EFTA01080289

• A Resource Guide to the U.S. Foreign Corrupt Practices Act By the Criminal Division of the U.S. Department ofJustice and thy Enforcement Division of the U.S. Securities and Exchange Commission EFTA01080289 This guide is intended to provide information for businesses and individuals regarding the U.S. Foreign Corrupt Practices Act (FCPA). The guide has been prepared by the =if of the Criminal Division of the US. Department of Justice and the Enforcement Division ofthe US. Securities and Exchange Commission. It is non-binding, informal, and summary in nature, and the information contained herein does not constitute rules or regulations. As such, it is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, that are enforceable at law by any party, in any criminal, civil, or administrative matter. It is nor intended to substitute for the advice oflegal counsel on specific issues related to the FCPA. It does not in any way limit the enforcement intentions or litigating positions of the US. Department ofJustice, the US. Securities and Exchange Commission, or any other U.S. government agency. Companies or individuals seeking an opinion concerning specific prospective conduct are encouraged to use the US. Department ofJustice's opinion procedure discussed in Chapter 9 of this guide. This guide is United States Government property. It is available to the public free of charge online at wwwjustice.gov/ criminal/fraud/fcpa and wwwsec.gov/spodight/fcpashtml. EFTA01080290 A RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT By the Criminal Division of the US. Department ofJusticc and the Enforcement Division of the US. Securities and Exchange Commission EFTA01080291 FOREWORD We are pleased to announce the publication of A Resource Guide to the U.S. Foreign Comer Practices An. The Foreign Corrupt Practices Act (FCPA) is a critically important statute for combating corruption around the globe. Corruption has corrosive effects on democratic institutions, undermining public accountability and diverting public resources from impor- tant priorities such as health, education, and infrastructure. When business is won or lost based on how much a company is willing to pay in bribes rather than on the quality of its products and services, law-abiding companies are placed at a com- petitive disadvantage—and consumers lose. For these and other reasons, enforcing the FCPA is a continuing priority at the Department ofJustice (DOJ) and the Securities and Exchange Commission (SEC). The Guide is the product ofextensive efforts by experts at DOJ and SEC, and has benefited from valuable input from the Departments ofCommerce and State. It endeavors to provide helpful information to enterprises ofall shapes and sizes— from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world. The Guide addresses a wide variety of topics, including who and what is covered by the FCPA's anti-bribery and accounting provisions; the definition ofa 'oreign official"; what constitute proper and improper gifts, travel and entertainment expenses; the nature of facilitating payments; how successor liability applies in the mergers and acquisitions context; the hallmarks of an effective corporate compliance program; and the different types of civil and criminal resolutions available in the FCPA context. On these and other topics, the Guide takes a multi-faceted approach, setting forth in detail the statutory require- ments while also providing insight into DOJ and SEC enforcement practices through hypotheticals, examples of enforce- ment actions and anonymized declinations, and summaries ofapplicable case law and DOJ opinion releases. The Guide is an unprecedented undertaking by DOJ and SEC to provide the public with detailed information about our FCPA enforcement approach and priorities. We are proud of the many lawyers and staff who worked on this project, and hope that it will be a useful reference for companies, individuals, and others interested in our enforcement of the Act. rtkb---1 2 ,4J- 4n Lanny A. Breuer Robert S. Khuzami Assistant Attorney General Director of Enforcement Criminal Division Securities and Exchange Commission Department of Justice November 14, 2012 EFTA01080292 EFTA01080293 CONTENTS Chapter 1: INTRODUCTION 2 The Costs of Corruption 2 Historical Background 3 National Landscape: Interagency Efforts 4 Department of Justice 4 Securities and Exchange Commission 4 Law Enforcement Partners 5 Department of Commerce and State 5 International Landscape: Global Anti-Corruption Efforts 7 OECD Working Group on Bribery and the Anti-Bribery Convention 7 Convention Against Corruption 8 Other Anti-Corruption Conventions 8 Chapter 2: THE FCPA: ANTI-BRIBERY PROVISIONS 10 Who Is Covered by the Anti-Bribery Provisions? 10 Issuers-15 U.S.C. § 78dd-1 10 Domestic Concerns-15 U.S.C. § 78dd-2 11 Territorial Jurisdiction-15 U.S.C. § 78dd-3 11 What Jurisdictional Conduct Triggers the Anti-Bribery Provisions? 11 What Is Covered?—The Business Purpose Test 12 What Does "Corruptly" Mean? 14 What Does "Willfully" Mean and When Does It Apply? 14 What Does "Anything of Value" Mean? 14 Cash 15 Gifts, Travel, Entertainment, and Other Things of Value 15 Charitable Contributions 16 Who Is a Foreign Official? 19 Department, Agency, or Instrumentality of a Foreign Government 20 Public International Organizations 21 How Are Payments to Third Parties Treated? 21 What Affirmative Defenses Are Available? 23 The Local Law Defense 23 Reasonable and Bona Fide Expenditures 24 What Are Facilitating or Expediting Payments' 25 Does the FCPA Apply to Cases of Extortion or Duress? 27 Principles of Corporate Liability for Anti-Bribery Violations 27 Parent-Subsidiary Liability 27 Successor Liability 28 Additional Principles of Criminal Liability for Anti-Bribery Violations: Aiding and Abetting and Conspiracy . . . 34 EFTA01080294 Additional Principles of Civil Liability for Anti-Bribery Violations: Aiding and Abetting and Causing 34 What Is the Applicable Statute of Limitations? 34 Statute of Limitations in Criminal Cases 34 Statute of Limitations in Civil Actions 35 Chapter 3: THE FCPA: ACCOUNTING PROVISIONS 38 What Is Covered by the Accounting Provisions? 39 Books and Records Provision 39 Internal Controls Provision 40 Potential Reporting and Anti-Fraud Violations 41 What Are Management's Other Obligations? 42 Who Is Covered by the Accounting Provisions? 42 Civil Liability for Issuers, Subsidiaries, and Affiliates 42 Civil Liability for Individuals and Other Entities 43 Criminal Liability for Accounting Violations 44 Conspiracy and Aiding and Abetting Liability 45 Auditor Obligations 45 Chapter 4: OTHER RELATED U.S. LAWS 48 Travel Act 48 Money Laundering 48 Mail and Wire Fraud 49 Certification and Reporting Violations 49 Tax Violations 49 Chapter 5: GUIDING PRINCIPLES OF ENFORCEMENT 52 What Does DOJ Consider When Deciding Whether to Open an Investigation or Bring Charges? 52 DOJ Principles of Federal Prosecution 52 DOJ Principles of Federal Prosecution of Business Organizations 52 What Does SEC Consider When Deciding Whether to Open an Investigation or Bring Charges? 53 Self-Reporting, Cooperation, and Remedial Efforts 54 Criminal Cases 54 Civil Cases 55 Corporate Compliance Program 56 Hallmarks of Effective Compliance Programs 57 Commitment from Senior Management and a Clearly Articulated Policy Against Corruption 57 Code of Conduct and Compliance Policies and Procedures 57 Oversight, Autonomy, and Resources 58 Risk Assessment 58 Training and Continuing Advice 59 Incentives and Disciplinary Measures 59 Third-Party Due Diligence and Payments 60 EFTA01080295 Confidential Reporting and Internal Investigation 61 Continuous Improvement: Periodic Testing and Review 61 Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition Integration 62 Other Guidance on Compliance and International Best Practices 63 Chapter 6: FCPA PENALTIES, SANCTIONS, AND REMEDIES 68 What Are the Potential Consequences for Violations of the FCPA? 68 Criminal Penalties 68 U.S. Sentencing Guidelines 68 Civil Penalties 69 Collateral Consequences 69 Debarment 70 Cross-Debarment by Multilateral Development Banks 70 Loss of Export Privileges 71 When Is a Compliance Monitor or Independent Consultant Appropriate/ 71 Chapter 7: RESOLUTIONS 74 What Are the Different Types of Resolutions with DOJO 74 Criminal Complaints, Informations, and Indictments 74 Plea Agreements 74 Deferred Prosecution Agreements 74 Non-Prosecution Agreements 75 Declinations 75 What Are the Different Types of Resolutions with SEC? 76 Civil Injunctive Actions and Remedies 76 Civil Administrative Actions and Remedies 76 Deferred Prosecution Agreements 76 Non-Prosecution Agreements 77 Termination Letters and Declinations 77 What Are Some Examples of Past Declinations by DOJ and SEC' 77 Chapter 8: WHISTLEBLOWER PROVISIONS AND PROTECTIONS 82 Chapter 9: DOJ OPINION PROCEDURE 86 Chapter 10: CONCLUSION 90 APPENDIX: THE FOREIGN CORRUPT PRACTICES ACT 92 APPENDIX: ENDNOTES 104 EFTA01080296 Corporate bribery is bad business. In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet. Corporate bribery of foreign officials takes place primarily to assist corporations in gaining business. Thus foreign corporate bribery affects the very stability of overseas business. Foreign corporate bribes also affect our domestic competitive climate when domestic firms engage in such practices as a substitute for healthy com- petition for foreign business.' —United States Senate, 1977 EFTA01080297 EFTA01080298 chapter 1 Introduction INTRODUCTION Congress enacted the U.S. Foreign Corrupt Practices Act (FCPA or the Act) in 1977 in response to revelations of widespread bribery of foreign officials by U.S. companies. The Act was intended to halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integ- rity of the marketplace.= The FCPA contains both anti-bribery and accounting enforcement authority and are committed to fighting for- provisions. The anti-bribery provisions prohibit US. per- eign bribery through robust enforcement. An important sons and businesses (domestic concerns), US. and foreign component of this effort is education, and this resource public companies listed on stock exchanges in the United guide, prepared by DOJ and SEC staff, aims to provide States or which are required to file periodic reports with businesses and individuals with information to help them the Securities and Exchange Commission (issuers), and abide by the law, detect and prevent FCPA violations, and certain foreign persons and businesses acting while in the implement effective compliance programs. territory of the United States (territorial jurisdiction) from making corrupt payments to foreign officials to obtain or The Costs of Corruption retain business. The accounting provisions require issuers Corruption is a global problem. In the three decades to make and keep accurate books and records and to devise since Congress enacted the FCPA, the extent of corporate and maintain an adequate system of internal accounting bribery has become clearer and its ramifications in a trans- controls. The accounting provisions also prohibit individu- national economy starker. Corruption impedes economic als and businesses from knowingly falsifying books and growth by diverting public resources from important pri- records or knowingly circumventing or failing to imple- orities such as health, education, and infrastructure. It ment a system ofinternal controls. undermines democratic values and public accountability The Department of Justice (DOJ) and the and weakens the rule of law.3 And it threatens stability and Securities and Exchange Commission (SEC) share FCPA security by facilitating criminal activity within and across 2 EFTA01080299 borders, such as the illegal trafficking of people, weapons, and drugs' International corruption also undercuts good No problem does more to alienate citizens governance and impedes US. efforts to promote freedom from their political leaders and institutions, and democracy, end poverty, and combat crime and terror- ism across the globe' and to undermine political stability and Corruption is also bad for business. Corruption is economic development, than endemic anti-competitive, leading to distorted prices and disadvan- taging honest businesses that do not pay bribes. It increases corruption among the government, political the cost of doing business globally and inflates the cost of party leaders, judges, and bureaucrats. government contracts in developingcountries!.Corruption also introduces significant uncertainty into business trans- — VIED Anti-Corruption Strategy actions: Contracts secured through bribery may be legally unenforceable, and paying bribes on one contract often results in corrupt officials makingever-increasing demands? Bribery has destructive effects within a business as well, recognized when it passed the FCPA, corruption imposes undermining employee confidence in a company's manage- enormous costs both at home and abroad, leading to mar- ment and fostering a permissive atmosphere for other kinds ket inefficiencies and instability, sub-standard products, of corporate misconduct, such as employee self-dealing, and an unfair playing field for honest businesses." By embezzlement,' financial fraud,' and anti-competitive enacting a strong foreign bribery statute, Congress sought behavior.10 Bribery thus raises the risks of doing business, to minimize these destructive effects and help companies putting a company's bottom line and reputation in jeop- resist corrupt demands, while addressing the destruc- ardy. Companies that pay bribes to win business ultimately tive foreign policy ramifications of transnational brib- undermine their own long-term interests and the best inter- ery." 'Me Act also prohibited off-the-books accounting ests of their investors. through provisions designed to "strengthen the accuracy of the corporate books and records and the reliability of Historical Background the audit process which constitute the foundations of our Congress enacted the FCPA in 1977 after revela- system of corporate disclosure!" tions of widespread global corruption in the wake of the In 1988, Congress amended the FCPA to add two Watergate political scandal. SEC discovered that more than affirmative defenses: (1) the local law defense; and (2) the 400 U.S. companies had paid hundreds of millions of dol- reasonable and bona Me promotional expense defense.'" lars in bribes to foreign government officials to secure busi- Congress also requested that the President negotiate an ness overseas." SEC reported that companies were using international treaty with members of the Organisation secret "slush funds" to make illegal campaign contributions for Economic Co-operation and Development (OECD) in the United States and corrupt payments to foreign offi- to prohibit bribery in international business transactions cials abroad and were falsifying their corporate financial by many of the United States' major trading parmers." records to conceal the payments." Subsequent negotiations at the OECD culminated in the Congress viewed passage of the FCPA as critical Convention on Combating Bribery of Foreign Officials to stopping corporate bribery, which had tarnished the in International Business Transactions (Anti-Bribery image of U.S. businesses, impaired public confidence in Convention), which, among other things, required parties the financial integrity of US. companies, and hampered to make it a crime to bribe foreign officials." the efficient functioning of the markets.'' As Congress 3 EFTA01080300 chapter 1 DOJ Contact Information Introduction Deputy Chief (FCPA Unit) Fraud Section, Criminal Division Bond Building 1400 New York Ave, . directors, employees, agents, or stockholders acting on the Washington, DC 20005 issuer's behalf. DOJ also has both criminal and civil enforce- Telephone: (202) 514-7023 ment responsibility for the FCPA's anti-bribery provisions Facsimile: (202) 514-7021 over "domestic concerns"—which include (a) US. citizens, Email: FCPA.Fraud@usdoj.gov nationals, and residents and (b) US. businesses and their officers, directors, employees, agents, or stockholders act- ing on the domestic concern's behalf—and certain foreign persons and businesses that act in furtherance of an FCPA In 1998, the FCPA was amended to conform to violation while in the territory of the United States. Within the requirements of the Anti-Bribery Convention. These DOJ, the Fraud Section of the Criminal Division has pri- amendments expanded the FCPA's scope to: (1) include mary responsibility for all FCPA matters." FCPA matters payments made to secure "any improper advantage"; (2) are handled primarily by the FCPA Unit within the Fraud reach certain foreign persons who commit an act in fur- Section, regularly working jointly with US. Attorneys' therance of a foreign bribe while in the United States; (3) Offices around the country. cover public international organizations in the definition DOJ maintains a website dedicated to the FCPA and of "foreign official"; (4) add an alternative basis for juris- its enforcement at http://www.justice.gov/criminal/fraud/ diction based on nationality; and (5) apply criminal pen- fcpa/. The website provides translations of the FCPA in alties to foreign nationals employed by or acting as agents numerous languages, relevant legislative history, and selected of US. companies.' The Anti-Bribery Convention came documents from FCPA-related prosecutions and resolutions into force on February 15, 1999, with the United States since 1977, including charging documents, plea agreements, as a founding party. deferred prosecution agreements, non-prosecution agree- ments, press releases, and other relevant pleadings and court National Landscape: