DoJ Expands Scope of Bribery Prosecutions

A handful of recent enforcement actions brought under the Foreign Corrupt Practices Act signal that the Justice Department is expanding the scope of its bribery prosecutions, keeping true on its promise that enforcement will intensify.

“It’s clear that we will see an increased number of FCPA prosecutions of both companies and individuals in the next several years,” says Whitney Ellerman, a partner with law firm Katten Muchin Rosenman.

According to a recent report by PricewaterhouseCoopers, roughly 100 companies were ensnared in ongoing FCPA investigations as of the start of 2009. “These are going to continue,” says James Parkinson, a partner with law firm Mayer Brown.

In one recent case, California-based Control Components Inc. pleaded guilty to allegations that from 2003 to 2007, CCI paid millions in cash, vacations, and other gifts to officials and employees of various foreign state-owned companies, as well as to foreign and domestic private companies, to win business.

The CCI settlement has gained attention because the Justice Department also pressed charges against the company under the Travel Act, which prohibits using interstate or foreign commerce to promote any unlawful activity, including bribery in violation of state law. That immediately set legal experts wondering whether federal prosecutors will start using the Travel Act as an adjunct to FCPA enforcement, so they can crack down on any bribery at all. (The FCPA does not ban bribery to private companies for commercial gain.)

“This signals the DoJ’s willingness to use the Travel Act, which has seldom been used in the overseas context, to begin a campaign against foreign commercial bribery that may be similar to its recent aggressive enforcement of the FCPA,” says David Anders, a partner with the law firm Wachtell, Lipton, Rosen & Katz.

The Justice Department argued that CCI’s payments to employees of private companies violated California’s commercial bribery statute, which prohibits offering an employee anything of value “corruptly and without the knowledge or consent of the employer, in return for [the employee] using or agreeing to use his or her position for the benefit of that other person.” Many states have similar laws, including Delaware, New York, and Texas.

ANTIBRIBERY PROVISIONS

Below is an excerpt of Justice Department guidance about the FCPA.

The FCPA makes it unlawful to bribe foreign government officials to obtain or retain business. With respect to the basic prohibition, there are five elements which must be met to constitute a violation of the Act:

A. Who—The FCPA potentially applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the antibribery provisions or if they conspire to violate those provisions.

Under the FCPA, U.S. jurisdiction over corrupt payments to foreign officials depends upon whether the violator is an “issuer,” a “domestic concern,” or a foreign national or business.

An “issuer” is a corporation that has issued securities that have been registered in the United States or who is required to file periodic reports with the SEC. A “domestic concern” is any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States, or a territory, possession, or commonwealth of the United States.

Issuers and domestic concerns may be held liable under the FCPA under either territorial or nationality jurisdiction principles. For acts taken within the territory of the United States, issuers and domestic concerns are liable if they take an act in furtherance of a corrupt payment to a foreign official using the U.S. mails or other means or instrumentalities of interstate commerce. Such means or instrumentalities include telephone calls, facsimile transmissions, wire transfers, and interstate or international travel. In addition, issuers and domestic concerns may be held liable for any act in furtherance of a corrupt payment taken outside the United States. Thus, a U.S. company or national may be held liable for a corrupt payment authorized by employees or agents operating entirely outside the United States, using money from foreign bank accounts, and without any involvement by personnel located within the United States.

Prior to 1998, foreign companies, with the exception of those who qualified as “issuers,” and foreign nationals were not covered by the FCPA. The 1998 amendments expanded the FCPA to assert territorial jurisdiction over foreign companies and nationals. A foreign company or person is now subject to the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place within the territory of the United States. There is, however, no requirement that such act make use of the U.S. mails or other means or instrumentalities of interstate commerce.

Finally, U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in question, as can U.S. citizens or residents, themselves “domestic concerns,” who were employed by or acting on behalf of such foreign-incorporated subsidiaries.

