July 13, 2020

By: Marc Stephen Raspanti , Douglas K. Rosenblum

In today’s international marketplace, it is critical to keep in mind the reach of American federal statutes which have significant impact on foreign jurisdictions. The Foreign Corrupt Practices Act (“FCPA”), enacted in 1977, contains two key provisions: (1) a prohibition on bribery of foreign officials, and (2) accounting and reporting provisions for companies registered with the Securities and Exchange Commission (“SEC”). 15 U.S.C. §§ 78dd-1-3. The Department of Justice has increasingly made headlines using this powerful law. In 2014 alone, the United States prosecuted seven corporate FCPA enforcement actions. In just those seven cases, the Department of Justice collected $1.25 billion in criminal fines – an all-time record.

The anti-bribery provision of the FCPA criminalizes the “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” to foreign officials for the purpose of obtaining or retaining business. Id. at § 78dd-1(a). There is an exception for payments or gifts made “to expedite or secure the performance of a routine governmental action.” Id. at §78dd-1(b). The statute also provides two interesting affirmative defenses. Defendants may be excused from liability if (1) the payment was legal under the written laws of the recipient’s country; or (2) the payment was a “reasonable and bona fide expenditure” toward specific, enumerated ends. Id. at § 78dd-1(c).

A Helpful Checklist

If your company operates overseas, it is time and money well spent to review the following aspects of your business:

(1) Identify the nature of your business and all sectors in which you operate;
(2) Identify all nations in which you operate and/or engage in commerce;
(3) Research the Corruptions Perception Index published by Transparency International (a global coalition with the mission to stop corruption and promote transparency, accountability and integrity at all levels and across all sectors of society) for each nation in which you operate and/or engage in commerce (available at www.transparency.org);
(4) Identify all public/governmental agencies to whom you market and/or sell products and services;
(5) Inventory the strengths and weaknesses of your corporate internal controls;
(6) Identify all executives and employees responsible for compliance with federal statutes and regulations;
(7) Revisit record keeping and accounting procedures for all international transactions to ensure accurate characterization of all expenditures;
(8) Implement an anonymous hotline for employee concerns with measurable follow-up and accountability for addressing each call in a timely manner;
(9) Revisit the content of employee compliance training on an annual basis; and
(10) Develop an ongoing relationship and exchange of information with knowledgeable external legal counsel.

The Anti-Bribery Provisions of the FCPA are Far-Reaching

The FCPA has gained notoriety because of its expansive jurisdiction. The anti-bribery provisions of the FCPA apply to “issuers” as well as “domestic concerns.” Under 15 U.S.C. § 78dd-1, issuers are companies publicly traded on any of the American exchanges. “Domestic concerns” under § 78dd-2 are not traded publicly, but are American citizens, entities, nationals, residents of the United States, entities organized under the laws of the United States, or entities with a principal place of business in the United States. Regardless of whether the alleged act in furtherance of a corrupt payment occurred within the borders of the United States or abroad, issuers and domestic concerns are subject to the FCPA.

Foreign nationals are also subject to the FCPA in certain circumstances. Foreign citizens or entities organized under the laws of another country are subject to the jurisdiction of the FCPA if they commit acts within the borders of the United States in furtherance of a corrupt payment. Although jurisdiction in these cases is clear, it can be difficult for the United States to satisfy a monetary judgment or extradite responsible corporate officers.

The FCPA is powerful in its scope and jurisdiction, but it is not a strict liability statute. The government must prove that the defendant paid, offered to pay, or promised to pay corruptly. The statute itself does not define this state of mind. A Resource Guide to the United States Foreign Corrupt Practices Act published by the Criminal Division of the Department of Justice and the Enforcement Division of the SEC on November 14, 2012 provides guidance. In that Guide, the government makes clear that in passing the FCPA, Congress adopted the meaning of corruptly ascribed to the term in the domestic bribery statute found at 18 U.S.C. § 201: “an intent or desire to wrongfully influence the recipient.” See H.R. Rep. No. 95-640, at 7. The government must prove this mental state of the defendant beyond a reasonable doubt in order to secure a criminal conviction under the FCPA.