Interagency decisions. The website also provides copies of opinions issued Efforts in response to requests by companies and individuals under DOJ and SEC share enforcement authority for the DOJ's FCPA opinion procedure. The procedures for submit- FCPA's anti-bribery and accounting provisions." They also ting a request for an opinion can be found at http://www. work with many other federal agencies and law enforce- justice.gov/criminal/fraudifcpa/docs/figncrptpdf and are ment partners to investigate and prosecute FCPA viola- discussed further in Chapter 9. Individuals and companies tions, reduce bribery demands through good governance wishing to disclose information about potential FCPA viola- programs and other measures, and promote a fair playing tions are encouraged to contact the FCPA Unit at the tele- field for U.S. companies doing business abroad. phone number or email address above. Department of Justice Securities and Exchange Commission DOJ has criminal FCPA enforcement authority SEC is responsible for civil enforcement of the FCPA over "issuers" (i.e., public companies) and their officers, over issuers and their officers, directors, employees, agents, 4 EFTA01080301 Individuals and companies with information about possible FCPA violations by issuers may report them to the SEC Contact Information Enforcement Division via SEC's online Tips, Complaints FCPA Unit Chief and Referral system, http://vr.vwsecgov/complaint/tip- Division of Enforcement scomplaintshtml. They may also submit information to U.S. Securities and Exchange Commission SEC's Office ofthe Whistleblower through the same online 100 F Street, N.E. system or by contacting the Office of the Whistleblower Washington, DC 20549 at (202) 551-4790. Additionally, investors with questions about the FCPA can call the Office of Investor Education Online: Tips, Complaints, and and Advocacy at (800) SEC-0330. Referrals website For more information about SEC's Whistleblower http://www.sec.gov/complaint/tipscomplaint.shtml Program, under which certain eligible whistleblowers may be entitled to a monetary award if their information leads to Office of Investor Education and Advocacy: certain SEC actions, see Chapter 8. (800) SEC-0330 Law Enforcement Partners DOJ's FCPA Unit regularly works with the Federal Bureau ofInvestigation (FBI) to investigate potential FCPA violations. The FBI's International Corruption Unit has pri- or stockholders acting on the issuer's behalf. SEC's Division mary responsibility for international corruption and fraud of Enforcement has responsibility for investigating and investigations and coordinates the FBI's national FCPA prosecuting FCPA violations. In 2010, SEC's Enforcement enforcement program. The FBI also has a dedicated FCPA Division created a specialized FCPA Unit, with attorneys squad of FBI special agents (located in the Washington in Washington, M. and in regional offices around the Field Office) that is responsible for investigating many, and country, to focus specifically on FCPA enforcement. The providing support for all, of the FBI's FCPA investigations. Unit investigates potential FCPA violations; facilitates In addition, the Department ofHomeland Security and the coordination with DOJ's FCPA program and with other Internal Revenue Service-Criminal Investigation regularly federal and international law enforcement partners; uses its investigate potential FCPA violations. A number of other expert knowledge of the law to promote consistent enforce- agencies are also involved in the fight against international ment of the FCPA; analyzes tips, complaints, and referrals corruption, including the Department of Treasury's Office regarding allegations of foreign bribery; and conducts pub- ofForeign Assets Control, which has helped lead a number lic outreach to raise awareness of anti-corruption efforts ofFCPA investigations. and good corporate governance programs. The FCPA Unit maintains a "Spotlight on FCPA" Departments of Commerce and State section on SEC's website at http://www.sec.govispotlight/ Besides enforcement efforts by DOJ and SEC, fcpa.shtml. The website, which is updated regularly, pro- the U.S. government is also working to address corrup- vides general information about the Act, links to all SEC tion abroad and level the playing field for US. businesses enforcement actions involving the FCPA, including both through the efforts of the Departments of Commerce and federal court actions and administrative proceedings, and State. Both Commerce and State advance anti-corruption contains other useful information. and good governance initiatives globally and regularly assist US. companies doing business overseas in several EFTA01080302 important ways. Both agencies encourage US. businesses to seek the assistance of US embassies when they are con- chapter 1 fronted with bribe solicitations or other corruption-related Introduction issues overseas? The Department of Commerce offers a num- ber of important resources for businesses, including the International Trade Administration's United States and The Department of Commerce has also published a guide, Foreign Commercial Service (Commercial Service). The Business &bits: A Manual for Managing a Responsible Commercial Service has export and industry specialists Business Enterprise in Emerging Marko Economies, which located in over 100 U.S. cities and 70 countries who are contains information about corporate compliance pro- available to provide counseling and other assistance to US. grams for businesses involved in international trade? businesses, particularly small and medium-sized companies, The Departments of Commerce and State also pro- regarding exporting their products and services. Among vide advocacy support, when determined to be in the other things, these specialists can help a US. company con- national interest, for US. companies bidding for foreign duct due diligence when choosingbusiness partners or agents government contracts. The Department of Commerce's overseas. The International Company Profile Program, for Advocacy Center, for example, supports US. businesses instance, can be part of a US. business' evaluation of poten- competing against foreign companies for international con- tial overseas business partners? Businesses may contact the tracts, such as by arranging for the delivery of an advocacy Commercial Service through its website, http://export.gov/ message by US. government officials or assisting with unan- cad, or directly at its domestic and foreign offices? ticipated problems such as suspected bribery by a competi- Additionally, the Department of Commerce's Office tor? The Department of State's Bureau of Economic and of the General Counsel maintains a website, http://www. Business Affairs (specifically, its Office of Commercial and Business Affairs) similarly assists US. firms doing business initiatives, that contains recent articles and speeches, links overseas by providing advocacy on behalfofUS. businesses to translations of the FCPA, a catalogue ofanti-corruption and identifying risk areas for US. businesses; more infor- resources, and a list of international conventions and ini- mation is available on its website, harp://www.state.gov/e/ tiatives. The Trade Compliance Center in the Department eb/cba/. Also, the Department of State's economic officers of Commerce's International Trade Administration hosts serving overseas provide commercial advocacy and support a website with anti•bribery resources, http://tcc.export. for U.S. companies at the many overseas diplomatic posts gov/Bribery. This website contains an online form through where the Commercial Service is not represented. which US. companies can report allegations of foreign The Department of State promotes US. government bribery by foreign competitors in international business interests in addressing corruption internationally through transactions." The Department of Commerce also pro- country-to-country diplomatic engagement; development vides information to companies through a number of US. ofand follow-through on international commitments relat- and international publications designed to assist firms in ing to corruption; promotion ofhigh-level political engage- complying with anti-corruption laws. For example, the ment (e.g., the G20 Anticorruption Action Plan); public Department ofCommerce has included a new anti•corup- outreach in foreign countries; and support for building tion section in its Country Commercial Guides, prepared the capacity of foreign partners to combat corruption. In by market experts at US. embassies worldwide, that contains fiscal year 2009, the U.S. government provided more than information on market conditions for more than 100 coun- $1 billion for anti-corruption and related good governance tries, including information on the FCPA for exporters? assistance abroad. 6 EFTA01080303 The Department of State's Bureau of International of the importance of fighting corruption and urge stronger Narcotics and Law Enforcement Affairs (INL) manages enforcement ofanti-corruption laws and policies. U.S. participation in many multilateral anti-corruption political and legal initiatives at the global and regional level. OECD Working Group on Bribery and the Anti- INL also funds and coordinates significant efforts to assist Bribery Convention countries with combating corruption through legal reform, The OECD was founded in 1961 to stimulate eco- training, and other capacity-buildingefforts. Inquiries about nomic progress and world trade. As noted, the Anti-Bribery the US. government's general anti-corruption efforts and Convention requires its parties to criminalize the bribery implementation of global and regional anti-corruption ini- of foreign public officials in international business transac- tiatives may be directed to INL on its website, hup://www. tions." As of November 1, 2012, there were 39 parties to state.gov/j/inl/c/crime/corr/index.han, or by email to: the Anti-Bribery Convention: 34 OECD member coun- anticorruption@stategov. In addition, the US. Agency for tries (including the United States) and five non-OECD International Development (USAID) has developed several member countries (Argentina, Brazil, Bulgaria, the Russian anti-corruption programs and publications, information Federation, and South Africa). All of these parties are about which can be found at http://wenmusaid.gov/what- also members of the OECD Working Group on Bribery we-dademocracy-human-rights-and-governance/promot- (Working Group)." ing-accountability-transparency. Finally, the Department of The Working Group is responsible for monitoring the State's brochure "Fighting Global Corruption: Business Risk implementation of the Anti-Bribery Convention, the 2009 Management," available at http://www.ogc.docgov/pdfs/ Recommendation of the Council for Further Combating Fighting_Global_Corruption.pdf, provides guidance about Bribery of Foreign Public Officials in International corporate compliance programs as well as international anti- Business Transactions, and related instruments. Its mem- corruption initiatives. bers meet quarterly to review and monitor implementation of the Anti-Bribery Convention by member states around International Landscape: Global Anti- the world. Each party undergoes periodic peer review." Corruption Efforts This peer-review monitoring system is conducted in three In recent years, there has been a growing interna- phases. The Phase 1 review includes an in-depth assess- tional consensus that corruption must be combated, and the ment of each country's domestic laws implementing the United States and other countries are parties to a number Convention. The Phase 2 review examines the effectiveness of international anti-corruption conventions. Under these of each country's laws and anti-bribery efforts. The final conventions, countries that are panics undertake commit- phase is a permanent cycle of peer review (the first cycle of ments to adopt a range of preventive and criminal law mea- which is referred to as the Phase 3 review) that evaluates sures to combat corruption. The conventions incorporate a country's enforcement actions and results, as well as the review processes that allow the United States to monitor country's efforts to address weaknesses identified during the other countries to ensure that they are meeting their inter- Phase 2 review.? All of the monitoring reports for the par- national obligations. Likewise, these processes in turn permit ties to the Convention can be found on the OECD website other parties to monitor the United States anti-corruption and can be a useful resource about the foreign bribery laws laws and enforcement to ensure that such enforcement and of the OECD Working Group member countries." legal frameworks are consistent with the United States' treaty The United States was one of the first countries to obligationsj° US officials regularly address the subject of undergo all three phases ofreview. The reports and appen- corruption with our foreign counterparts to raise awareness dices can be found on DOJ's and SEC's websites.? In its 7 EFTA01080304 Phase 3 review of the United States, which was completed in October 2010, the Working Group commended U.S. chapter 1 efforts to fight transnational bribery and highlighted a Introduction number of best practices developed by the United States. The report also noted areas where the United States' anti- bribery efforts could be improved, including consolidat- ing publicly available information on the application of The IACAC requires parties (of which the United States the FCPA and enhancing awareness among small- and is one) to criminalize both foreign and domestic brib- medium-sized companies about the prevention and detec- ery. A body known as the Mechanism for Follow-Up on tion of foreign bribery. This guide is, in part, a response to the Implementation of the Inter-American Convention these Phase 3 recommendations and is intended to help Against Corruption (MESICIC) monitors parties compli- businesses and individuals better understand the FCPA." ance with the IACAC. As ofNovember 1, 2012, 31 coun- tries were parties to MESICIC. M. Convention Against Corruption The Council of Europe established the Group of The United States is a state party to the United States Against Corruption (GRECO) in 1999 to monitor Nations Convention Against Corruption (UNCAC), countries' compliance with the Council of Europe's anti- which was adopted by the M. General Assembly on corruption standards, including the Council of Europe's October 31, 2003, and entered into force on December Criminal Law Convention on Corruption." These stan- 14, 2005? The United States ratified the UNCAC on dards include prohibitions on the solicitation and receipt of October 30, 2006. The UNCAC requires parties to crimi- bribes, as well as foreign bribery. As of November 1, 2012, nalize a wide range ofcorrupt acts, including domestic and GRECO member states, which need not be members of foreign bribery and related offenses such as money launder- the Council of Europe, include more than 45 European ing and obstruction of justice. The UNCAC also estab- countries and the United States? lishes guidelines for the creation of anti-corruption bodies, The United States has been reviewed under both codes ofconduct for public officials, transparent and objec- MESICIC and GRECO, and the reports generated by tive systems ofprocurement, and enhanced accounting and those reviews are available on DOJ's website. auditing standards for the private sector. A peer review mechanism assesses the implementation of the UNCAC by parties to the Convention, with a focus in the first round on criminalization and law enforcement as well as inter- national legal cooperation? The United States has been reviewed under the Pilot Review Programme, the report of which is available on DOJ's website. As ofNovember 1, 2012, 163 countries were parties to the UNCAC? Other Anti-Corruption Conventions The Inter-American Convention Against Corruption (IACAC) was the first international anti-corruption con- vention, adopted in March 1996 in Caracas, Venezuela, by members of the Organization of American States.01 8 EFTA01080305 EFTA01080306 The FCPA: Anti-Bribery Provisions THE FCPA: ANTI-BRIBERY PROVISIONS The FCPA addresses the problem of international corruption in two ways: (1) the anti-bribery provisions, which are discussed below, prohibit individuals and businesses from bribing foreign government officials in order to obtain or retain business and (2) the accounting provisions, which are discussed in Chapter 3, impose certain record keeping and internal control requirements on issuers, and prohibit individuals and companies from knowingly falsifying an issuer's books and records or circumventing or failing to implement an is- suer's system of internal controls. Violations of the FCPA can lead to civil and criminal penalties, sanctions, and remedies, including fines, disgorgement, and/or imprisonment. In general. the FCPA prohibits offering to pay, pay- their officers, directors. employees. agents. and sharehold- ing, promising to pay. or authorizing the payment of money ers: (2) "domestic concerns" and their officers, directors. or anything of value to a foreign official in order to influ- employees. agents. and shareholders: and (3) certain per- ence any act or decision of the foreign official in his or her sons and entities, other than issuers and domestic concerns. official capacity or to secure any other improper advantage acting while in the territory of the United States. in order to obtain or retain business." Issuers-15 U.S.C. § 78dd-1 Who Is Covered by the Anti-Bribery Provisions? Section 30A of the Securities Exchange Act of 1934 The FCPA's anti-bribery provisions apply broadly to (the Exchange Act). which can be found at 15 U.S.C. three categories of persons and entities: (1) "issuers" and § 78dd-1. contains the anti-bribery provision governing 10 EFTA01080307 directors, employees, agents, or stockholders acting on How Can I Tell If My Company Is an "Issuer"? behalfofa domestic concern, including foreign nationals or • It is listed on a national securities exchange in the companies, are also covered." United States (either stock or American Depository Receipts); or Territorial Jurisdiction-1 U.S.C. § 78dd-3 The company's stock trades in the over-the- The FCPA also applies to certain foreign nationals or counter market in the United States and the entities that are not issuers or domestic concerns? Since company is required to file SEC reports. 