16 the first goal should be to prevent FCPA violations from occurring in the first place. If an FCPA violation or investigation does occur, the next goal for a company and its employees is to avoid prosecution altogether. And, if prosecution does occur, the final goal is to reduce the negative consequences as much as possible and to avoid recurrence.
A. An Ounce of Prevention: Why an FCPA Compliance Program Is Critical for Companies That Do Business Internationally
The most important step a company can take to reduce its FCPA liability exposure is to establish an FCPA compliance program consistent with current DOJ guidelines. The goal of an FCPA compliance program is simple: to ensure that employees understand the FCPA, and to send and enforce within the company the message that FCPA violations are illegal, contrary to company policy and well-being, and completely unacceptable. Because the requirements of the FCPA are expansive and prohibit business practices that may be commonly used with private clients, a compliance program is critical to achieving this goal.
While it may be impossible always to prevent an individual employee from willfully violating company policy and the law, a compliance program can avoid FCPA violations that may otherwise result from ignorance of the statute's requirements. An effective FCPA compliance program will also help a company and its employees better detect an FCPA violation while it is still an isolated incident. Companies then have the option of self-disclosing violations to federal enforcers. The DOJ and SEC have made it clear that self-disclosure and subsequent cooperation can help a business avoid more significant penalties. For example, the government cited Siemens' "exemplary cooperation" and sought less than half the sanctions available under the Sentencing Guidelines. In other cases, self-disclosure and cooperation have led to no prosecution at all.
B. What Are Some Key Elements of an Effective Compliance Program?
What might an effective FCPA compliance program look like?
The program should be designed to ensure that corporate activities do not violate the criminal or civil provisions of the FCPA and related applicable regulations, such as the local anticorruption laws of the foreign jurisdictions in which the company and its employees do business. The Department of Justice recognizes and imposes no formulaic requirements for FCPA (or other) compliance programs, and realizes that they should be assessed on a case-by-case basis. The assessment should be driven by the answers to the following questions, considering all of the circumstances:
- Is the program well-designed?
- Is the program applied earnestly and in good faith?
- Does it work?
Not surprisingly, the Department of Justice directs federal prosecutors to assess whether the compliance program is a mere "paper" program, or whether instead it was effectively designed, implemented, reviewed and revised as necessary.
To answer these questions, federal prosecutors look to various circumstances surrounding the FCPA compliance program at issue. Among other things, the following are often probative:
- the degree of effort taken to inform and educate company employees about the program;
- the sufficiency of staff to audit, analyze, and use the results of the corporation's compliance efforts;
- past remedial actions taken against prior violators of the FCPA policy;
- efforts to revise the compliance program in light of lessons learned;
- the extent to which corporate governance mechanisms (including reporting procedures and the distribution of authority and review functions) foster detection and prevention of FCPA violations; and
- the extent to which the program is specifically designed to detect and prevent the kinds of FCPA violations most likely to occur in the company's particular line of business.
Against this backdrop, an FCPA compliance program likely will need many components to be effective. An effective program likely will include the following policies and procedures:
- a specific anti-bribery policy that provides important details, such as an identification of company-affiliated individuals subject to the policy, a comprehensive definition of prohibited payments to foreign officials, information regarding accessible resources for help in addressing FCPA issues, and sanctions for violations;
- a hotline and/or other means whereby possible FCPA violations can be reported confidentially;
- reasonable measures to vet any foreign agents it uses abroad on a contract basis;
- periodic training for all appropriate employees regarding the FCPA and the company's policy to comply with it;
- a record-keeping policy that specifically acknowledges the company's record-keeping obligations under the FCPA and describes in general terms the company's methods for discharging those obligations;
- periodic audits and testing of the company's accounting and internal controls; and
- diligent internal investigations of alleged FCPA violations and appropriate sanctions imposed against violators.
Companies and individuals that operate in areas that are believed to have higher rates of corruption - such as China, India, Mexico, Russia, Brazil, Africa, Eastern Europe, and the Middle East - can be expected to need more rigorous compliance programs. Likewise, companies and individuals doing international business that involves significant interaction with "government officials" likely will need more robust compliance efforts. Examples include companies involved in health care, intellectual property, energy industries, or in businesses that require government permits, licensing, or approvals. Likewise, FCPA vigilance should be heightened in industries in which the government or government-controlled entities may be a client, distributor or end-user for goods or services, such as pharmaceuticals or medical devices.
Critically, the goal of a compliance program is not simply to appease the federal government in the event of an investigation. For a company to discharge its obligations as a good corporate citizen and to realize the benefits of an FCPA compliance program, its compliance program cannot be mere "window dressing." Instead, the company's anti-bribery message must be stated clearly and with adequate specificity, and must be actively implemented with enforcement mechanisms having real teeth.