B. Corrupt intent—The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person. You should note that the FCPA does not require that a corrupt act succeed in its purpose. The offer or promise of a corrupt payment can constitute a violation of the statute. The FCPA prohibits any corrupt payment intended to influence any act or decision of a foreign official in his or her official capacity, to induce the official to do or omit to do any act in violation of his or her lawful duty, to obtain any improper advantage, or to induce a foreign official to use his or her influence improperly to affect or influence any act or decision.

C. Payment—The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value.

D. Recipient—The prohibition extends only to corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office. A “foreign official” means any officer or employee of a foreign government, a public international organization, or any department or agency thereof, or any person acting in an official capacity. You should consider utilizing the Department of Justice’s Foreign Corrupt Practices Act Opinion Procedure for particular questions as to the definition of a “foreign official,” such as whether a member of a royal family, a member of a legislative body, or an official of a state-owned business enterprise would be considered a “foreign official.”

The FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment, offer, or promise of payment, and there are exceptions to the antibribery provision for “facilitating payments for routine governmental action.”

E. Business Purpose Test—The FCPA prohibits payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person. The Department of Justice interprets “obtaining or retaining business” broadly, such that the term encompasses more than the mere award or renewal of a contract. It should be noted that the business to be obtained or retained does not need to be with a foreign government or foreign government instrumentality.

Source

U.S. Department of Justice.

The Justice Department does occasionally use the Travel Act along with the FCPA to prosecute bribery of foreign officials. To use the law for prosecution of commercial bribery, however, is much less common, Anders says. The CCI enforcement action may foreshadow the government’s increasing use of the Travel Act to prosecute such cases.

That could be quite vexing for companies that do business in countries where it isn’t always easy to determine whether a government official is involved in a bribery scheme. China, with its legions of state-owned enterprises, is the largest and most worrisome example.

Six former CCI executives—including the former CEO and, yes, CCI’s top executives in China—also face personal prosecution under the FCPA, the Travel Act, and other statues. They are scheduled to go on trial in December.

The other recent significant FCPA prosecution came on July 10, when a jury convicted Frederic Bourke, co-founder of the Dooney & Bourke brand of handbags, guilty of conspiring to violate FCPA and the Travel Act. As Compliance Week has previously reported, Bourke’s conviction is newsworthy because he never directly bribed anybody; he put his money into the hands of a shady Eastern European investor who did, and prosecutors argued that he failed to do due diligence on who his investment partner was. Bourke further lied to the FBI that he was not aware of the bribery payments.

Parkinson

“If you are aware of a high probability that there is a bribe going on … you actually do have a duty to follow up on it,” Parkinson says.

The rare trial conviction is “likely to encourage the DoJ in its recent focus on bringing FCPA cases against individuals, as it is now clear that the DoJ is able to obtain convictions if such cases go to trial,” Anders says. “Indeed, there are more FCPA trials in the pipeline now.”

Policy Updates

As the Justice Department continues to expand its interpretations of FCPA liability, experts say companies would do well to update their compliance policies to keep pace. “It may now be important to supplement those policies to advise employees that bribery of private individuals can in some circumstances constitute a federal crime in the United States,” Anders says.

Ellerman says companies should take a no-nonsense view of FCPA compliance, so that employees understand the company “will not tolerate anything less than precise conformity with the compliance policy.”

As always, the first step is to understand the actual level of risk your company faces, Parkinson says. Determine how much business your company does outside U.S. borders, where that business happens, and the model for getting business done: through an agent, a distributor, a joint venture, or some other structure.

Companies must also look beyond obedience to written FCPA policies, he adds. “There are many, many facets of FCPA compliance,” including how companies manage and monitor their programs, and how they conduct due diligence of their agents, distributors, or venture partners, he says.

Anders gives his own checklist: “Straightforward compliance policies, comprehensive and repeated training initiatives, and effective internal monitoring can substantially reduce a company’s risk of coming under government scrutiny.”