1998, the FCPA's anti-bribery provisions have applied to To see if your company files SEC reports, go to foreign persons and foreign non-issuer entities that, either SEC's website at http://www.sec.gov/edgar/ sea rchedgar/webusers.htm. directly or through an agent, engage in any act in further- ance of a corrupt payment (or an offer, promise, or authori- zation to pay) while in the territory of the United States." Also, officers, directors, employees, agents, or stockholders issuers." A company is an "issuer" under the FCPA if it acting on behalf ofsuch persons or entities may be subject has a class of securities registered under Section 12 of the to the FCPA's anti-bribery prohibitions." Exchange Act' or is required to file periodic and other reports with SEC under Section 15(d) of the Exchange What Jurisdictional Conduct Triggers the Anti- Act." In practice, this means that any company with a Bribery Provisions? class ofsecurities listed on a national securities exchange in The FCPA's anti-bribery provisions can apply to the United States, or any company with a class of securi- conduct both inside and outside the United States. Issuers ties quoted in the over-the-counter market in the United and domestic concerns—as well as their officers, directors, States and required to file periodic reports with SEC, is an employees, agents, or stockholders—may be prosecuted issuer. A company thus need not be a U.S. company to be for using the U.S. mails or any means or instrumentality of an issuer. Foreign companies with American Depository interstate commerce in furtherance of a corrupt payment Receipts that are listed on a U.S. exchange are also issuers." to a foreign official. The Act defines 'interstate commerce" As ofDecember 31, 2011, 965 foreign companies were reg- as "trade, commerce, transportation, or communication istered with SEC:" Officers, directors, employees, agents, among the several States, or between any foreign country or stockholders acting on behalf of an issuer (whether US. and any State or between any State and any place or ship or foreign nationals), and any co-conspirators, also can be outside thereof The term also includes the intrastate prosecuted under the FCPA.'° use of any interstate means of communication, or any other interstate instrumentality."Thus,placing a telephone call or Domestic Concerns-1 U.S.C. § 78dd-2 sending an e-mail, text message, or fax from, to, or through The FCPA also applies to 'domestic concerns'" A the United States involves interstate commerce—as does domestic concern is any individual who is a citizen, national, sending a wire transfer from or to a U.S. bank or otherwise or resident of the United States, or any corporation, part- using the US. banking system, or traveling across state bor- nership, association, joint-stock company, business trust, ders or internationally to or from the United States. unincorporated organization, or sole proprietorship that is Those who are not issuers or domestic concerns may organized under the laws of the United States or its states, be prosecuted under the FCPA if they directly, or through territories, possessions, or commonwealths or that has its an agent, engage in any act in furtherance of a corrupt pay- principal place of business in the United States." Officers, ment while in the territory of the United States, regardless of 11 EFTA01080308 whether they utilize the US. mails or a means or instrumen- tality of interstate commerce." Thus, for example, a foreign chapter 2 national who attends a meeting in the United States that fur- The FCPA: Anti-Bribery Provisions thers a foreign bribery scheme may be subject to prosecution, as may any co-conspirators, even if they did not themselves attend the meeting. A foreign national or company may also be liable under the FCPA if it aids and abets, conspires with, to a foreign official by U.S. companies and persons occur- or acts as an agent of an issuer ordomestic concern, regardless ring wholly outside of the United States." of whether the foreign national or company itself takes any action in the United States." What Is Covered?—The Business In addition, under the "alternative jurisdiction" pro- Purpose Test vision of the FCPA enacted in 1998, US. companies or The FCPA applies only to payments intended to persons may be subject to the anti-bribery provisions even induce or influence a foreign official to use his or her posi- if they act outside the United States." The 1998 amend- tion "in order to assist ... in obtaining or retaining business ments to the FCPA expanded the jurisdictional coverage of for or with, or directing business to, any person!" This the Act by establishing an alternative basis for jurisdiction, requirement is known as the "business purpose test" and is that is, jurisdiction based on the nationality principle." In broadly interpreted." particular, the 1998 amendments removed the requirement Not surprisingly, many enforcement actions involve that there be a use of interstate commerce (e.g., wire, email, bribes to obtain or retain government contracts." The telephone call) for acts in furtherance of a corrupt payment FCPA also prohibits bribes in the conduct of business or Hypothetical: FCPA Jurisdiction Company A, a Delaware company with its principal place of business in New York, is a large energy company that operates globally, including in a number of countries that have a high risk of corruption, such as Foreign Country. Company A% shares are listed on a national U.S. stock exchange. Company A enters into an agreement with a European company (EuroCo) to submit a joint bid to the Oil Ministry to build a refinery in Foreign Country. EuroCo is not an issuer. Executives of Company A and EuroCo meet in New York to discuss how to win the bid and decide to hire a purported third-party consultant (Intermediary) and have him use part of his "commission" to bribe high-ranking officials within the Oil Ministry. Intermediary meets with executives at Company A and EuroCo in New York to finalize the scheme. Eventually, millions of dollars in bribes are funneled from the United States and Europe through Intermediary to high-ranking officials at the Oil Ministry, and Company A and EuroCo win the contract. A few years later, a front page article alleging that the contract was procured through bribery appears in Foreign Country, and DOJ and SEC begin investigating whether the FCPA was violated. Based on these facts, which entities fall within the FCPA's jurisdiction? All of the entities easily fall within the FCPA% jurisdiction. Company A is both an "issuer" and a "domestic concern" under the FCPA, and Intermediary is an "agent" of Company A. EuroCo and Intermediary are also subject to the FCPA's territorial jurisdiction provision based on their conduct while in the United States. Moreover, even if EuroCo and Intermediary had never taken any actions in the territory of the United States, they can still be subject to jurisdiction under a traditional application of conspiracy law and may be subject to substantive FCPA charges under Pinkerton liability, namely, being liable for the reasonably foreseeable substantive FCPA crimes committed by a co-conspirator in furtherance of the conspiracy. 12 EFTA01080309 held that payments to obtain favorable tax treatment can, under appropriate circumstances, violate the FCPA: Examples of Actions Taken to Obtain or Retain Business Avoiding or lowering taxes reduces operating costs Winning a contract and thus increases profit margins, thereby freeing up funds that the business is otherwise legally obligated Influencing the procurement process to expend. And this, in turn, enables it to cake any number of actions to the disadvantage of competi- Circumventing the rules for importation of tors. Bribing foreign officials to lower taxes and cus- products toms duties certainly ran provide an unfair advantage Gaining access to non-public bid tender over competitors and thereby be of assistance to the information payor in obtaining or retaining business. Evading taxes or penalties • • • Influencing the adjudication of lawsuits or [Wit hold that Congress intended for the FCPA enforcement actions to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or • Obtaining exceptions to regulations retaining business for some person, and that bribes • Avoiding contract termination paid to foreign tax officials to secure illegally reduced customs and tax liability constitute a type of payment that can fall within this broad coverage.' to gain a business advantage.' For example, bribe payments made to secure favorable tax treatment, to reduce or elimi- Paying Bribes to Customs Officials nate customs duties, to obtain government action to pre- In 2010, a global freight forwarding company and vent competitors from entering a market, or to circumvent six of its corporate customers in the oil and gas industry a licensing or permit requirement, all satisfy the business resolved charges that they paid bribes to customs purpose test." officials. The companies bribed customs officials in more than ten countries in exchange for such benefits as: In 2004, the US.Court ofAppeaLs for the Fifth Circuit addressed the business purpose test in United States v. Kay • evading customs duties on imported goods and held that bribes paid to obtain favorable tax treatment— improperly expediting the importation of goods which reduced a company's customs duties and sales taxes and equipment on imports—could constitute payments made to "obtain • extending drilling contracts and lowering tax or retain" business within the meaning of the FCPA.f. The assessments court explained that in enacting the FCPA, "Congress meant obtaining false documentation related to to prohibit a range of payments wider than only those that temporary import permits for drilling rigs directly influence the acquisition or retention of govern- • enabling the release of drilling rigs and other ment contracts or similar commercial or industrial arrange- equipment from customs officials ments!" The Kay court found that "[Ow congressional In many instances, the improper payments at issue target was bribery paid to engender assistance in improving allowed the company to carry out its existing business, the business opportunities of the payor or his beneficiary, which fell within the FCPA's prohibition on corrupt irrespective of whether that assistance be direct or indirect, payments made for the purpose of "retaining" business. and irrespective of whether it be related to administering The seven companies paid a total of more than $235 million in civil and criminal sanctions and disgorgement. the law, awarding, extending, or renewing a contract, or executing or preserving an agreement!"" Accordingly, Kry 13 EFTA01080310 In short, while the FCPA does not cover every type of bribe paid around the world for every purpose, it does chapter 2 apply broadly to bribes paid to help obtain or retain busi- The FCPA: ness, which can include payments made to secure a wide Anti-Bribery Provisions variety ofunfair business advantages" What Does "Corruptly" Mean? What Does "Willfully" Mean and When To violate the FCPA, an offer, promise, or authori- Does It Apply? zation of a payment, or a payment, to a government offi- In order for an individual defendant to be criminally cial must be made "corruptly"' As Congress noted when liable under the FCPA, he or she must act "willfully?" Proof adopting the FCPA, the word "corruptly" means an intent of willfulness is not required to establish corporate criminal or desire to wrongfully influence the recipient: or civil liability,"' though proofofcorrupt intent is. The term "willfully" is not defined in the FCPA, but The word "corruptly" is used in order to make clear it has generally been construed by courts to connote an that the offer, payment, promise, or gift, must be in- tended to induce the recipient to misuse his official act committed voluntarily and purposefully, and with a position; for example, wrongfully to direct business bad purpose, i.e., with "knowledge that [a defendant) was to the payor or his client, to obtain preferential legis- doing a 'bad' act under the general rules of law.""" As the lation or regulations, or to induce a foreign official to fail to perform an official function)" Supreme Court explained in Bryan v. United Stares, "[a)s a general matter, when used in the criminal context, a 'will- Where corrupt intent is present, the FCPA prohibits ful' act is one undertaken with a 'bad purpose: In other paying, offering, or promising to pay money or anything words, in order to establish a 'willful' violation of a statute, of value (or authorizing the payment or offer)." By focus- 'the Government must prove that the defendant acted with ing on intent, the FCPA does not require that a corrupt knowledge that his conduct was unlawful:""; act succeed in its purpose? Nor must the foreign official Notably, as both the Second Circuit and Fifth Circuit actually solicit, accept, or receive the corrupt payment for Courts of Appeals have found, the FCPA does not require the bribe payor to be liable." For example, in one case, a the government to prove that a defendant was specifically specialty chemical company promised Iraqi government aware of the FCPA or knew that his conduct violated the officials approximately $850,000 in bribes for an upcoming FCPA." To be guilty, a defendant must act with a bad pur- contract. Although the company did not, in the end, make pose, i.e., know generally that his conduct is unlawful. the payment (the scheme was thwarted by the U.S. govern- ment's investigation), the company still violated the FCPA What Does "Anything of Value" Mean? and was held accountable." In enacting the FCPA, Congress recognized that bribes Also, as long as the offer, promise, authorization, or can come in many shapes and sizes—a broad range of unfair payment is made corruptly, the actor need not know the benefits"'—and so the statute prohibits the corrupt "offer, identity of the recipient: the attempt is sufficient" 8 Thus, an payment, promise to pay, or authorization of the payment of executive who authorizes others to pay "whoever you need any money, or offer, gift, promise to give, or authorization of to in a foreign government to obtain a contract has violated the givingofaythingefealue to" a foreign official." the FCPA—even if no bribe is ultimately offered or paid. An improper benefit can take many forms. While cases often involve payments of cash (sometimes in the guise of "consulting fees" or "commissions" given through intermediaries), others have involved travel expenses and 14 EFTA01080311 expensive gifts. Like the domestic bribery statute, the FCPA Gifts, Travel, Entertainment, and Other Things does not contain a minimum threshold amount for corrupt of Value gifts or payments? Indeed, what might be considered a A small gift or token of esteem or gratitude is often modest payment in the United States could be a larger and an appropriate way for business people to display respect much more significant amount in a foreign country. for each other. Some hallmarks of appropriate gift-giving Regardless of size, for a gift or other payment to vio- are when the gift is given openly and transparently, properly late the statute, the payor must have corrupt intent—that is, recorded in the giver's books and records, provided only to the intent to improperly influence the government official. reflect esteem or gratitude, and permitted under local law. The corrupt intent requirement protects companies that Items of nominal value, such as cab fare, reasonable engage in the ordinary and legitimate promotion of their meals and entertainment expenses, or company promo- businesses while targeting conduct that seeks to improp- tional items, are unlikely to improperly influence an offi- erly induce officials into misusing their positions. Thus, it cial, and, as a result, are not, without more, items that have is difficult to envision any scenario in which the provision resulted in enforcement action by DOJ or SEC. The larger of cups of coffee, taxi fare, or company promotional items or more extravagant the gift, however, the more likely it was of nominal value would ever evidence corrupt intent, and given with an improper purpose. DOJ and SEC enforce- neither DOJ nor SEC has ever pursued an investigation ment cases thus have involved single instances of large, on the basis of such conduct. Moreover, as in all areas of extravagant gift-giving (such as sports cars, fur coats, and federal law enforcement, DOJ and SEC exercise discre- other luxury items) as well as widespread gifts of smaller tion in deciding which cases promote law enforcement pri- items as part of a pattern of bribes.92 For example, in one orities and justify investigation. Certain patterns, however, case brought by DOJ and SEC, a defendant gave a govern- have emerged: DOls and SEC's