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Thank you for taking the time to participate in our Foreign Corrupt Practices Act (FCPA) training program. Our Company is committed to maintaining the highest level of ethical and legal standards in the conduct of our business activities, and our compliance with the FCPA is an important part of this program. An employee who violates the FCPA subjects the Company — and himself or herself personally — to potentially huge monetary penalties and even imprisonment.
This program is not intended to make you an expert on the FCPA, but it will help you recognize "red flags" — situations presenting a risk of FCPA violations — and deal with them properly. After a summary of the FCPA's key provisions, you'll have a chance to play an online game that presents hypothetical situations for you to analyze; respond correctly to move through the game and earn a Certificate of Completion.
Keep in mind that this material is provided for informational purposes only and is not intended to be, nor should it be understood as, legal advice. If you have questions or need legal advice about how any of this material applies to your job responsibilities, please direct them to your supervisor or the Legal Department.
History of the FCPA
Congress enacted the FCPA in 1977 in response to government findings that hundreds of U.S. companies, including many of the Fortune 500, admitted to making questionable or illegal payments of more than $300 million to foreign government officials, politicians and political parties. Many public companies kept cash "slush funds," from which illegal campaign contributions were made within the U.S. and illegal bribes were paid to foreign governments.
The purposes of the statute are to halt the bribery of foreign officials, to restore public confidence in the integrity of the American business system, and to promote stronger, more realistic, and more reliable foreign legal regimes. The Department of Justice and the Securities and Exchange Commission (SEC) share responsibility for enforcement of the FCPA.
After the FCPA was passed, there was concern that U.S. companies were at a disadvantage in the international business world, because they could not pay bribes while their competitors from other countries remained free to do so. To combat this, the U.S. amended the FCPA in 1998 to make it even broader and has entered into agreements with its major trading partners providing that they, too, will enact legislation similar to the FCPA. These international efforts to battle corruption allow U.S. companies to compete on the merits without being undercut by a competitor's illicit payment to a foreign-government purchaser. The efforts also reflect an increased emphasis on enforcement of anti-corruption legislation worldwide and of the FCPA within the U.S., making Company compliance more important than ever.
Scope of the FCPA
In essence, the FCPA prohibits individuals and companies from bribing foreign officials, either directly or indirectly through intermediaries.
The FCPA is extremely broad in scope. It applies to any citizen or resident of the U.S. and to any business entity that is organized under the laws of the U.S., has its principal place of business within the U.S., or has issued securities registered in the U.S. It also applies to the acts of U.S. businesses and nationals in furtherance of unlawful payments anywhere in the world — even payments that take place wholly outside the U.S.
As a practical matter, the FCPA could apply to any individual, any company, any officer, employee or agent of that company, and to any stockholder acting on behalf of that company.
Even a foreign national or a foreign company that has not issued securities registered in the U.S. may be subject to the FCPA if that individual or company causes an act in furtherance of a corrupt payment to be taken within U.S. territory. Indeed, a U.S. parent corporation of foreign subsidiaries may be held liable if it controlled, directed or authorized an activity found to be an FCPA violation by its foreign subsidiary.
The FCPA prohibits certain payments to any foreign official, any foreign political party or party official, or any candidate for foreign political office. It is also unlawful give certain payments to a third person with the knowledge that all or a portion of it will be used to gain influence with a foreign official, foreign political party or candidate for foreign political office.
A "foreign official" is defined broadly to include any officer or employee of a foreign government, and any department, instrumentality or agency of that government, as well as any person acting in an official capacity for or on behalf of a foreign government.
This includes officers or employees of public international organizations, such as the United Nations, the International Monetary Fund and Europol, as well as other European Union organizations. It also may include officers and employees of state-owned or controlled enterprises and members of a royal family or a legislative body.
Finally, the FCPA could apply to payments our Company makes to a non-governmental commercial enterprise in which a foreign-government official has any financial interest.
The words "bribe" and "bribery" do not actually appear in the FCPA. The statute instead provides a comprehensive list of inducements: forbidding an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value.
Notice that a bribe does not have to be successful, nor does it even have to be accepted. A mere offer or promise to pay may violate the FCPA. Merely authorizing a corrupt payment is enough to violate the FCPA. This means that executives in the U.S. who approve certain transactions without satisfying themselves of the legality may be held criminally liable in spite of the fact that they neither arranged the payments nor handled the money.
The payment made, offered, promised or authorized does not have to be money; it can be anything of value. This includes charitable donations and entertainment-related items such as travel expenses, golf outings or even hiring a prostitute for a potential government customer. Nor does the benefit have to accrue directly to the foreign official; a scholarship given for the benefit of his or her child may also trigger the FCPA. Finally, it doesn't matter how small the object or service given, offered, promised or authorized is. Even if the object or service only has value in the eyes of the foreign-government recipient, it can violate the FCPA.
Intent and the "Knowing" Standard
The FCPA prohibits payments made with the intent to influence the recipient to misuse an official position in order to secure an improper advantage from that government or to assist in obtaining or retaining business for or with, or directing business to, any person. Misuse of an official position can be an omission (such as not issuing necessary papers to a competitor) as well as an action. It also may include using one's influence with a foreign government to affect or influence any act or decision of that government.
Whether a payment or offer is intended to secure an improper advantage or to assist in obtaining or retaining business for or with, or directing business to, any person is known as the business purpose test.
