US Foreign Corrupt Practices Act & Dodd Frank - Written by Barry & Richard on Thursday, May 12, 2011 0:04 - 6 Comments
Is the Bribery Act ban on commercial bribery such a big deal?
On Monday we broke bread with Howard Sklar and had a great evening. Howard’s view on the issue (we paraphrase) is that the US is not really enforcing commercial bribery and that for many FCPA compliant US companies to scale up their compliance programs to deal with commercial bribery will be practically unworkable. Existing systems and resources simply could not cope.
As a result Howard favours a wait and see approach for FCPA compliant companies. The UK will not enforce the commercial bribery prohibition the argument goes so why gear up for something which won’t happen.
We disagree with Howard on the lack of enforcement by UK regulators in relation to commercial bribery.
However, there are two sides to the US coin too. Here’s another side.
By David Simon, Foley & Lardner
There is considerable debate over the question of whether the UK regulators will strictly enforce the commercial bribery prohibitions of the UK Act, and, if they do, how aggressively. In the US there have been recent defense challenges to the US DOJ’s broad interpretation of the FCPA’s “foreign official” element to include employees of state-owned enterprises.
To me, these two sets of issues are closely related and the outcomes may impact anti-corruption compliance in significant ways going forward. The key compliance question, in my mind, is whether we are moving toward a regime where commercial bribery is prohibited (and prosecuted) or whether we are moving toward a regime focused on bribery of government officials for official acts.
I think we’re headed toward a world where commercial bribery is prohibited and violations are prosecuted.
The DOJ view: Work for a state owned [insert anything]? You’re a foreign official.
First, some background on the FCPA “foreign official” challenges. For years, the DOJ and the SEC have secured guilty pleas and other enforcement action resolutions that were premised on the payment of bribes to employees of state-owned enterprises. The FCPA itself, however, does not refer to state-owned enterprises, instead relying on a statement that a “foreign official” includes any officer or employee of an “instrumentality” of a foreign government. No clear indication of what this term encompasses is found in either the text of the FCPA or its legislative history. The term thus is ambiguous, in the FCPA context and elsewhere.
Nonetheless, it has been generally accepted in the FCPA compliance world that improper payments to employees of state-owned or controlled entities can subject companies to FCPA liability. Most importantly, it is the view of the DOJ and the SEC that either partial ownership or control can turn even a purely commercial enterprise into one filled with foreign “officials.”
As a result, elaborate compliance systems have been created to track and monitor dealings with SOE customers. With the exception of a few half-hearted challenges, the U.S. regulators’ interpretation of “foreign official” has gone unchallenged.
Until this year.
Time to push back?
Since the beginning of 2011, there have been three serious challenges to the government’s “foreign official” definition. The three cases are: United States v. Noriega et al., Case No. 2:10-cr-01031 (“Lindsey Manufacturing”); United States v. Carson et al., Case No. 8:09-cr-00077 (“Control Components”); and United States v. O’Shea, Case No. 4:09-cr-00629.
As of today, only one of these challenges has been decided by the presiding court. In the Lindsey Manufacturing case, the judge rejected the challenge, concluded that the question of whether the bribe recipients were “foreign officials” was a question of fact for the jury, and that the government had proffered sufficient evidence that the Mexican utility at issue in that case was in fact an “instrumentality” of the state. Just yesterday, a jury found the defendants guilty of violations of the FCPA. This case will not be the final word on the topic. Probably the strongest challenge to the DOJ’s interpretation comes in the Carson/Control Components case. The court held oral argument on the defense motion earlier this week. While the motion to dismiss the indictment was taken under advisement, reports from the argument suggest that the judge will rule similarly to the judge in Lindsey Manufacturing – likely based on similar reasoning. A decision in the O’Shea case is still forthcoming.
These judicial decisions are not likely to settle conclusively the “foreign official” question. In my view, all of these cases are at least susceptible to the argument that the bribe recipient at issue was in fact an instrumentality of the state – i.e., the entity at issue had at least some attributes of what is thought of as traditional government functions, even if they were presented in a commercial setting.
But U.S. regulators have taken a much more expansive view of the meaning of “foreign official” and the question of whether any employee of a straight commercial enterprise that happens to be majority owned by a government qualifies remains open. Thus, such difficult questions as whether government ownership of a purely commercial enterprise that has no indicia of traditional governmental functions or whether the government needs to be in a position of active control still will remain subject to challenge in future cases.
Who cares anyway?
But that begs the question, so what?
The DOJ in particular has been increasingly aggressive in prosecuting straight commercial bribery under the U.S. Travel Act. Even a single interstate or international telephone call, fax, or e-mail can trigger the application of the Act, provided that they are made in furtherance of specific underlying unlawful conduct, which can include not only a violation of the FCPA but also a state law forbidding bribery. In fact, in the Control Components case (where the Carson defendants are fighting about whether a bribe paid to an employee of an SOE is a violation of the FCPA), Flavio Riccoti, an Italian citizen and former CCI employee, pled guilty to violating the FCPA and the Travel Act – in part based on improper payments to purely private, commercial entities.
Similarly, in the corruption case involving the Salt Lake Bid Committee, the Travel Act was used to reach the bribery of private Olympic officials. Further, the DOJ also has access to a number of other statutes that could be construed to reach acts of private bribery, including, among others, the Racketeer Influenced and Corrupt Organizations Act (RICO), the federal mail and wire fraud statute, and anti-money laundering laws. Indeed, even before the FCPA itself was passed, these other statutes were used to prosecute both public and private bribery.
DOJ has a number of tools available to reach private bribery, and it is increasingly willing to use them. Beyond the official actions cited here, DOJ representatives have made it clear that they believe commercial bribery is illegal and that corporate compliance policies should prohibit it. At a recent FCPA conference, one of the chief FCPA enforcers from DOJ, Nat Edmonds, said something to the effect of: “Corrupt payments to commercial entities are illegal. We may not have jurisdiction to prosecute all of them, but that shouldn’t make a difference from a compliance perspective. DOJ believes that US company compliance programs should prohibit conduct that is illegal wherever it occurs.”
Look to the direction of travel
To me, this DOJ view, combined with the UK Bribery Act’s commercial bribery prohibition, presents a fairly easy call for multinational corporations from a purely compliance perspective. Although it is common for corporate compliance programs to focus on bribery of government officials, the distinction is becoming less and less meaningful.
Corporate compliance programs should prohibit any corrupt payments to anyone to obtain or retain business – period. There may be good legal and policy defense arguments to be made if a company is defending an enforcement action premised on commercial bribery, but given all the tools available to prosecute such bribery, both in the United States and abroad, I’d rather my clients not be in that position.