David M. Nadler and Steven J. Roman
The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) jointly issued a new guidance entitled “A Resource Guide to the U.S. Foreign Corrupt Practices Act.” Although the 130-page guidance does not break any significant new ground, and generally reiterates positions that the government has previously taken in Foreign Corrupt Practices Act (FCPA) litigation and settlements, the document does provide useful information to companies regarding compliance with, and government enforcement of, the FCPA.
For example, the guidance identifies nine factors that the government considers in conducting an investigation, determining whether to charge a corporation, and negotiating plea or other agreements: (1) the nature and seriousness of the offense, including the risk of harm to the public; (2) the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management; (3) the corporation’s history of similar misconduct, including prior criminal, civil, and regulatory enforcement actions against it; (4) the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents; (5) the existence and effectiveness of the corporation’s preexisting compliance program; (6) the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or improve an existing one, replace responsible management, discipline or terminate wrongdoers, pay restitution, and cooperate with the relevant government agencies; (7) collateral consequences, including whether there is disproportionate harm to shareholders, pension holders, employees, and others not proven personally culpable, as well as impact on the public arising from the prosecution; (8) the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and (9) the adequacy of remedies such as civil or regulatory enforcement actions. The guidance also includes a number of hypotheticals and case studies that are helpful in suggesting the types of conduct and compliance practices that are more or less likely to lead to government enforcement actions or declination of charges.
The guidance addresses a variety of controversial topics in which the law is currently unsettled, such as the definition of a “foreign official;” gifts, travel, and entertainment expenses; facilitation payments; and the hallmarks of an effective compliance program. The guidance is generally consistent with the positions the government has advanced in enforcement cases around the country.
For example, with respect to the definition of “foreign official,” the guidance notes that the statute encompasses “officers or employees of a department, agency or instrumentality of a foreign government,” and prohibits “corrupt payments to low-ranking employees and high-level officials alike.” Significantly, the guidance continues the government’s broad position (currently under review in the Eleventh Circuit) that state-owned or state-controlled entities constitute “instrumentalities” of foreign governments and that their employees thus constitute “foreign officials.”
The guidance provides no “bright line” test regarding the types of gifts or payments that will result in government action, although noting that “it is difficult to envision any scenario in which the provision of cups of coffee, taxi fare, or company promotional items of nominal value would ever evidence corrupt intent, and neither DOJ nor SEC has ever pursued an investigation on the basis of such conduct” and that “[s]ome hallmarks of appropriate gift-giving are when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.” The guidance also notes that the statute “prohibits corrupt payments made through third parties or intermediaries” and cautions that “companies should be aware of the risks involved in engaging third-party agents or intermediaries” in foreign countries.
The guidance characterizes the FCPA’s exception for “facilitating or expediting payments” made in furtherance of “routine government action” as a “narrow” one and states that routine government action “does not include a decision to award new business or to continue business with a particular party” or “acts that are within an official’s discretion or that would constitute misuse of an official’s office.” The guidance advises that “paying an official a small amount to have the power turned on at a factory might be a facilitating payment; paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not be a facilitating payment.”
Although the guidance states that the government has “no formulaic requirements regarding compliance programs,” it advocates internal investigations, full cooperation, self-reporting, and robust compliance programs as key factors in declination decisions. It notes that, in determining how to resolve a case, prosecutors “consider whether the company made a voluntary and timely disclosure as well as the company’s willingness to provide relevant information and evidence and identify relevant actors inside and outside the company, including senior executives.” The guidance further notes that “prosecutors may consider a company’s remedial actions, including efforts to improve an existing compliance program or appropriate disciplining of wrongdoers.” However, the guidance fails to recognize an affirmative defense based on a robust compliance program, which has been advocated by the U.S. Chamber of Commerce and other groups seeking FCPA reform.
In sum, the long-awaited FCPA guidance is a comprehensive and useful restatement of the government’s positions with respect to the statute, but fails to provide the type of “bright line” rules regarding FCPA compliance that many practitioners and commentators had hoped for. Indeed, the guidance expressly states that it “is non-binding, informal, and summary in nature, and the information contained herein does not constitute rules or regulations.” Companies doing business in foreign countries must continue to exercise caution, and to obtain expert professional advice, to minimize their risk of liability under the FCPA.