Trade Associations Request that Justice Department and SEC Clarify Criminal and Civil FCPA Enforcement

David M. Nadler and Steven J. Roman

David M. NadlerSteven J. RomanOn November 8, 2011, Assistant Attorney General Breuer promised in a speech to the 26th National Conference on the Foreign Corrupt Practices Act (FCPA) that in 2012 the U.S. Department of Justice (DOJ) would provide “detailed new guidance on the [FCPA’s] criminal and civil enforcement provisions.” More than 30 trade associations led by the U.S. Chamber of Commerce have requested that this promised guidance address several issues and questions summarized below in order to mitigate significant interpretative challenges faced by businesses seeking to comply in good faith with the FCPA. “[I]n order to avoid conflicting interpretations and ensure a uniform policy,” the letter suggests that the guidance be issued by both the DOJ and the U.S. Securities and Exchange Commission (SEC) and that it apply to both criminal and civil enforcement.

Definitions of “Foreign Official” and “Instrumentality”

The trade associations’ letter requests that the DOJ and the SEC provide “a clear, uniform definition” of “foreign official” and “instrumentality.” The letter stresses that the courts’ highly fact-dependent and discretionary approach to these terms, particularly in markets where many companies are at least partially state-owned, “engenders tremendous uncertainty and risks serious misallocation of resources by U.S. businesses seeking to sell their goods and services in foreign markets.” In response, the letter suggests that the forthcoming guidance address at least the following: (1) the percentage ownership or level of control by a foreign government that ordinarily will qualify a corporation as an “instrumentality;” (2) clarification that an “instrumentality” must perform government or quasi-governmental functions and a detailed list of what those functions may include; and (3) exceptions, if any, to the foregoing general principles.

Consideration of Compliance Programs in Enforcement Decisions

While the DOJ and the SEC currently advise that a company’s compliance program should be considered when making enforcement decisions, the trade associations argue that the agencies’ guidance is too general to aid companies in implementing or enhancing compliance programs that would merit favorable consideration. The letter requests that the forthcoming guidance establish standards that businesses can adopt, identify specific components essential to a robust FCPA compliance program, and describe how the DOJ and the SEC factor companies’ voluntary disclosures of FCPA violations into enforcement decisions.

Parent-Subsidiary Liability

The letter requests that the forthcoming guidance “clarify and confirm that both the Department and the SEC consider parent company liability under the FCPA’s anti-bribery provisions to extend only to circumstances in which the parent actually authorized, directed, or controlled the improper activity of its subsidiary.” The letter notes that the SEC’s interpretation, which permits liability even when the parent is entirely ignorant, runs afoul of well-established common law principles of corporate liability, the statutory language requiring evidence of knowledge and intent, the statutory drafters’ intent, and the DOJ’s enforcement policy.

Successor Liability

The letter requests clarification that the DOJ and the SEC “ordinarily will not pursue an enforcement action against a company for pre-acquisition violations by an acquiree.” The letter notes that under the current FCPA enforcement regime, the benefits of a thorough due diligence investigation of a target company are uncertain and usually unknowable, and as a result “[t]he threat of successor liability … has had a significant chilling effect on mergers and acquisitions.” The letter seeks reasonable pre-acquisition due diligence standards which identify factors that will be considered in determining whether such diligence was adequate. In the event pre-acquisition due diligence could not be undertaken or was significantly limited, the letter seeks realistic standards for post-acquisition due diligence.

De Minimus Gifts and Hospitality

Despite the DOJ’s assurances that it does not prosecute conduct involving de minimus gifts and hospitality to foreign officials, the absence of any clear guidelines has “resulted in a serious misallocation of compliance resources to detect and address potential breaches that should fall below any reasonable threshold.” In response, the letter seeks a “clear standard for gifts and hospitality that ordinarily will not be subject to enforcement actions and to address common scenarios that arise in the course of business interactions with foreign officials.”

Mens Rea Standard for Corporate Criminal Liability

Another concern addressed by the letter is whether a corporation may be criminally sanctioned for FCPA bribery violations of which it has no direct knowledge. Currently, the FCPA limits individuals’ liability to willful violations, but does not directly address the mens rea standard for corporate criminal liability. The letter suggests that it “should not be possible to convict a corporation” unless an employee is liable and requests that DOJ clarify its position.

Declination Decisions

The letter asks the DOJ to reconsider its practice of not providing information about its decisions to closed FCPA-related investigations with no enforcement action because “the real-world circumstances that result in a declination would be tremendously useful to companies seeking to comply with the FCPA.”

Other Recurring Issues

Finally, the letter seeks guidance regarding: (1) best practices and prophylactic measures for business relationships with relatives of foreign officials, including circumstances where a company has no knowledge of such relationship; (2) standards governing corporate donations to charities that have foreign government connections; and (3) the applicability under the FCPA of apprentice programs where employees are assigned to customer in which a foreign government holds an interest and where the employees’ salaries are still paid by the U.S. company.

In conclusion, the trade associations have made it clear that the lack of authoritative guidance from the DOJ and the SEC regarding the FCPA has a chilling effect on legitimate business activity and causes a serious misallocation of compliance resources. If the DOJ’s promised guidance is tailored to meet the requests of the trade associations’ letter, it will significantly enhance companies’ compliance with the FCPA by providing clarity and predictability to the current statutory enforcement regime.

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