The analysis of potential FCPA violations is highly fact-specific. The government has made clear that it will not prosecute cases of isolated, de minimus expenditures on meals, taxi fares, or promotional materials. However, some facts will certainly raise red flags: gift of vehicles, furs, and expensive trips, for example. Repeated gifts and/or secret gifts add to the circumstantial evidence that those items were transferred with an illicit purpose or were, at the very least, more than just a token demonstration of respect or gratitude that is permissible under the law.

Public Companies Have Heightened Exposure Under the Act

The accounting and reporting prong of the FCPA applies to issuers, their subsidiaries, and affiliates. The statute applies both civil and criminal liability to entities who misstate financial records, falsely certify books and records, and/or fail to implement properly designed internal controls. Many of these requirements are the same as those found in the Sarbanes-Oxley Act and related regulations. The distinction, however, between civil and criminal liability under this prong is the intent requirement of “willfulness.”

Publicly- traded companies file financial statements each year that are audited by independent accounting firms. For those companies who blindly rely on those auditors, and believe additional scrutiny is not needed, think again. Generally, § 10 of the Exchange Act, 15 U.S.C. § 78j-1, requires external auditors to report any perceived illegalities to the appropriate levels of management within the subject company. However, if the company does not take appropriate steps to investigate and/or correct those issues, the auditor must notify the SEC. Revisiting the above checklist on a routine basis could prove to be a useful tool to avoid such situations.

Individuals Face the Possibility of Imprisonment; Companies Do Not

Debarment and hefty fines can serve as powerful deterrents for business organizations. However, organizations act through their directors, executives, and responsible corporate officers, and those individuals are also subject to the jurisdiction of the FCPA. Recently the government has been increasing its prosecution of individuals for violations of the FCPA. This trend is sure to continue in light of the September 2015 memorandum written by Deputy Attorney General Sally Quillian Yates detailing a shift in Department policy. Under the now famous “Yates Memo,” the United States will seek to hold individuals accountable for corporate wrongdoing. In years past, all too often the government resolved criminal investigations of corporate entities with a corporate plea or deferred prosecution agreement, a civil settlement agreement, a stiff fine, and perhaps the installment of a compliance monitor within the company. The civil settlement agreements often included releases of owners, officers, directors, and employees of the same corporations. Those days are done according to Deputy Attorney General Yates.

On August 12, 2015 the government announced the prosecution of Vicente Garcia. Mr. Garcia is a United States citizen and former head of Latin American sales for technology giant SAP. The case includes an SEC administrative cease and desist action, coupled with a criminal information filed by the Department of Justice alleging conspiracy to violate the FCPA. Mr. Garcia purportedly made corrupt payments to secure millions of dollars in sales of software licenses.

Another highly-publicized prosecution of an individual under the FCPA was that of PetroTiger CEO, Joseph Sigelman, in the U.S. District Court for the District of New Jersey. Mr. Sigelman’s trial ended abruptly on June 15, 2015 with a guilty plea to a lesser included charge under a theory of conscious avoidance of FCPA violations. Apparently, this dramatic turn of events stemmed from perjury at trial committed by the government’s key witness. Once exposed to 20 years in prison, Mr. Sigelman walked out of the courthouse on probation for the next three years.

The Sigelman case is intriguing not just because of high courtroom drama, but also for what was absent from the case: the company as a co-defendant. PetroTiger self-disclosed its FCPA violations to the government, retained competent private counsel to conduct a thorough internal investigation, and cooperated with government investigators and prosecutors. It is clear that cooperation and pragmatism can sometimes relieve corporate entities from prosecution. While the government might forego extensive punishment of the corporation, it might still seek imprisonment for the officers of that very same company.

The stakes are high in FCPA investigations. Adherence to the above 10-point checklist will not guarantee a pass by the Department of Justice, but it will provide you and your organization with the knowledge base necessary to react in an effective and efficient manner with minimal disruption of your operations.

Marc S. Raspanti and Doug K. Rosenblum are former prosecutors and Partners at Pietragallo Gordon Aflano Bosick & Raspanti, LLP. They work on White Collar Criminal Defense matters and have seen an increase in FCPA matters. For more information, we invite you to contact them directly. To receive more news, please be sure to sign up for our newsletters.