C. How Can a Compliance Program Reduce Penalties?
Even the best compliance program may not prevent a rogue employee from violating the FCPA, and even the best corporate citizen may find that it needs to self-disclose a violation to the government. An effective compliance program, however, can pay significant dividends even in the event of an FCPA investigation.
First, as indicated above, an effective compliance program can help convince prosecutors not to criminally charge the company. Under Department of Justice policy, for example, federal prosecutors should consider the effectiveness of the compliance program, together with other applicable factors and policies, in deciding whether to charge the corporation or instead to charge only the corporation's culpable employees and agents.
Before deciding to seek charges against the corporation, federal prosecutors should, under Department of Justice policy, consider two separate sets of factors. The first set applies to any potential federal criminal defendant " natural or corporate. In deciding whether to charge a potential defendant, federal prosecutors should consider several factors beyond simply whether the evidence is sufficient to prove the charge(s). These factors include the likelihood of success at trial; the probable deterrent, rehabilitative, and other consequences of conviction; and the adequacy of non-criminal approaches to addressing the misconduct.
Due to the unique, artificial nature of corporations, however, federal prosecutors are directed to consider an additional set of factors in determining whether to charge a corporation. These additional factors include:
- the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management;
- the corporation's history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it;
- the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents;
- the existence and effectiveness of the corporation's pre-existing compliance program; and
- the adequacy of the prosecution of individuals responsible for the corporation's malfeasance.
These factors are not necessarily weighed equally. Importantly, the Department of Justice maintains that the most vital factors are those relating to the role and conduct of management. To the extent that corporate management facilitated wrongdoing by participating in " or at least failing to discourage " wrongdoing by corporate agents, the corporation likely will face criminal charges and greater sanctions. The existence and effectiveness of a compliance program predating the agent's wrongdoing is perhaps the factor that best addresses whether management facilitated wrongdoing.
The existence of an effective FCPA compliance program will not, by itself, guarantee that a company will avoid criminal liability for the criminal FCPA violations of its agent(s). Nevertheless, in a prosecutor's view, an effective pre-existing or promised future program well may tip the balance against charging the corporation. For example, the DOJ declined to take any action against an investment group that pledged to implement rigorous controls in the companies it acquired.
Even if a prosecutor does not decide to forego prosecution of a company unconditionally and unilaterally, the prosecutor may do so pursuant to a nonprosecution agreement (NPA). In a typical corporate NPA, the government agrees to forego charges against a corporation. In return, the corporation admits the fact of its criminal liability for specified past acts, agrees to pay fines and/or restitution, and agrees to comply for a specified period of time with certain other conditions, such as implementing additional compliance measures and avoiding additional criminal violations. If the company complies with the terms of the agreement for the specified period, then the NPA bars the government from thereafter bringing charges against the corporation based on the specified past acts. An effective compliance program well may persuade a prosecutor to enter into a NPA instead of filing criminal charges. For example, the DOJ specifically cited General Electric's exemplary compliance program when the Department entered into a NPA with the company for alleged violations by a subsidiary GE had recently acquired.
2. Deferred Prosecution
Even for a corporation that does not receive a NPA and is charged, an effective compliance program may provide substantial benefits. The effectiveness of the compliance program is equally relevant to a federal prosecutor's decision whether to mitigate charges. One way a prosecutor may mitigate charges is by foregoing charging every potential crime, and instead charging fewer or lesser crimes. Another way is by entering into a deferred prosecution agreement (DPA).
A DPA is similar to a nonprosecution agreement, except that it applies to charges that have already been filed. Under a typical DPA, should the corporation satisfy the requirements of the DPA for the specified period of time, prosecutors typically are required to dismiss the pending charges with prejudice.
3. Reduced Penalties
Even if a corporation is convicted of FCPA violations, an effective compliance program can mitigate the resulting sentence in several different ways. Federal prosecutors are expected to consider the effectiveness of a compliance program, among other things, in determining what sanctions should be imposed on the guilty corporation. Thus, if a corporation agrees to plead guilty, an effective compliance program well may persuade prosecutors to recommend less severe sanctions in a plea agreement. Moreover, even if the corporation is convicted without a plea agreement, federal prosecutors may have to concede at a sentencing hearing that the effective compliance program militates against harsh sanctions.
Additionally, in determining any sentence, a federal judge must consider many different factors, including the history and characteristics of the defendant and the advisory United States Sentencing Guidelines. Pre-existing compliance programs are both a laudable aspect of a company's history and character and central to the corporate sentencing provisions of the Sentencing Guidelines. Although the Sentencing Guidelines are advisory, the extent of sanctions recommended by the Sentencing Guidelines for corporations is driven in substantial part by whether the sentencing judge credits the corporation with having had an effective compliance program at the time the crimes were committed.