Whether a transaction occurred with corrupt intent will be determined in hindsight. It may not be enough for someone accused of a violation to testify, for example, that "it was not my intent to influence the government official to award the contract to my company when I offered him the weekend getaway in Aruba so that he would be well rested when deciding." The judge or jury will also look at the facts and circumstances surrounding the transaction to determine the existence of a legitimate business purpose and absence of corrupt intent.
A company may not bypass the FCPA by making payments through intermediaries. The FCPA prohibits a company from making corrupt payments while knowing that all or a portion of such payment will be given or offered, directly or indirectly, to any foreign official, political party, or candidate for foreign political office.
Due Diligence and Red Flags
To comply with the FCPA, the Company must conduct a sufficient level of due diligence when negotiating business relationships with foreign countries. This means that the Company must be on alert for indications that an FCPA violation may occur. Among the circumstances to watch for — referred to as "red flags" — are:
A history of corruption in the country;
The fact that shareholders, directors, officers or relatives of a business associate are foreign-government officials;
The fact that a business associate has been recommended by an official of the foreign-government customer;
A business associate's refusal to disclose the parties with whom it will be sharing its profits or commissions;
A refusal by the business associate to provide certification that it will not take any action that would cause the U.S. firm to be in violation of the FCPA or other anti-corruption laws; and
Unusual payment patterns, such as a request for a large payment just before an action by the foreign government is to be taken.
Due Diligence and Red Flags
Other red flags to watch for include:
The reputation of a business associate for paying bribes or taking other corrupt actions;
A lack of "transparency" in a business associate's accounting records;
A business associate's apparent lack of resources or qualifications to perform the services offered;
Unusually high commissions or fees;
A request by a business associate for payment outside of the country where the associate resides or the services are performed; and
A request for payments to third parties or checks made out to "cash."
These lists are not all-inclusive — a red flag can be any circumstance creating a high probability that all or a portion of a payment to the business associate in question will go to a foreign government official for improper purposes.
When red flags exist, you must not ignore them. While there are steps that the Company may be able to take to resolve these issues without walking away from a potentially profitable deal, your job is to spot these red flags and report them to your supervisor or the Legal Department.
Exceptions and Defenses
The FCPA contains only one exception to its anti-bribery prohibitions, referred to as facilitating payments. These are payments to facilitate or expedite routine governmental action, which the statute defines as an action that is ordinarily and commonly performed by a foreign official. This includes:
Obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country;
Processing governmental papers, such as visas and work orders;
Providing police protection or mail pick-up and delivery;
Scheduling inspections associated with contract performance or inspections related to transit of goods across country;
Providing phone service, power and water supply, or cargo loading and unloading;
Protecting perishable products or commodities from deterioration; or
Actions of a similar nature
Exceptions and Defenses
In addition to the "facilitating payments" exception, an individual or company charged with a violation of the FCPA may assert in defense that the payment in question—
Was lawful under the written laws or regulations of the foreign official's, party official's or candidate's country; or
Was money spent as part of the demonstration of a product or performance of a contractual obligation.
The first defense is rarely available. The foreign laws and regulations permitting such a payment must be written, and the absence of any law addressing the subject of payments to a government official is not enough to support this defense. Likewise, longstanding traditions and general acceptance of such payments within the government official's country are also insufficient. As you can imagine, there aren't many countries that put into writing an affirmative authorization for corrupt payments meant to influence their government officials.
The second defense is somewhat more useful. It allows a company or individual to avoid liability by proving that the payment in question was a reasonable and bona fide expenditure, such as travel and lodging expenses, that was directly related to (1) the promotion, demonstration, or explanation of products or services or (2) the execution or performance of a contract with a foreign government or agency.
Accounting and Recordkeeping
In addition to its anti-bribery provisions, the FCPA contains accounting and record-keeping provisions that apply to public companies. These provisions require that a company:
Keep books, records and accounts that accurately and fairly reflect its transactions and disposition of assets;
Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions and access to assets are (1) executed in accordance with management's general or specific authorization and (2) recorded in conformity with generally accepted accounting principles so as to maintain accountability for assets; and
Perform audits at reasonable intervals and take appropriate action with respect to any discrepancies disclosed by the audits.
In short, this means that our Company must maintain records that accurately reflect in reasonable detail all transactions, expenditures, expense reports and vouchers, invoices and receipts, gifts, business entertainment, disbursements, commission payments, fees and other dealings with subcontractors, subsidiaries and other affiliates. Note that there is no "materiality" requirement under these provisions, meaning that the requirements apply to expenditures of any size.
Penalties for FCPA Violations
Sanctions for violating the FCPA can be significant. Companies found criminally liable may be fined up to $2 million, and individuals may be fined up to $100,000 and imprisoned. Fines imposed on individuals may not be paid by their employer or principal, and obviously it is the individuals who must serve any prison sentence.
A violation of the FCPA may also result in the civil and criminal forfeiture of property bought with money that is traceable to the violation.
In addition to fines, prison terms and forfeiture, a company that violates the FCPA may be barred from doing business with the U.S. Government. In fact, just being indicted for an FCPA violation can lead to the suspension of a company's right to do business with the Government!
The company may also be ruled ineligible to receive export licenses, suspended or barred by the SEC from the securities business, and excluded by the Commodities Futures Trading Commission and the Overseas Private Investment Corporation from their agency programs.
Finally, conduct that violates the FCPA may also lead to private causes of action under RICO, the Racketeer Influenced and Corrupt Organizations Act (which allows for treble damages), as well as other federal and state laws.