anti-bribery enforcement ment official a country club membership fee and a genera- actions have focused on small payments and gifts only when tor, as well as household maintenance expenses, payment they comprise part of a systemic or long-standing course of ofcell phone bills, an automobile worth $20,000, and lim- conduct that evidences a scheme to corruptly pay foreign ousine services. The same official also received $250,000 officials to obtain or retain business. These assessments are through a third•party agent." necessarily fact specific. In addition, a number of FCPA enforcement actions have involved the corrupt payment of travel and entertain- Cash ment expenses. Both DOJ and SEC have brought cases The most obvious form of corrupt payment is large where these types of expenditures occurred in conjunction amounts of cash. In some instances, companies have main- with other conduct reflecting systemic bribery or other tained cash funds specifically earmarked for use as bribes. clear indicia ofcorrupt intent. One U.S. issuer headquartered in Germany disbursed cor- A case involving a California-based telecommuni- rupt payments from a corporate "cash desk" and used off- cations company illustrates the types of improper travel shore bank accounts to bribe government officials to win and entertainment expenses that may violate the FCPA." contracts? In another instance, a four-company joint ven- Between 2002 and 2007, the company spent nearly $7 mil- ture used its agent to pay $5 million in bribes to a Nigerian lion on approximately 225 trips for its customers in order to political party? The payments were made to the agent in obtain systems contracts in China, including for employees suitcases ofcash (typically in $1 million installments), and, ofChinese state-owned companies to travel to popular tour- in one instance, the trunk of a car when the cash did not fit ist destinations in the United States." Although the trips into a suitcase?' were purportedly for the individuals to conduct training at 15 EFTA01080312 Examples of Improper chapter 2 Travel and Entertainment The FCPA: a $12,000 birthday trip for a government decision- Anti-Bribery Provisions maker from Mexico that included visits to wineries and dinners • $10,000 spent on dinners, drinks, and company also failed to implement appropriate internal con- entertainment for a government official trols to monitor the provision of travel and other things of • a trip to Italy for eight Iraqi government officials value to Chinese government officials." that consisted primarily of sightseeing and included $1,000 in "pocket money' for each Companies also may violate the FCPA if they give official payments or gifts to third parties, like an official's family • a trip to Paris for a government official and his wife members, as an indirect way of corruptly influencing a for- that consisted primarily of touring activities via a eign official. For example, one defendant paid personal bills chauffeur-driven vehicle and provided airline tickets to a cousin and close friend of the foreign official whose influence the defendant sought in obtaining contracts!' The defendant was convicted at trial and received a prison sentence.101 the company's facilities, in reality, no training occurred on As part of an effective compliance program, a com- many of these trips and the company had no facilities at those pany should have clear and easily accessible guidelines locations. Approximately $670,000 of the $7 million was and processes in place for gift-giving by the company's falsely recorded as `training" expenses.% directors, officers, employees, and agents. Though not Likewise, a New Jersey-based telecommunications necessarily appropriate for every business, many larger company spent millions of dollars on approximately 315 companies have automated gift-giving clearance pro- trips for Chinese government officials, ostensibly to inspect cesses and have set clear monetary thresholds for gifts factories and train the officials in using the company's along with annual limitations, with limited exceptions equipment? In reality, during many of these trips, the offi- for gifts approved by appropriate management. Clear cials spent little or no time visiting the company's facilities, guidelines and processes can be an effective and efficient but instead visited tourist destinations such as Hawaii, Las means for controlling gift-giving, deterring improper Vegas, the Grand Canyon, Niagara Falls, Disney World, gifts, and protecting corporate assets. Universal Studios, and New York City." Some of the trips The FCPA does not prohibit gift-giving. Rather, just were characterized as "factory inspections" or "training" like its domestic bribery counterparts, the FCPA prohibits with government customers but consisted primarily or the payments of bribes, including those disguised as gifts. entirely of sightseeing to locations chosen by the officials, typically lasting two weeks and costing between $25,000 Charitable Contributions and $55,000 per trip. In some instances, the company gave Companies oken engage in charitable giving as part the government officials $500 to $1,000 per day in spend- of legitimate local outreach. The FCPA does not prohibit ing money and paid all lodging, transportation, food, charitable contributions or prevent corporations from act- and entertainment expenses. The company either failed ing as good corporate citizens. Companies, however, can- to record these expenses or improperly recorded them as not use the pretense of charitable contributions as a way to "consulting fees" in its corporate books and records. The funnel bribes to government officials. 16 EFTA01080313 For example. a pharmaceutical company used chari- the payments were not viewed as charitable contributions table donations to a small local castle restoration charity but rather as "dues" the subsidiary was required to pay for headed by a foreign government official to induce the offi- assistance from the government official. The payments con- cial to direct business to the company. Although the charity stituted a significant portion of the subsidiary's total pro- was a bona fide charitable organization. internal documents motional donations budget and were structured to allow at the pharmaceutical company's subsidiary established that the subsidiary to exceed its authorized limits. The payments Hypothetical: Gifts, Travel, and Entertainment Company A is a large U.S. engineering company with global operations in more than 50 countries, including a number that have a high risk of corruption, such as Foreign Country. Company A's stock is listed on a national U.S. stock exchange. In conducting its business internationally, Company A's officers and employees come into regular contact with foreign officials, including officials in various ministries and state-owned entities. At a trade show, Company A has a booth at which it offers free pens, hats, t-shirts, and other similar promotional items with Company A's logo. Company A also serves free coffee, other beverages, and snacks at the booth. Some of the visitors to the booth are foreign officials. Is Company A in violation of the FCPA? No. These are legitimate, bona fide expenditures made in connection with the promotion, demonstration, or explanation of Company A's products or services. There is nothing to suggest corrupt intent here. The FCPA does not prevent companies from promoting their businesses in this way or providing legitimate hospitality, including to foreign officials. Providing promotional items with company logos or free snacks as set forth above is an appropriate means of providing hospitality and promoting business. Such conduct has never formed the basis for an FCPA enforcement action. At the trade show, Company A invites a dozen current and prospective customers out for drinks, and pays the moderate bar tab. Some of the current and prospective customers are foreign officials under the FCPA. Is Company A in violation of the FCPA? No. Again, the FCPA was not designed to prohibit all forms of hospitality to foreign officials. While the cost here may be more substantial than the beverages, snacks, and promotional items provided at the booth, and the invitees specifically selected, there is still nothing to suggest corrupt intent. Two years ago, Company A won a long-term contract to supply goods and services to the state-owned Electricity Commission in Foreign Country. The Electricity Commission is 100% owned, controlled, and operated by the government of Foreign Country, and employees of the Electricity Commission are subject to Foreign Country's domestic bribery laws. Some Company A executives are in Foreign Country for meetings with officials of the Electricity Commission. The General Manager of the Electricity Commission was recently married, and during the trip Company A executives present a moderately priced crystal vase to the General Manager as a wedding gift and token of esteem. Is Company A in violation of the FCPA? No. It is appropriate to provide reasonable gifts to foreign officials as tokens of esteem or gratitude. It is important that such gifts be made openly and transparently, properly recorded in a company's books and records, and given only where appropriate under local law, customary where given, and reasonable for the occasion. During the course of the contract described above, Company A periodically provides training to Electricity Commission employees at its facilities in Michigan. The training is paid for by the Electricity Commission as part of the contract. Senior officials of the Electricity Commission inform Company A that they want to inspect the facilities and ensure that the training is working well. Company A pays for the airfare, hotel, and transportation for the (M) 17 EFTA01080314 The FCPA: Anti-Bribery Provisions Electricity Commission senior officials to travel to Michigan to inspect Company A's facilities. Because it is a lengthy international flight, Company A agrees to pay for business class airfare, to which its own employees are entitled for lengthy flights. The foreign officials visit Michigan for several days, during which the senior officials perform an appropriate inspection. Company A executives take the officials to a moderately priced dinner, a baseball game, and a play. Do any of these actions violate the FCPA? No. Neither the costs associated with training the employees nor the trip for the senior officials to the Company's facilities in order to inspect them violates the FCPA. Reasonable and bona fide promotional expenditures do not violate the FCPA. Here, Company A is providing training to the Electricity Commission's employees and is hosting the Electricity Commission senior officials. Their review of the execution and performance of the contract is a legitimate business purpose. Even the provision of business class airfare is reasonable under the circumstances, as are the meals and entertainment, which are only a small component of the business trip. Would this analysis be different if Company A instead paid for the senior officials to travel first-class with their spouses for an all-expenses-paid, week-long trip to Las Vegas, where Company A has no facilities? Yes. This conduct almost certainly violates the FCPA because it evinces a corrupt intent. Here, the trip does not appear to be designed for any legitimate business purpose, is extravagant, includes expenses for the officials' spouses, and therefore appears to be designed to corruptly curry favor with the foreign government officials. Moreover, if the trip were booked as a legitimate business expense—such as the provision of training at its facilities—Company A would also be in violation of the FCPA's accounting provisions. Furthermore, this conduct suggests deficiencies in Company A's internal controls. Company As contract with the Electricity Commission is going to expire, and the Electricity Commission is offering the next contract through its tender process. An employee of the Electricity Commission contacts Company A and offers to provide Company A with confidential, non-public bid information from Company A's competitors if Company A will pay for a vacation to Paris for him and his girlfriend. Employees of Company A accede to the official's request, pay for the vacation, receive the confidential bid information, and yet still do not win the contract. Has Company A violated the FCPA? Yes. Company A has provided things of value to a foreign official for the purpose of inducing the official to misuse his office and to gain an improper advantage. It does not matter that it was the foreign official who first suggested the illegal conduct or that Company A ultimately was not successful in winning the contract. This conduct would also violate the FCPA's accounting provisions if the trip were booked as a legitimate business expense and suggests deficiencies in Company A's internal controls. 18 EFTA01080315 also were not in compliance with the company's internal • confirmation that the charity's commitments were policies, which provided that charitable donations gener- met before funds were disbursed;10' and ally should be made to healthcare institutions and relate to • on-going monitoring of the efficacy of the the practice ofmedicine.'" program "a Proper due diligence and controls are critical for Legitimate charitable giving does not violate the charitable giving. In general, the adequacy of measures FCPA. Compliance with the FCPA merely requires that taken to prevent misuse ofcharitable donations will depend charitable giving not be used as a vehicle to conceal pay- on a risk-based analysis and the specific facts at hand. In ments made to corruptly influence foreign officials. Opinion Procedure Release No. 10-02, DOJ described the due diligence and controls that can minimize the likelihood ofan FCPA violation. In that matter, a Eurasian-based sub- sidiary of a U.S. non-governmental organization was asked Five Questions to Consider When Making Charitable Payments in a Foreign Country: by an agency of a foreign government to make a grant to a local microfinance institution (MFI) as a prerequisite to 1. What is the purpose of the payment? the subsidiary's transformation to bank status. The subsid- 2. Is the payment consistent with the company's iary proposed contributing 31.42 million to a local MFI to internal guidelines on charitable giving? satisfy the request. The subsidiary undertook an extensive, 3. Is the payment at the request of a foreign official? three-stage due diligence process to select the proposed 4. Is a foreign official associated with the charity grantee and imposed significant controls on the proposed and, if so, can the foreign official make decisions grant, including ongoing monitoring and auditing, ear- regarding your business in that country? marking funds for capacity building, prohibiting compen- 5. Is the payment conditioned upon receiving sation of board members, and implementing anti-corrup- business or other benefits? tion compliance provisions. DOJ explained that it would not take any enforcement action because the company's due diligence and the controls it planned to put in place sufficed to prevent an FCPA violation. Who Is a Foreign Official? Other opinion releases also address charitable-type The FCPA's anti-bribery provisions apply to corrupt grants or donations. Under the facts presented in those payments made to (1) "any foreign official"; (2) "any foreign releases, DOJ approved the proposed grant or donation,10s political party or official thereof"; (3) "any candidate for based on due diligence measures and controls such as: foreign political office"; or (4) any person, while knowing • certifications by the recipient regarding compliance that all or a portion of the payment will be offered, given, or with the FCPA;1°' promised to an individual falling within one of these three • due diligence to confirm that none of the recipient's categories."' Although the statute distinguishes between a officers were affiliated with the foreign government "foreign official," "foreign political party or official thereof'," at issue;106 and "candidate for foreign political office:' the term "for- • a requirement that the recipient provide audited eign official" in this guide generally refers to an individual financial statements;10' falling within any of these three categories. • a written agreement with the recipient restricting The FCPA defines "foreign official" to include: the use of funds;10' • steps to ensure that the funds were transferred to a any officer or employee of a foreign government or any department. agency, or instrumentality thereof. valid bank account;10s 19 EFTA01080316 or of a public international organization. or any per- son acting in an official capacity for or on behalf of chapter 2 any such government or department, agency. or in- The FCPA: strumentality, or for or on behalf of any such public Anti-Bribery Provisions international organization.'" As this language makes clear, the FCPA broadly applies to corrupt payments to "any" officer or employee list of factors to be considered: of a foreign government and to those acting on the for- • the foreign state's extent ofownership of the entity; eign government's behalf."' The FCPA thus covers cor- • the foreign state's degree ofcontrol over the entity rupt payments to low-ranking employees and high-level (including whether key officers and directors of officials alike."' the entity are, or are appointed by, government The FCPA prohibits payments to foreign officials, not officials); to foreign governments."' That said, companies contem- • the foreign state's characterization of the entity and plating contributions or