Avoiding FCPA Trouble – Hints from the DOJ’s Advisory Opinion

If you conduct business internationally, pay attention. A recent Department of Justice advisory opinion offers guidance in complying with the Foreign Corrupt Practices Act.

The FCPA prohibits:

• a “domestic concern” (meaning an U.S. citizen, national, or resident or any entity with its principal place of business in the U.S. or organized under the laws of any U.S. state, territory, possession, or commonwealth)
• from corruptly giving or offering anything of value to a “foreign official” (meaning an officer, employee or any person acting in an official capacity for or on behalf of a foreign government, department, agency, instrumentality or public international organization)
• to assist “in obtaining or retaining business for or with, or directing any business to, any person.”

Acting “corruptly” is attempting to accomplish an unlawful result or a lawful result through unlawful means—hence “corruptly giving or offering” using something of value to influence a foreign official to misuse his official position. In short, the FCPA outlaws bribing foreign officials to win business.

In this recent DOJ advisory opinion, the domestic concern is a multinational firm headquartered in the U.S. which purchased a portfolio of assets from a foreign subsidiary of a foreign investment bank. The foreign bank is indirectly owned by its government. During the 2-year purchase process, the U.S. firm requested and received help from a different foreign subsidiary of the same foreign investment bank (i.e. the selling entity’s sister company) and from a local finance company. After the acquisition closed, the selling entity’s sister company requested a fee for tasks it had performed, and the U.S. firm requested the DOJ’s guidance with respect to whether the Department would pursue an action against the firm for violating the FCPA if it paid the sister company’s fee.

Based on the facts presented by the U.S. firm, the DOJ advised it would not bring an enforcement action against the firm for these reasons:

• First, even though the selling entity and its sister company are both owned by a foreign government (satisfying one-half of the “foreign official” definition), the payment would be made to the sister company (i.e., an entity) and not an individual. Several DOJ advisory opinions issued since 1983 have explained that the FCPA does not prohibit payments to foreign governments or foreign government instrumentalities.
• Second, there was no indication the U.S. firm intended to divert the payment to an individual or that, in fact, it would be diverted to an individual. On the contrary, the U.S. firm presented evidence that the payment was transparent to management of the sister company. The sister company’s chief compliance officer certified that the payment would be received in the company’s bank account, used only for its corporate purposes, and would not be forwarded to any other person or entity.
• Third, rather than payment to an individual in connection with the transaction, the payment was for specific, legitimate analytical and advisory services which the U.S. firm requested and the sister company provided. The U.S. firm and the sister company’s chief compliance officer certified that the payment was commercially reasonable and commensurate with services provided. The U.S. firm also specifically represented to the Department that no corrupt offers or requests were made.

Based on the evidence, the U.S. firm’s representations, and the sister company’s certifications, the DOJ determined there was no indicia of an intent to wrongfully or improperly influence a foreign official.

Taken together, the U.S. firm’s actions and the DOJ’s analysis provide sound guidance in complying with the FCPA:

• Do not make payments to individuals.
• Do not make payments in response to an offer or request to influence a foreign official to misuse his position.
• If a foreign entity requests or requires a payment appurtenant to a transaction, the best practice is to ensure:
  • that the payment is transparent to the entity’s management and to obtain certifications from the foreign entity that the payment will:
    • be received in the entity’s bank account,
    • used only for its corporate purposes, and
    • not be forwarded to any other person or entity;
  • that the payment is for specific and legitimate services actually requested and provided; and
  • that the payment is commercially reasonable and commensurate with services provided.

Enforcing the FCPA continues to be a high priority for the DOJ and the SEC. Violating the FCPA risks serious penalties. A domestic concern that is an entity may be fined up to $2,000,000 and subjected to import-export restrictions. An individual may be fined up to $100,000 or imprisoned up to 5 years (or both), and the individual’s fine may not be paid by the domestic concern entity. If a foreign official or entity requests payment in connection with a transaction, and circumstances surrounding the requested payment raise any suspicion that the payment will be used (directly or indirectly) to influence a foreign official to misuse his position, request guidance from experienced counsel and potentially the DOJ.

Contact Johnston Clem Gifford

For more information, contact us online or by calling (214) 974-8000. Our lawyers routinely advise clients on regulatory compliance and other supervisory and governmental matters.