4. Other Collateral Benefits of FCPA Compliance Programs
An effective FCPA compliance program can help the company in additional ways. Compliance programs may result in the better detection of other types of waste, fraud, abuse, and legal violations that can expose a company and its executives to civil and criminal liability.
Effective compliance programs also enhance a company's reputation for competence and reliability, thus providing the company with a competitive advantage, particularly in situations where private or government clients place a premium on a business's reputation for ethical dealings. This dynamic often occurs with politically sensitive procurements, such as those that follow previous discoveries of corruption or unethical dealings. Additionally, many companies find that once they have established a reputation for not paying bribes, fewer corrupt foreign officials seek bribes from the companies' employees. Finally, compliance programs greatly enhance businesses' awareness of potential problems and thus permit companies to take advantage of the self-reporting system.
The FCPA is a complicated and expansive statute that can affect almost every company and individual that does business internationally. The most important thing that attorneys can do for their clients is to ensure that they understand the FCPA's requirements and can identify and avoid potential problems. For companies, operating internationally requires a robust compliance program and vigilance against potential FCPA violations.
1. 15 U.S.C. § § 78dd-1, et seq.
2. Don Lee, "Avery Dennison Case a Window on the Pitfalls U.S. Firms Face in China," L.A. Times, Jan. 12, 2009, at A1.
3. See 15 U.S.C. § 78dd-1.
4. United States Department of Justice, Lay-Person's Guide to the FCPA Statute (June 2001), available at http://www.usdoj.gov/criminal/fraud/fcpa/dojdocb.htm.
5. 359 F.3d 738 (5th Cir. 2004).
6. Id. at 749.
7. DOJ Press Release 05-090, "Micrus Corporation Enters Into Agreement to Resolve Potential Foreign Corrupt Practices Act Liability" (Mar. 2, 2005).
8. S. Rep. No. 95-114, at 10 (1977), reprinted in 1977 U.S.C.C.A.N. 4098, 4108.
9. There is one exception for "facilitating payments." In addition to this exception, there are two affirmative defenses to an FCPA charge: proving that a payment was "bona fide" or proving that a payment was lawful under the written laws of the foreign country. The exception and the affirmative defenses are rarely successful. See, e.g., United States v. Kozeny, No. 05-518 (S.D.N.Y. filed Oct. 21, 2008) (holding that defendant could not rely on the "written laws" defense even where laws of Azerbaijan relieved from criminal responsibility individuals who bribed a government official if there was extortion of the bribe).
10. DOJ Press Release 06-707, "Schnitzer Steel Industries Inc.'s Subsidiary Pleads Guilty to Foreign Bribes and Agrees to Pay a $7.5 Million Criminal Fine" (Oct. 16, 2006).
11. 15 U.S.C. § 78(b)(2).
13. Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990).
14. In re Immucor Inc. Sec. Litig., 2006 WL 3000133 (N.D. Ga. Oct. 4, 2006).
15. H.R. Rep. No. 95-640, at 4-5 (1977), reprinted in 1977 U.S.C.C.A.N. 4098, 4100-01.
16. While a compliance program also may have utility for a company seeking to minimize civil liability, the extent of such utility is beyond the scope of this article.
17. DOJ Opinion Release 04-02 (July 12, 2004).
18. DOJ Press Release 04-780, "InVision Technologies Enters into Agreement with the United States" (Dec. 6, 2004).
ELI RICHARDSON is an Assistant United States Attorney (AUSA) currently serving as the Department of Justice’s Resident Legal Advisor in Belgrade, Serbia. Immediately prior to that, he served as Chief of the Criminal Division of the U.S. Attorney’s Office for the Middle District of Tennessee. Mr. Richardson also has served as both an AUSA and an FBI Special Agent in New Jersey, and engaged in private law practice for almost six years. He is a graduate of Duke University and Vanderbilt University Law School and the author of numerous law review articles. The views expressed in this article do not necessarily represent the views of the United States Government or Department of Justice.
ROSS BOOHER is a partner at Bass, Berry & Sims, PLC where he practices in the Antitrust & Trade Practices Group. He represents and counsels businesses in complex litigation, internal investigations and regulatory compliance, including the FCPA. Mr. Booher is the recipient of the TBA’s 2007-08 Harris Gilbert Pro Bono Attorney of the Year Award. He is a former Lieutenant Commander in the U.S. Navy Judge Advocate General’s Corps. He served overseas as a Navy prosecutor and conducted sensitive criminal and national security investigations in foreign jurisdictions. He is a graduate of Vanderbilt University and the University of Tennessee College of Law.
TAYLOR PHILLIPS is an associate at Bass, Berry & Sims, PLC where he practices in the Antitrust & Trade Practices Group. A graduate of the College of William and Mary and the University of Virginia School of Law, he concentrates his practice on corporate litigation, internal investigations and assisting companies in complying with the FCPA.