donations to foreign governments its employees; should take steps to ensure that no monies are used for cor- • the circumstances surrounding the entity's creation; rupt purposes, such as the personal benefit of individual • the purpose of the entity's activities; foreign officials. • the entity's obligations and privileges under the foreign state's law; Department, Agency, or Instrumentality of a • the exclusive or controlling power vested in the Foreign Government entity to administer its designated functions; Foreign officials under the FCPA include officers • the level of financial support by the foreign or employees of a department, agency, or instrumental- state (including subsidies, special tax treatment, ity of a foreign government. When a foreign government government-mandated fees, and loans); is organized in a fashion similar to the U.S. system, what • the entity's provision of services to the jurisdiction's constitutes a government department or agency is typically residents; clear (e.g., a ministry of energy, national security agency, or • whether the governmental end or purpose sought transportation authority).16 However, governments can be to be achieved is expressed in the policies of the organized in very different ways."' Many operate through foreign government; and state-owned and state-controlled entities, particularly in • the general perception that the entity is performing such areas as aerospace and defense manufacturing, bank- official or governmental functions.m ing and finance, healthcare and life sciences, energy and Companies should consider these factors when eval- extractive industries, telecommunications, and transporta- uating the risk of FCPA violations and designing compli- tion."' By including officers or employees of agencies and ance programs. instrumentalities within the definition of "foreign official," DOJ and SEC have pursued cases involving instru- the FCPA accounts for this variability. mentalities since the time of the FCPA's enactment and The term "instrumentality is broad and can include have long used an analysis of ownership, control, status, state-owned or state-controlled entities. Whether a particu- and function to determine whether a particular entity is lar entity constitutes an "instrumentality" under the FCPA an agency or instrumentality of a foreign government. requires a fact-specific analysis of an entity's ownership, For example, the second-ever FCPA case charged by DOJ control, status, and function.1' A number of courts have involved a California company that paid bribes through a approved final jury instructions providing a non-exclusive Mexican corporation to two executives of a state-owned 20 EFTA01080317 Mexican national oil company. 111 And in the early 1980s, despite the Malaysian government having a minority share- DOJ and SEC brought cases involving a SI million bribe to holder position, the company was an instrumentality of the the chairman ofTrinidad and Tobago's racing authority." Malaysian government as the government nevertheless had DOJ and SEC continue to regularly bring FCPA substantial control over the company. cases involving bribes paid to employees of agencies and Companies and individuals should also remember instrumentalities of foreign governments. In one such that, whether an entity is an instrumentality of a foreign case, the subsidiary of a Swiss engineering company paid government or a private entity, commercial (i.e., private- bribes to officials of a state-owned and controlled electric- to-private) bribery may still violate the FCPA's accounting ity commission. The commission was created by, owned provisions, the Travel Act, anti-money laundering laws, and by, and controlled by the Mexican government, and it had other federal or foreign laws. Any type ofcorrupt payment a monopoly on the transmission and distribution of elec- thus carries a risk ofprosecution. tricity in Mexico. Many of the commission's board mem- bers were cabinet-level government officials, and the direc- Public International Organizations tor was appointed by Mexico's president." Similarly, in In 1998, the FCPA was amended to expand the defini- another recent case, Miami telecommunications executives tionof "foreign official" to include employees and representa- were charged with paying bribes to employees of Haiti's tives ofpublic international organizations."' A "public inter- state-owned and controlled telecommunications company. national organization" is any organization designated as such The telecommunications company was 97% owned and by Executive Order under the International Organizations 100% controlled by the Haitian government, and its direc- Immunities Act, 22 US.C. § 288, or any other organization tor was appointed by Haiti's president " that the President so designates.'2°Currendy, public interna- While no one factor is dispositive or necessarily more tional organizations include entities such as the World Bank, important than another, as a practical matter, an entity is the International Monetary Fund, the World Intellectual unlikely to qualify as an instrumentality if a government Property Organization, the World Trade Organization, the does not own or control a majority of its shares. However, OECD, the Organization of American States, and numer- there are circumstances in which an entity would qualify ous others. A comprehensive list oforganizations designated as an instrumentality absent 50% or greater foreign gov- as "public international organizations" is contained in 22 ernment ownership, which is reflected in the limited num- US.C. § 288 and can also be found on the US. Government ber of DOJ or SEC enforcement actions brought in such Printing Office website at http://www.gpo.gov/fdsyst situations. For example, in addition to being convicted of funneling millions of dollars in bribes to two sitting presi- How Are Payments to Third Parties dents in two different countries, a French issuer's three Treated? subsidiaries were convicted of paying bribes to employees The FCPA expressly prohibits corrupt payments of a Malaysian telecommunications company that was 43% made through third parties or intermediaries.'"Specifically, owned by Malaysia's Ministry of Finance. There, notwith- it covers payments made to `any person, while knowing standing its minority ownership stake in the company, the that all or a portion of such money or thing of value will Ministry held the status of a "special shareholder," had veto be offered, given, or promised, directly or indirectly'," to a power over all major expenditures, and controlled impor- foreign official. Many companies doingbusiness in a foreign tant operational decisions." In addition, most senior country retain a local individual or company to help them company officers were political appointees, including the conduct business. Although these foreign agents may pro- Chairman and Director, the Chairman of the Board of the vide entirely legitimate advice regarding local customs and Tender Committee, and the Executive Director.136 Thus, procedures and may help facilitate business transactions, 21 EFTA01080318 companies should be aware of the risks involved in engag- ing third-party agents or intermediaries. The fact that a chapter 2 bribe is paid by a third party does not eliminate the poten- The FCPA: tial for criminal or civil FCPA liability.'" Anti-Bribery Provisions For instance, a four-company joint venture used two agents—a British lawyer and a Japanese trading company—to bribe Nigerian government officials in the foreign officials.'" Under the FCPA, a person's state of order to win a series of liquefied natural gas construc- mind is 'knowing" with respect to conduct, a circumstance, tion projects.'" Together, the four multi-national cor- or a result if the person: porations and the Japanese trading company paid a • is aware that [he] is engaging in such conduct, combined $1.7 billion in civil and criminal sanctions that such circumstance exists, or that such result is for their decade-long bribery scheme. In addition, the substantially certain to occur; or subsidiary of one of the companies pleaded guilty and a • has a firm belief that such circumstance exists or number of individuals, including the British lawyer and that such result is substantially certain to occur.'" the former CEO of one of the companies' subsidiaries, Thus, a person has the requisite knowledge when he is received significant prison terms. aware of a high probability of the existence of such circum- Similarly, a medical device manufacturer entered into stance, unless the person actually believes that such circum- a deferred prosecution agreement as the result of corrupt stance does not exist.'" As Congress made clear, it meant to payments it authorized its local Chinese distributor to pay impose liability not only on those with actual knowledge to Chinese officials.'" Another company, a manufacturer of wrongdoing, but also on those who purposefully avoid of specialty chemicals, committed multiple FCPA viola- actual knowledge: tions through its agents in Iraq: a Canadian national and the Canadian's companies. Among other acts, the Canadian [Tjhe so-called "head-in-the-sand" problem—vari- ously described in the pertinent authorities as 'con- national paid and promised to pay more than $1.5 million scious disregard." "willful blindness" or 'deliberate in bribes to officials of the Iraqi Ministry of Oil to secure ignorance"—should be covered so that management sales ofa fuel additive. Both the company and the Canadian officials could nor take refuge from the Act's prohi- bitions by their unwarranted obliviousness to any national pleaded guilty to criminal charges and resolved action (or inaction), language or other "signaling de- civil enforcement actions by SEC.'" vice" that should reasonably alert them of the 'high In another case, the US. subsidiary of a Swiss freight probability" of an FCPA forwarding company was charged with paying bribes on Common red flags associated with third parties include: behalfof its customers in several countries.'" Although the • excessive commissions to third-party agents or U.S. subsidiary was not an issuer under the FCPA, it was an consultants; "agent" ofseveral U.S. issuers and was thus charged directly • unreasonably large discounts to third-party with violating the FCPA. Charges against the freight for- distributors; warding company and seven of its customers resulted in • third-party "consulting agreements" that include over $236.5 million in sanctions.'" only vaguely described services; Because Congress anticipated the use of third-party • the third-party consultant is in a different line of agents in bribery schemes—for example, to avoid actual business than that for which it has been engaged; knowledge of a bribe—it defined the term 'knowing" in a • the third party is related to or closely associated way that prevents individuals and businesses from avoiding with the foreign official; liability by putting "any person" between themselves and 22 EFTA01080319 • the third party became part of the transaction at What Affirmative Defenses Are the express request or insistence of the foreign Available? official; The FCPA's anti-bribery provisions contain two affir- • the third party is merely a shell company incorpo- mative defenses: (1) that the payment was lawful under the rated in an offshore jurisdiction; and written laws of the foreign country (the local law" defense), • the third party requests payment to offshore and (2) that the money was spent as part ofdemonstrating a bank accounts. product or performing a contractual obligation (the "reason- Businesses may reduce the FCPA risks associated able and bona fide business expenditure defense). Because with third-party agents by implementing an effective com- these are affirmative defenses, the defendant bears the burden pliance program, which includes due diligence of any pro- ofproving them. spective foreign agents. The Local Law Defense For the local law defense to apply, a defendant must United States v. Kozeny, et al. establish that "the payment, gift, offer, or promise of any- thing of value that was made, was lawful under the writ- In December 2011, the U.S. Court of Appeals ten laws and regulations of the foreign official's, political for the Second Circuit upheld a conscious avoidance party's, party official's, or candidate's country."1i 1 The defen- instruction given during the 2009 trial of a businessman who was convicted of conspiring to violate the FCPA's dant must establish that the payment was lawful under the anti-bribery provisions by agreeing to make payments to foreign country's written laws and regulations at the time Azeri officials in a scheme to encourage the privatization of the offense. In creating the local law defense in 1988, of the Azerbaijan Republic's state oil company. The Congress sought "to make clear that the absence of written court of appeals found that the instruction did not lack a factual predicate, citing evidence and testimony at laws in a foreign official's country would not by itselfbe suf- trial demonstrating that the defendant knew corruption ficient to satisfy this defense" 102 Thus, the fact that bribes was pervasive in Azerbaijan; that he was aware of his may not be prosecuted under local law is insufficient to business partner's reputation for misconduct; that he establish the defense. In practice, the local law defense arises had created two U.S. companies in order to shield himself and other investors from potential liability for infrequently, as the written laws and regulations of coun- payments made in violation of the FCPA; and that the tries rarely, if ever, permit corrupt payments. Nevertheless, defendant expressed concerns during a conference call if a defendant can establish that conduct that otherwise about whether his business partner and company were falls within the scope of the FCPA's anti-bribery provisions bribing officials. was lawful under written, local law, he or she would have a The court of appeals also rejected the defendant's contention that the conscious avoidance charge had defense to prosecution. improperly permitted the jury to convict him based on In United States t Kazin", the defendant unsuccess- negligence, explaining that ample evidence in the record fully sought to assert the local law defense regarding the law showed that the defendant had "serious concerns" of Azerbaijan. The parties disputed the contents and appli- about the legality of his partner's business practices "and worked to avoid learning exactly what (he) was cability of Azeri law, and each presented expert reports and doing," and noting that the district court had specifically testimony on behalfof their conflictinginterpretations. The instructed the jury not to convict based on negligence. court ruled that the defendant could not invoke the FCPA's affirmative defense because Azeri law did not actually legal- ize the bribe payment. The court concluded that an excep- tion under Azeri law relieving bribe payors who voluntarily 23 EFTA01080320 disclose bribe payments to the authorities ofcriminal liabil- ity did not make the bribes legal."' chapter 2 The FCPA: Reasonable and Bona Fide Expenditures Anti-Bribery Provisions The FCPA allows companies to provide reasonable and bona fide travel and lodging expenses to a foreign official, and it is an affirmative defense where expenses whether a particular expenditure is appropriate or may risk are directly related to the promotion, demonstration, or violating the FCPA: explanation of a company's products or services, or are • Do not select the particular officials who will par- related to a company's execution or performance ofa con- ticipate in the party's proposed trip or program'' tract with a foreign government or agency."' Trips that or else select them based on pre-determined, merit- are primarily for personal entertainment purposes, how- based criteria.'" ever, are not bona fide business expenses and may violate • Pay all costs directly to travel and lodging vendors the FCPA's anti bribery provisions.15 Moreover, when and/or reimburse costs only upon presentation ofa expenditures, bona fide or not, are mischaracterized in a receipt.'" company's books and records, or where unauthorized or • Do not advance funds or pay for reimbursements improper expenditures occur due to a failure to imple- in cash.'" ment adequate internal controls, they may also violate • Ensure that any stipends are reasonable approxima- the FCPA's accounting provisions. Purposeful mischarac- tions ofcosts likely to be incurred151 and/or that terization of expenditures may also, of course, indicate a expenses are limited to those that are necessary and corrupt intent. reasonable.1 ' DOJ and SEC have consistently recognized that busi- • Ensure the expenditures are transparent, nesses, both foreign and domestic, are permitted to pay for both within the company and to the foreign reasonable expenses associated with the promotion of their government.'" products and services or the execution ofexisting contracts. • Do not condition payment of expenses on any In addition, DOJ has frequently provided guidance about action by the foreign official.'" legitimate promotional and contract-related expenses— • Obtain written confirmation that payment of the addressing travel and lodging expenses in particular— expenses is not contrary to local law.'" through several opinion procedure releases. Under the cir- • Provide no additional compensation, stipends, or cumstances presented in those releases,'" DOJ opined that spending money beyond what is necessary to pay the following types of expenditures on behalf of foreign for actual expenses incurred.1" officials