One of the least-read sections of the U.S. Foreign Corrupt Practices Act is the section entitled, “Foreign Corrupt Practices Act Opinion Procedure.”
This section allows companies to seek an opinion from the Department of Justice “as to whether certain specified, prospective—not hypothetical—conduct conforms” to the Justice Department's current enforcement policy on the FCPA. It is also one of the least-used provisions in the FCPA. Clearly, several companies could have saved themselves much trouble by petitioning the Justice Department for an opinion ruling, rather than allowing borderline practices to continue.
During the past three years, however, the Justice Department has issued several opinion releases that seemed to counter prevailing wisdom on whether a proposed transaction or proposed relationship would violate the law. In the FCPA guidance, the agency relates that: “A well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations.”
From the following three opinion releases, I draw the conclusion that there is significant room for discussion and legal reasoning with the Justice Department, particularly if the approach is well constructed and the proposed implementation is thoughtful.
2012 - Opinion Release 12-01
In this opinion release the Justice Department approved the hiring of a royal family member of an un-named country to work in the United States to lobby that un-named country's U.S. embassy on the company's behalf and found this royal family member was not a ‘foreign government official' under the FCPA. To say I was surprised by this result would be putting it mildly, because if you had asked me 100 times if a royal family member is a foreign government official, I would have responded 100 times the answer was “yes.”
Still, the Justice Department warned that the answer is not always yes and that each question must turn on a “fact-intensive, case-by-case analysis” for resolution. The opinion release included a list of factors that the Justice Department uses to move from simply a “status” analysis, where you only look to a person's title or role; to what corruption blog FCPA Professor calls a “duties” analysis, where you look at the actual duties the person performed in a governmental role. The Justice Department found this royal family member had no such duties.
2013 - Opinion Release 13-01
In this opinion release, which came out at the end of last year, the Justice Department approved payment of medical treatment for the daughter of a foreign government official for a law firm that represented the foreign government in international arbitrations. Once again, I would have said that such a payment made directly on behalf of a family member of a foreign government official would have violated the FCPA. The Justice Department noted, however, that there were enough procedural protections to assure the money would go directly to the healthcare providers, the foreign official in question would not have input into whether the law firm obtained or retained additional business with the un-named foreign government, there was full transparency with the foreign government, and the attorney general of the foreign government issued an opinion indicating that such payment by the law firm would not violate the local law of the country in question.
2014 - Opinion Release 14-01
Just last month, the Justice Department issued its first opinion release of 2014. The company requesting the ruling wanted to pay a foreign government official for equity that he had obtained in a venture with the company back when he was a private citizen. While it might seem fairly straight-forward to pay someone what they are owed when they leave an entity, the problem was that under the venture's ownership agreement, the contractual buy-out formula would have yielded a negative value.
Clearly, several companies could have saved themselves much trouble by petitioning the Justice Department for an opinion ruling, rather than allowing borderline practices to continue.
The company requesting the opinion presented arguments to the Justice Department that “legitimate business considerations, prompted and justified the renegotiation of the buyout formula contained in the 2007 Agreement.” After the renegotiation, an agreed third party determined the buy-out value. The Justice Department approved this renegotiation, although the person was now a foreign government official. There were several other procedural protections listed in the opinion release that gave the Justice Department additional comfort that the foreign government official would not reciprocate his buy-out amount by sending business back to the company.
There was one other interesting factor in this most recent opinion release. In a footnote, the release listed the time it took to initially request the opinion, have it reviewed by the Justice Department, for the department to review additional information it requested, and then the date of the final submission by the requesting company. This was the first time that the Justice Department listed the time frames involved in the opinion release process. Whether this was in response to criticism by groups such as the Organization for Economic Co-Operation and Development about the long time it takes from start to finish or simply to let the compliance arena know how long the process takes, it was welcome information.
Unconventional Wisdom
These three opinion releases went against the conventional wisdom of what conduct would lead to an FCPA violation. I certainly thought that the hiring of a royal family member and the payment for medical treatment for the daughter of a foreign government official with whom a company does business would have been violations of the FCPA. Even Opinion Release 14-01, where the contract was changed so that the foreign government official could receive a buy-out after he left the entity and went into government service, seems to me to have crossed the line into what is not acceptable under the FCPA.
Substantively, the deciding factor seems to be the ability to dis-link the action in question from the conduct of the requesting company; whether it be to hire a royal family member, pay for medical treatment of the child of a foreign government official, or change a contract so that a former partner now gets a buy-out after he goes into government service. Each requesting company was able to present procedural protections to the Justice Department, which helped convince it to indicate the conduct in question would not be prosecuted.
Each of these opinion releases also shows that the Justice Department responds to thought-out, well-reasoned arguments. This concept is spelled out in the FCPA guidance regarding compliance programs. You can have something different if the “well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations.”
Anytime a Justice Department representative speaks at a conference, they say that a company should assess its risks and then manage them, on an evolving basis. They also reiterate that well-reasoned compliance policies are the way for companies to manage their own compliance risks.
In each request, the company has set out the numerous steps it has taken and will take in the future to ensure that an FCPA violation will not occur. It is clear that the Justice Department is listening. Particularly in opinion release 12-02 where a new test was created, namely the “duties” analysis. This demonstrates the Justice Department will listen to new and novel arguments, if they are well-reasoned. It may be time for companies to look at the opinion release procedure more closely.
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