did not warrant FCPA enforcement action: • Ensure that costs and expenses on behalfof the • travel and expenses to visit company facilities or foreign officials will be accurately recorded in the operations; company's books and records!' • travel and expenses for training; and In sum, while certain expenditures are more likely to • product demonstration or promotional activities, raise red Rags, they will not give rise to prosecution if they including travel and expenses for meetings. are (1) reasonable, (2) bona fide, and (3) directly related Whether any particular payment is a bona fide expen- to (4) the promotion, demonstration, or explanation of diture necessarily requires a fact-specific analysis. But the products or services or the execution or performance of following non-exhaustive list of safeguards, compiled from a contract.'" several releases, may be helpful to businesses in evaluating 24 EFTA01080321 What Are Facilitating or Expediting Whether a payment falls within the exception is not Payments? dependent on the size of the payment, though size can be The FCPA's bribery prohibition contains a narrow telling, as a large payment is more suggestive of corrupt exception for "facilitating or expediting payment? made in intent to influence a non-routine governmental action. But, furtherance of routine governmental action.159 The facili- like the FCPA's anti-bribery provisions more generally, the tating payments exception applies only when a payment is facilitating payments exception focuses on then-gine of the made to further "routine governmental action" that involves payment rather than its value. For instance, an Oklahoma- non-discretionary acts.160 Examples of "routine governmen- based corporation violated the FCPA when its subsidiary tal action" include processing visas, providing police pro- paid Argentine customs officials approximately $166,000 tection or mail service, and supplying utilities like phone to secure customs clearance for equipment and materials service, power, and water. Routine government action does that lacked required certifications or could not be imported not include a decision to award new business or to continue under local law and to pay a lower-than-applicable duty business with a particular party." Nor does it include acts rate. The company's Venezuelan subsidiary had also paid that are within an official's discretion or that would consti- Venezuelan customs officials approximately $7,000 to permit tute misuse of an official's office!' Thus, paying an official a the importation and exportation ofequipment and materials small amount to have the power turned on at a factory might not in compliance with local regulations and to avoid a full be a facilitating payment; paying an inspector to ignore the inspection of the imported goods.'" In another case, three fact that the company does not have a valid permit to operate subsidiaries of a global supplier of oil drilling products and the factory would not be a facilitating payment. services were criminallycharged with authorizing an agent to make at least 378 corrupt payments (totaling approximately $2.1 million) to Nigerian Customs Service officials for pref- erential treatment during the customs process, including the Examples of "Routine Governmental Action" reduction or elimination ofcustoms duties.16/ An action which is ordinarily and commonly Labeling a bribe as a "facilitating payment" in a com- performed by a foreign official in— pany's books and records does not make it one. A Swiss obtaining permits, licenses, or other official offshore drilling company, for example, recorded pay- documents to qualify a person to do business in a ments to its customs agent in the subsidiary's "facilitat- foreign country; ing payment" account, even though company personnel processing governmental papers, such as visas and believed the payments were, in fact, bribes. The company work orders; was charged with violating both the FCPA's anti-bribery providing police protection, mail pickup and and accounting provisions!" delivery, or scheduling inspections associated with Although true facilitating payments are not ille- contract performance or inspections related to transit of goods across country; gal under the FCPA, they may still violate local law in the countries where the company is operating, and the OECD's providing phone service, power and water supply, loading and unloading cargo, or protecting Working Group on Bribery recommends that all countries perishable products or commodities from encourage companies to prohibit or discourage facilitating deterioration; or payments, which the United States has done regularly.166 actions of a similar nature. In addition, other countries foreign bribery laws, such as the United Kingdom's, may not contain an exception for facilitating payments.16J Individuals and companies should therefore be aware that although true facilitating payments 25 EFTA01080322 are permissible under the FCPA, they may still subject a company or individual to sanctions. As with any expenditure, chapter 2 facilitating payments may still violate the FCPA if they are The FCPA: Anti-Bribery Provisions not properly recorded in an issuer's books and records.'" Hypothetical: Facilitating Payments Company A is a large multi-national mining company with operations in Foreign Country, where it recently identified a significant new ore deposit. It has ready buyers for the new ore but has limited capacity to get it to market. In order to increase the size and speed of its ore export, Company A will need to build a new road from its facility to the port that can accommodate larger trucks. Company A retains an agent in Foreign Country to assist it in obtaining the required permits, including an environmental permit, to build the road. The agent informs Company A's vice president for international operations that he plans to make a one-time small cash payment to a clerk in the relevant government office to ensure that the clerk files and stamps the permit applications expeditiously, as the agent has experienced delays of three months when he has not made this "grease" payment. The clerk has no discretion about whether to file and stamp the permit applications once the requisite filing fee has been paid. The vice president authorizes the payment. A few months later, the agent tells the vice president that he has run into a problem obtaining a necessary environmental permit. It turns out that the planned road construction would adversely impact an environmentally sensitive and protected local wetland. While the problem could be overcome by rerouting the road, such rerouting would cost Company A Si million more and would slow down construction by six months. It would also increase the transit time for the ore and reduce the number of monthly shipments. The agent tells the vice president that he is good friends with the director of Foreign Country's Department of Natural Resources and that it would only take a modest cash payment to the director and the "problem would go away." The vice president authorizes the payment, and the agent makes it. After receiving the payment, the director issues the permit, and Company A constructs its new road through the wetlands. Was the payment to the clerk a violation of the FCPA? No. Under these circumstances, the payment to the clerk would qualify as a facilitating payment, since it is a one-time, small payment to obtain a routine, non-discretionary governmental service that Company A is entitled to receive (i.e., the stamping and filing of the permit application). However, while the payment may qualify as an exception to the FCPA's anti-bribery provisions, it may violate other laws, both in Foreign Country and elsewhere. In addition, if the payment is not accurately recorded, it could violate the FCPA's books and records provision. Was the payment to the director a violation of the FCPA? Yes. The payment to the director of the Department of Natural Resources was in clear violation of the FCPA, since it was designed to corruptly influence a foreign official into improperly approving a permit. The issuance of the environmental permit was a discretionary act, and indeed, Company A should not have received it. Company A, its vice president, and the local agent may all be prosecuted for authorizing and paying the bribe. 26 EFTA01080323 Does the FCPA Apply to Cases of Principles of Corporate Liability for Extortion or Duress? Anti-Bribery Violations Situations involving extortion or duress will not give General principles of corporate liability apply to the rise to FCPA liability because a payment made in response to FCPA. Thus, a company is liable when its directors, officers, true extortionate demands under imminent threat ofphysical employees, or agents, acting within the scope of their employ- harm cannot be said to have been made with corrupt intent ment, commit FCPA violations intended, at least in pan, to or for the purpose of obtaining or retaining business.'bt In benefit the company.'" Similarly, just as with any other stat- enacting the FCPA, Congress recognized that real-world ute, DOJ and SEC look to principles of parent-subsidiary situations might arise in which a business is compelled to pay and successor liability in evaluatingcorporate liability. an official in order to avoid threats to health and safety. As Congress explained, "a payment to an official to keep an oil Parent-Subsidiary Liability rig from beingdynamited should not be held to be made with There are two ways in which a parent company may the requisite corrupt purpose."" be liable for bribes paid by its subsidiary. First, a parent may Mere economic coercion, however, does not amount to have participated sufficiently in the activity to be directly extortion. As Congress noted when it enacted the FCPA: liable for the conduct—as, for example, when it directed its "The defense that the payment was demanded on the pan of subsidiary's misconduct or otherwise directly participated a government official as a price for gaining entry into a mar- in the bribe scheme. ket or to obtain a contract would not suffice since at some Second, a parent may be liable for its subsidiary's con- point the US. company would make a conscious decision duct under traditional agency principles. The fundamental whether or not to pay a briber" The fact that the payment characteristic of agency is control.16 Accordingly, DOJ and was "first proposed by the recipient ... does not alter the cor- SEC evaluate the patent's control—including the parent's rupt purpose on the part of the person paying the bribe."'" knowledge and direction of the subsidiary's actions, both Thisdistinction between extortion and economiccoer- generally and in the context of the specific transaction— cion was recognized by the court in United States v. Kozeny. when evaluating whether a subsidiary is an agent of the par- There, the court concluded that although an individual who ent. Although the formal relationship between the parent makes a payment under duress (i.e., upon threat of physi- and subsidiary is important in this analysis, so are the practi- cal harm) will not be criminally liable under the FCPA,"3 a cal realities ofhow the parent and subsidiary actually interact. bribe payor who claims payment was demanded as a price for If an agency relationship exists, a subsidiary's actions gaining market entry or obtaining a contract "cannot argue and knowledge are imputed to its parent." Moreover, that he lacked the intent to bribe the official because he made under traditional principles of respondent superior, a com- the 'conscious decision to pay the official.""6 While the pany is liable for the acts ofits agents, includingits employ- bribe payor in this situation "could have turned his back and ees, undertaken within the scope of their employment and walked away' in the oil rig example, "he could not.""s intended, at least in pan, to benefit the company.1BD Thus, Businesses operating in high-risk countries may face if an agency relationship exists between a parent and a real threats of violence or harm to their employees, and subsidiary, the parent is liable for bribery committed by payments made in response to imminent threats to health the subsidiary's employees. For example, SEC brought an or safety do not violate the FCPAY6 If such a situation administrative action against a parent for bribes paid by the arises, and to ensure the safety ofits employees, companies president of its indirect, wholly owned subsidiary. In that should immediately contact the appropriate U.S. embassy matter, the subsidiary's president reported directly to the for assistance. CEO of the parent issuer, and the issuer routinely identified 27 EFTA01080324 the president as a member of its senior management in its annual filing with SEC and in annual reports. Additionally, chapter 2 the parent's legal department approved the retention of the The FCPA: third-party agent through whom the bribes were arranged Anti.Bribery Provisions despite a lack of documented due diligence and an agency agreement that violated corporate policy; also, an official of the parent approved one of the payments to the third•party evaluate any potential post-acquisition liability and thus agent.1" Under these circumstances, the parent company properly assess the target's value."s Second, due diligence had sufficient knowledge and control of its subsidiary's reduces the risk that the acquired company will continue to actions to be liable under the FCPA. pay bribes. Proper pre-acquisition due diligence can iden- tify business and regional risks and can also lay the founda- Successor Liability tion for a swift and successful post-acquisition integration Companies acquire a host of liabilities when they into the acquiring company's corporate control and com- merge with or acquire another company, including those aris- pliance environment. Third, the consequences of potential ingout ofcontracts, torts, regulations, and statutes. As a gen- violations uncovered through due diligence can be handled eral legal matter, when a company merges with or acquires by the parties in an orderly and efficient manner through another company, the successor company assumes the prede- negotiation of the costs and responsibilities for the inves- cessor company's liabilities." Successor liability is an integral tigation and remediation. Finally, comprehensive due dili- component of corporate law and, among other things, pre- gence demonstrates a genuine commitment to uncovering vents companies from avoiding liability by reorganizing.'" and preventing FCPA violations. Successor liability applies to all kinds of civil and criminal In a significant number of instances, DOJ and liabilities,'" and FCPA violations are no exception. Whether SEC have declined to take action against companies successor liability applies to a particular corporate transac- that voluntarily disclosed and remediated conduct tion depends on the facts and the applicable state, federal, and cooperated with DOJ and SEC in the merger and and foreign law. Successor liability does not, however, create acquisition context.'" And DOJ and SEC have only liability where none existed before. For example, if an issuer taken action against successor companies in limited cir- were to acquire a foreign company that was not previously cumstances, generally in cases involving egregious and subject to the FCPA's jurisdiction, the mere acquisition of sustained violations or where the successor company that foreign company would not retroactively create FCPA directly participated in the violations or failed to stop the liability for the acquiring issuer. misconduct from continuing after the acquisition. In one DOJ and SEC encourage companies to conduct pre- case, a U.S.-based issuer was charged with books and records acquisition due diligence and improve compliance pro- and internal controls violations for continuing a kickback grams and internal controls after acquisition for a variety scheme originated by its predecessor."' Another recent case of reasons. First, due diligence helps an acquiring company involved a merger between two tobacco leaf merchants, to accurately value the target company. Contracts obtained where prior to the merger each company committed through bribes may be legally unenforceable, business FCPA violations through its foreign subsidiaries, involving obtained illegally may be lost when bribe payments are multiple countries over the course of many years. At each stopped, there may be liability for prior illegal conduct, and company, the bribes were directed by the parent company's the prior corrupt acts may harm the acquiring company's senior management. The two issuers then merged to form reputation and future business prospects. Identifying these a new public company. Under these circumstances—the issues before an acquisition allows companies to better merger of two public companies that had each engaged in 28 EFTA01080325 Practical Tips to Reduce FCPA Risk in Mergers and Acquisitions Companies pursuing mergers or acquisitions can take certain steps to identify and potentially reduce FCPA risks: • Opinion Procedure Release Requests• One option is to seek an opinion from DOJ in anticipation of a potential acquisition, such as occurred with Opinion Release 08-02. That case involved special circumstances, namely, severely limited pre-acquisition due diligence available to the potential acquiring company, and, because it was an opinion release (i.e., providing certain assurances by DOJ concerning prospective conduct), it necessarily imposed demanding standards and prescriptive timeframes in return for specific assurances from DOJ, which SEC, as a matter of discretion, also honors. Thus, obtaining an opinion from DOJ can be a good way to address specific due diligence challenges, but, because of the nature of such an opinion, it will likely contain more stringent requirements than may be necessary in all circumstances. • Risk-Based FCPA Due Diligence and Disclosure: As a practical matter, most acquisitions will typically not require the type of prospective assurances contained in an opinion from DOJ. DOJ and SEC encourage companies engaging in mergers and acquisitions to: (1) conduct thorough risk-based FCPA and anti-corruption due diligence on potential new business acquisitions; (2) ensure that the acquiring company's code of conduct and compliance policies and procedures regarding the FCPA and other anti-corruption laws apply as quickly as is practicable to newly acquired businesses or merged entities; (3) train the directors, officers, and employees of newly acquired businesses or merged entities, and when appropriate, train agents and business partners, on the FCPA and other relevant anti-corruption laws and the company's code of conduct and compliance policies and procedures; (4) conduct an FCPA-specific audit of all newly acquired or merged businesses as quickly as practicable; and (5) disclose any corrupt payments discovered as part of its due diligence of newly acquired entities or merged entities. DOJ and SEC will give meaningful credit to companies who undertake these actions, and, in appropriate circumstances, DOJ and SEC may consequently decline to bring enforcement actions. bribery—both the new entity and the foreign subsidiaries and no successor liability was sought against the acquir- were liable under the FCPA. The new parent entered into ing entity. In another case, a Pennsylvania-based issuer a non-prosecution agreement with DOJ and settled a civil that supplied heating and air conditioning products and action with SEC, while the company's subsidiaries, which services was subject to an ongoing investigation by DOJ also merged, pleaded guilty.'" and SEC at the time that it was acquired; DOJ and SEC More often, DOJ and SEC have pursued enforce- resolved enforcement actions only against the predecessor ment actions against the predecessor company (rather company, which had by that time become a wholly owned than the acquiring company), particularly when the subsidiary of the successor company.191 acquiring company uncovered and timely remedied the DOJ and SEC have alsobrought actions only against a violations or when the government's investigation of predecessor company where its FCPA violations are discov- the predecessor company preceded the acquisition. In ered after acquisition. For example, when a Florida-based one such case, an Ohio-based health care company's due U.S. company discovered in post-acquisition due diligence diligence of an acquisition target uncovered FCPA vio- that the telecommunications company (a domestic con- lations by the target's subsidiary, and, before the merger cern) it had acquired had engaged in foreign bribery, the was completed, the subsidiary's violations were disclosed successor company disclosed the FCPA violations to DOJ. to DOJ and SEC. The subsidiary pleaded guilty and It then conducted an internal investigation, cooperated paid a $2 million criminal fine,189 the acquisition target fully with DOJ, and took appropriate remedial action— settled with SEC and paid a $500,000 civil penalty,190 including terminating senior management at the acquired 29 EFTA01080326 company. No enforcement action was taken against the suc- cessor, but the predecessor company pleaded guilty to one chapter 2 count of violating the FCPA and agreed to pay a $2 million The FCPA: fine.192 Later, four executives from the predecessor company Anti-Bribery Provisions were convicted of FCPA violations, three of whom received terms of imprisonment.'" On occasion, when an enforcement action has been taken against a predecessor company, the succes- sor seeks assurances that it will not be subject to a future enforcement action. In one such case, a Dutch predeces- sor resolved FCPA charges with DOJ through a deferred prosecution agreement." While both the predecessor and successor signed the agreement, which included a commitment to ongoing cooperation and an improved compliance program, only the predecessor company was charged: in signing the agreement, the successor company gained the certainty of conditional release from criminal liability, even though it was not being pursued for FCPA violations.'" In another case, after a Connecticut-based company uncovered FCPA violations by a California company it sought to acquire, both companies voluntarily disclosed the conduct to DOJ and SEC." The prede- cessor company resolved its criminal liability through a non-prosecution agreement with DOJ that included an $800,000 monetary penalty and also settled with SEC, paying a total of $1.1 million in disgorgement, pre-judg- ment interest, and civil penalties. The successor company proceeded with the acquisition and separately entered into a non-prosecution agreement with DOJ in which it agreed, among other things, to ensure full performance of the predecessor company's non-prosecution agreement. This agreement provided certainty to the successor con- cerning its FCPA liability. In Importantly, a successor company's voluntary disclo- sure, appropriate due diligence, and implementation of an effective compliance program may also decease the likeli- hood of an enforcement action regarding an acquired com- pany's post-acquisition conduct when pre-acquisition due diligence is not possible." 30 EFTA01080327 Hypothetical: Successor Liability Where Acquired Company Was Not Previously Subject to the FCPA Company A is a Delaware corporation with its principal offices in the United States and whose shares are listed on a national U.S. exchange. Company A is considering acquiring Foreign Company, which is not an issuer or a domestic concern. Foreign Company takes no actions within the United States that would make it subject to territorial jurisdiction. Company A's proposed acquisition would make Foreign Company a subsidiary of Company A. Scenario 1: Prior to acquiring Foreign Company, Company A engages in extensive due diligence of Foreign Company, including: (1) having its legal, accounting, and compliance departments review Foreign Company's sales and financial data, its customer contracts, and its third-party and distributor agreements; (2) performing a risk-based analysis of Foreign Company's customer base; (3) performing an audit of selected transactions engaged in by Foreign Company; and (4) engaging in discussions with Foreign Company's general counsel, vice president of sales, and head of internal audit regarding all corruption risks, compliance efforts, and any other corruption-related issues that have surfaced at Foreign Company over the past ten years. This due diligence aims to determine whether Foreign Company has appropriate anti-corruption and compliance policies in place, whether Foreign Company's employees have been adequately trained regarding those policies, how Foreign Company ensures that those policies are followed, and what remedial actions are taken if the policies are violated. During the course of its due diligence, Company A learns that Foreign Company has made several potentially improper payments in the form of an inflated commission to a third-party agent in connection with a government contract with Foreign Country. Immediately after the acquisition, Company A discloses the conduct to DOJ and SEC, suspends and terminates those employees and the third-party agent responsible for the payments, and makes certain that the illegal payments have stopped. It also quickly integrates Foreign Company into Company A's own robust internal controls, including its anti-corruption and compliance policies, which it communicates to its new employees through required online and in-person training in the local language. Company A also requires Foreign Company's third-party distributors and other agents to sign anti-corruption certifications, complete training, and sign new contracts that incorporate FCPA and anti- corruption representations and warranties and audit rights. Based on these facts, could DOJ or SEC prosecute Company AT No. Although DOJ and SEC have jurisdiction over Company A because it is an issuer, neither could pursue Company A for conduct that occurred prior to its acquisition of Foreign Company. As Foreign Company was neither an issuer nor a domestic concern and was not subject to U.S. territorial jurisdiction, DOJ and SEC have no jurisdiction over its pre-acquisition misconduct. The acquisition of a company does not create jurisdiction where none existed before. Importantly, Company A's extensive pre-acquisition due diligence allowed it to identify and halt the corruption. As there was no continuing misconduct post-acquisition, the FCPA was not violated. Scenario 2: Company A performs only minimal and pro forma pre-acquisition due diligence. It does not conduct a risk-based analysis, and its review of Foreign Company's data, contracts, and third-party and distributor agreements is cursory. Company A acquires Foreign Company and makes it a wholly owned subsidiary. Although Company A circulates its compliance policies to all new personnel after the acquisition, it does not translate the compliance policies into the local language or train its new personnel or third-party agents on anti-corruption issues. A few months after the acquisition, an employee in Company A's international sales office (Sales Employee) learns from a legacy Foreign Company employee that for years the government contract that generated most of Foreign Company's revenues depended on inflated commissions to a third-party agent "to make the right person happy at Foreign Government Agency" Sales Employee is told that unless the payments continue the business will likely be lost, which would mean that Company A's new acquisition would quickly become a financial failure. The payments continue for two 31 EFTA01080328 The FCPA: Anti-Bribery Provisions years after the acquisition. After another employee of Company A reports the long-running bribe scheme to a director at Foreign Government Agency, Company A stops the payments and DOJ and SEC investigate. Based on these facts, would DOJ or SEC charge Company A? Yes. DOJ and SEC have prosecuted companies like Company A in similar circumstances. Any charges would not, however, be premised upon successor liability, but rather on Company A's post-acquisition bribe payments, which themselves created criminal and civil liability for Company A. Scenario 3: Under local law, Company A's ability to conduct pre-acquisition due diligence on Foreign Company is limited. In the due diligence it does conduct, Company A determines that Foreign Company is doing business in high-risk countries and in high-risk industries but finds no red flags specific to Foreign Company's operations. Post-acquisition, Company A conducts extensive due diligence and determines that Foreign Company had paid bribes to officials with Foreign Government Agency. Company A takes prompt action to remediate the problem, including following the measures set forth in Opinion Procedure Release No. 08-02. Among other actions, it voluntarily discloses the misconduct to DOJ and SEC, ensures all bribes are immediately stopped, takes remedial action against all parties involved in the corruption, and quickly incorporates Foreign Company into a robust compliance program and Company A's other internal controls. Based on these facts, would DOJ or SEC prosecute Company A? DOJ and SEC have declined to prosecute companies like Company A in similar circumstances. Companies can follow the measures set forth in Opinion Procedure Release No. 08-02, or seek their own opinions, where adequate pre-acquisition due diligence is not possible. Hypothetical: Successor Liability Where Acquired Company Was Already Subject to the FCPA Both Company A and Company B are Delaware corporations with their principal offices in the United States. Both companies' shares are listed on a national U.S. exchange. Scenario 1: Company A is considering acquiring several of Company B's business lines. Prior to the acquisition, Company A engages in extensive due diligence, including: (1) having its legal, accounting, and compliance departments review Company B's sales and financial data, its customer contracts, and its third-party and distributor agreements; (2) performing a risk-based analysis of Company B's customer base; (3) performing an audit of selected transactions engaged in by Company B; and (4) engaging in discussions with Company B's general counsel, vice president of sales, and head of internal audit regarding all corruption risks, compliance efforts, and any other major corruption-related issues that have surfaced at Company B over the past ten years. This due diligence aims to determine whether Company B has appropriate anti-corruption and compliance policies in place, whether Company B's employees have been adequately trained regarding those policies, how Company B ensures that those policies are followed, and what remedial actions are taken if the policies are violated. During the course of its due diligence, Company A learns that Company B has made several potentially improper payments in connection with a government contract with Foreign Country. As a condition of the acquisition, Company A requires Company B to disclose the misconduct to the government. Company A makes certain that the illegal payments IM) 32 EFTA01080329 have stopped and quickly integrates Company B's business lines into Company As own robust internal controls, including its anti-corruption and compliance policies, which it communicates to its new employees through required online and in- person training in the local language. Company A also requires Company B's third-party distributors and other agents to sign anti-corruption certifications, complete training, and sign new contracts that incorporate FCPA and anti-corruption representations and warranties and audit rights. Based on these facts, would DOJ or SEC prosecute? DOJ and SEC have declined to prosecute companies like Company A in similar circumstances. DOJ and SEC encourage companies like Company A to conduct extensive FCPA due diligence. By uncovering the corruption, Company A put itself in a favorable position, and, because the corrupt payments have stopped, Company A has no continuing liability. Whether DOJ and SEC might charge Company B depends on facts and circumstances beyond the scope of this hypothetical. DOJ would consider its Principles of Federal Prosecution of Business Organizations and SEC would consider the factors contained in the Seaboard Report, both of which are discussed in Chapter 5. In general, the more egregious and long-standing the corruption, the more likely it is that DOJ and SEC would prosecute Company B. In certain limited circumstances, DOJ and SEC have in the past declined to bring charges against acquired companies, recognizing that acquiring companies may bear much of the reputational damage and costs associated with such charges. Scenario 2: Company A plans to acquire Company B. Although, as in Scenario 1, Company A conducts extensive due diligence, it does not uncover the bribery until after the acquisition. Company A then makes certain that the illegal payments stop and voluntarily discloses the misconduct to DOJ and SEC. It quickly integrates Company B into Company A's own robust internal controls, including its anti-corruption and compliance policies, which it communicates to its new employees through required online and in-person training in the local language. Company A also requires Company B's third-party distributors and other agents to sign anti-corruption certifications, complete training, and sign new contracts that incorporate FCPA and anti- corruption representations and warranties and audit rights. Based on these facts, would DOJ or SEC prosecute? Absent unusual circumstances not contemplated by this hypothetical, DOJ and SEC are unlikely to prosecute Company A for the pre-acquisition misconduct of Company B, provided that Company B still exists in a form that would allow it to be prosecuted separately (e.g., Company B is a subsidiary of Company A). DOJ and SEC understand that no due diligence is perfect and that society benefits when companies with strong compliance programs acquire and improve companies with weak ones. At the same time, however, neither the liability for corruption—nor the harms caused by it— are eliminated when one company acquires another. Whether DOJ and SEC will pursue a case against Company B (or, in unusual circumstances, Company A) will depend on consideration of all the factors in the Principles of Federal Prosecution of Business Organizations and the Seaboard Report, respectively. Scenario 3: Company A merges with Company B, which is in the same line of business and interacts with the same Foreign Government customers, and forms Company C. Due diligence before the merger reveals that both Company A and Company B have been engaging in similar bribery. In both cases, the bribery was extensive and known by high-level management within the companies. Based on these facts, would DOJ or SEC prosecute? Yes. DOJ and SEC have prosecuted companies like Company C on the basis of successor liability. Company C is a combination of two companies that both violated the FCPA, and their merger does not eliminate their liability. In addition, since Company C is an ongoing concern, DOJ and SEC may impose a monitorship to ensure that the bribery has ceased and a compliance program is developed to prevent future misconduct. 33 EFTA01080330 Additional Principles of Criminal Liability for Anti-Bribery Violations: chapter 2 Aiding and Abetting and Conspiracy The FCPA: Under federal law, individuals or companies that aid Anti•Bribery Provisions or abet a crime, includingan FCPA violation, are as guilty as if they had directly committed the offense themselves. The aiding and abetting statute provides that whoever "commits even though they took no action in the United States, an offense against the United States or aids, abets, counsels, Japanese and European companies were charged with con- commands, induces or procures its commission," or 'will- spiring with and aiding and abetting a domestic concern's fully causes an act to be done which if directly performed FCPA violations."' by him or another would be an offense against the United States," is punishable as a principal." Aiding and abetting is Additional Principles of Civil Liability not an independent crime, and the government must prove for Anti-Bribery Violations: Aiding and that an underlying FCPA violation was committed?' Abetting and Causing Individuals and companies, including foreign nation- Both companies and individuals can be held civilly als and companies, may also be liable for conspiring to liable for aiding and abetting FCPA anti-bribery violations violate the FCPA—i.e., for agreeing to commit an FCPA if they knowingly or recklessly provide substantial assis- violation—even if they are not, or could not be, indepen- tance to a violator.}' Similarly, in the administrative pro- dently charged with a substantive FCPA violation. For ceeding context, companies and individuals may be held instance, a foreign, non-issuer company could be convicted liable for causing FCPA violations' This liability extends ofconspiring with a domestic concern to violate the FCPA. to the subsidiaries and agents ofUS. issuers. Under certain circumstances, it could also be held liable In one case, the US. subsidiary of a Swiss freight for- for the domestic concern's substantive FCPA violations warding company was held civilly liable for paying bribes on under Pinkerton v. United States, which imposes liability on behalf of its customers in several countries." Although the a defendant for reasonably foreseeable crimes committed US. subsidiary was not an issuer for purposes of the FCPA, by a co-conspirator in furtherance of a conspiracy that the it was an "agent" of several US. issuers. By paying bribes on defendant joined.b01 behalf of its issuers' customers, the subsidiary both directly A foreign company or individual may be held liable violated and aided and abetted the issuers' FCPA violations. for aiding and abetting an FCPA violation or for conspiring to violate the FCPA, even if the foreign company or indi- What Is the Applicable Statute of vidual did not take any act in furtherance of the corrupt Limitations? payment while in the territory of the United States. In con- spiracy cases, the United States generally has jurisdiction Statute of Limitations in Criminal Cases over all the conspirators where at least one conspirator is The FCPA's anti-bribery and accounting provisions an issuer, domestic concern, or commits a reasonably fore- do not specify a statute of limitations for criminal actions. seeable overt act within the United States.bD3 For example, Accordingly, the general five-year limitations period set if a foreign company or individual conspires to violate the forth in 18 U.S.C. § 3282 applies to substantive criminal FCPA with someone who commits an overt act within the violations of the Act.t0' United States, the United States can prosecute the foreign In cases involving FCPA conspiracies, the govern- company or individual for the conspiracy. The same prin- ment may be able to reach conduct occurring before the ciple applies to aiding and abetting violations. For instance, five-year limitations period applicable to conspiracies 34 EFTA01080331 under 18 US.C. § 371. For conspiracy offenses, the govern- ment generally need prove only that one act in furtherance of the conspiracy occurred during the limitations period, thus enabling the government to prosecute bribes paid or accounting violations occurring more than five years prior to the filing of formal charges?" There are at least two ways in which the applicable limitations period is commonly extended. First, compa- nies or individuals cooperating with DOJ may enter into a tolling agreement that voluntarily extends the limitations period. Second, under 18 US.C. § 3292, the government may seek a court order suspending the statute of limitations posed in a criminal case for up to three years in order to obtain evidence from foreign countries Generally, the sus- pension period begins when the official request is made by the US. government to the foreign authority and ends on the date on which the foreign authority takes final action on the request.'" Statute of Limitations in Civil Actions In civil cases brought by SEC, the statute of limita- tions is set by 28 U.S.C. § 2462. which provides for a five- year limitation on any "suit or proceeding for the enforce- ment of any civil fine, penalty, or forfeiture? The five-year period begins to run "when the claim first accrued." The five-year limitations period applies to SEC actions seek- ing civil penalties, but it does not prevent SEC from seeking equitable remedies, such as an injunction or the disgorgement of ill-gotten gains, for conduct pre-dating the five-year period. In cases against individuals who are not residents of the United States, the statute is tolled for any period when the defendants are not "found within the United States in order that proper service may be made thereon."30 Furthermore, companies or individuals coop- erating with SEC may enter into tolling agreements that voluntarily extend the limitations period. 35 EFTA01080332 chapter 2 The FCPA: Anti•6ribery Provisions 36 EFTA01080333 EFTA01080334 The FCPA: Accounting Provisions THE FCPA: ACCOUNTING PROVISIONS In addition to the anti-bribery provisions, the FCPA contains accounting provi- sions applicable to public companies. The FCPA's accounting provisions op- erate in tandem with the anti-bribery provisionvi and prohibit off-the-books accounting. Company management and investors rely on a company's financial statements and internal accounting controls to ensure transparency in the finan- cial health of the business, the risks undertaken, and the transactions between the company and its customers and business partners. The accounting provi- sions are designed to "strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure.",' The accounting provisions consist of two primary These components. and other aspects of the accounting components. First, under the "books and records" pro- provisions. are discussed in greater detail below. vision, issuers must make and keep books, records, and Although the accounting provisions were originally accounts that, in reasonable detail, accurately and fairly enacted as part of the FCPA. they do not apply only to brib• reflect an issuers transactions and dispositions of an issu- cry -related violations. Rather, the accounting provisions er's assets!" Second. under the "internal controls" provi- ensure that all public companies account for all of their sion. issuers must devise and maintain a system of internal assets and liabilities accurately and in reasonable detail. accounting controls sufficient to assure management's con- and they form the backbone for most accounting fraud and trol, authority, and responsibility over the firm's assets'" issuer disclosure cases brought by DO) and SEC?' 38 EFTA01080335 under the guise of legitimate payments, such as commis- In the past, "corporate bribery has sions or consulting fees. In instances where all the elements of a violation of been concealed by the falsification of the anti-bribery provisions are not met—where, for exam- corporate books and records" and the ple, there was no use of interstate commerce—companies nonetheless may be liable if the improper payments are inac- accounting provisions "remove(' this curately recorded. Consistent with the FCPA's approach avenue of coverup." to prohibiting payments of any value that are made with a corrupt purpose, there is no materiality threshold under the Senate Report No. 95-114, at 3 0 977) books and records provision. In combination with the inter- nal controls provision, the requirement that issuers main- tain books and records that accurately and fairly reflect the corporation's transactions "assure[s], among other things, What Is Covered by the Accounting that the assets of the issuer are used for proper corporate Provisions? purpose[s]."" As with the anti-bribery provisions, DOJ's and SEC's enforcement of the books and records provision Books and Records Provision has typically involved misreporting of either large bribe pay- Bribes, both foreign and domestic, are often mischarac- ments or widespread inaccurate recording of smaller pay- terized in companies books and records. Section 13(b)(2)(A) of ments made as part ofa systemic pattern of bribery. the Exchange Act (15 U.S.C. 5 78m(b)(2)(A)), commonly called the "books and records" provision, requires issuers to "make and keep books, records, and accounts, which, in Bribes Have Been Mischaracterized As: reasonable detail, accurately and fairly reflect the transac- Commissions or Royalties tions and dispositions of the assets of the issuer.""‘ The "in reasonable detail" qualification was adopted by Congress Consulting Fees "in light of the concern that such a standard, if unqualified, Sales and Marketing Expenses might connote a degree of exactitude and precision which Scientific Incentives or Studies is unrealistic"' The addition of this phrase was intended Travel and Entertainment Expenses to make clear "that the issuer's records should reflect trans- actions in conformity with accepted methods of recording Rebates or Discounts economic events and effectively prevent off-the-books slush After Sales Service Fees funds and payments ofbribes?" Miscellaneous Expenses The term "reasonable detail" is defined in the statute Petty Cash Withdrawals as the level of detail that would "satisfy prudent officials in the conduct of their own affairsRlr Thus, as Congress noted Free Goods when it adopted this definition,"[t]he concept ofreasonable- • Intercompany Accounts tress of necessity contemplates the weighing of a number of • Supplier / Vendor Payments relevant factors, including the costs ofcompliance"u0 • Write-offs Although the standard is one of reasonable detail, it is never appropriate to mischaracterize transactions in a • "Customs Intervention" Payments company's books and records" Bribes are often concealed 39 EFTA01080336 Internal Controls Provision The payment of bribes often occurs in companies that chapter 3 have weak internal control environments. Internal controls The FCPA: over financial reporting are the processes used by compa- Accounting Provisions nies to provide reasonable assurances regarding the reliabil- ity of financial reporting and the preparation of financial statements. They include various components, such as: a An effective compliance program is a critical com- control environment that covers the tone set by the organi- ponent of an issuer's internal controls. Fundamentally, zation regarding integrity and ethics; risk assessments; con- the design of a company's internal controls must take into trol activities that cover policies and procedures designed account the operational realities and risks attendant to the to ensure that management directives are carried out (e.g., company's business, such as: the nature of its products or approvals, authorizations, reconciliations, and segregation services; how the products or services get to market; the of duties); information and communication; and monitor- nature of its work force; the degree of regulation; the extent ing. Section 13(b)(2)(B) of the Exchange Act (15 US.C. of its government interaction; and the degree to which it 78m(b)(2)(B)), commonly called the "internal controls" has operations in countries with a high risk of corruption. A provision, requires issuers to: company's compliance program should be tailored to these differences. Businesses whose operations expose them to a devise and maintain a system of internal accounting high risk of corruption will necessarily devise and employ controls sufficient co provide reasonable assurances that— different internal controls than businesses that have a lesser (i) transactions are executed in accordance with man- exposure to corruption, just as a financial services company agement's general or specific authorization; would be expected to devise and employ different internal (ii) transactions are recorded as necessary (I) to per- mit preparation of financial statements in conformity controls than a manufacturer. with generally accepted accounting principles or any A 2008 case against a German manufacturer of indus- other criteria applicable to such statements, and (II) trial and consumer products illustrates a systemic internal to maintain accountability for assets; (iii) access to assets is permitted only in accordance controls problem invoking bribery that was unprecedented with management's general or specific authorization; in scale and geographic reach. From 2001 to 2007, the com- and pany created elaborate payment schemes—including slush (iv) the recorded accountability for assets is com- pared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences ....223 Like the "reasonable detail" requirement in the Companies with ineffective internal books and records provision, the Act defines "reasonable assurances" as "such level of detail and degree of assurance controls often face risks of embezzlement as would satisfy prudent officials in the conduct of their and self-dealing by employees, commercial own affairs."224 The Act does not specify a particular set of controls bribery, export control problems, and that companies are required to implement. Rather, the violations of other U.S. and local laws. internal controls provision gives companies the flexibility to develop and maintain a system of controls that is appro- priate to their particular needs and circumstances. 40 EFTA01080337 funds, off-the-books accounts, and systematic payments to commercial bribery?' export controls violations,'" and business consultants and other intermediaries—to facilitate embezzlement or self-dealing by company employees?' bribery. Payments were made in ways that obscured their purpose and the ultimate recipients of the money. In some Potential Reporting and Anti-Fraud Violations cases, employees obtained large amounts of cash from cash Issuers have reporting obligations under Section desks and then transported the cash in suitcases across inter- 13(a) of the Exchange Act, which requires issuers to file national borders. Authorizations for some payments were an annual report that contains comprehensive information placed on sticky notes and later removed to avoid any perma- about the issuer. Failure to properly disclose material infor- nent record. The company made payments totaling approxi- mation about the issuer's business, including material rev- mately $1.36 billion through various mechanisms, including enue, expenses, profits, assets, or liabilities related to bribery $805.5 million as bribes and $554.5 million for unknown of foreign government officials, may give rise to anti-fraud purposes.'" The company was charged with internal controls and reporting violations under Sections 10(b) and 13(a) of and books and records violations, along with anti-bribery the Exchange Act. violations, and paid over $1.6 billion to resolve the case with For example, a California-based technology company authorities in the United States and Germany?" was charged with reporting violations, in addition to viola- The types ofinternal control failures identified in the tions of the FCPA's anti-bribery and accounting provisions, above example exist in many other cases where companies when its bribery scheme led to material misstatements in its were charged with internal controls violations.'?' A 2010 SEC filings?" The company was awarded contracts procured case against a multi-national automobile manufacturer through bribery of Chinese officials that generated material involved bribery that occurred over a long period of time in revenue and profits. The revenue and profits helped the com- multiple countries?" In that case, the company used doz- pany offset losses incurred to develop new products expected ens of ledger accounts, known internally as "internal third to become the company's future source of revenue growth. party accounts," to maintain credit balances for the ben- The company improperly recorded the bribe payments as efit of government officials?" The accounts were funded sales commission expenses in its books and records. through several bogus pricing mechanisms, such as "price Companies engaged in bribery may also be engaged surcharges' "price inclusions," or excessive commissions)" in activity that violates the anti-fraud and reporting provi- The company also used artificial discounts or rebates on sions. For example, an oil and gas pipeline company and sales contracts to generate the money to pay the bribes."' its employees engaged in a long-running scheme to use the The bribes also were made through phony sales intermedi- company's petty cash accounts in Nigeria to make a vari- aries and corrupt business partners, as well as through the ety of corrupt payments to Nigerian tax and court officials use ofcash desks?' ? Sales executives would obtain cash from using false invoices?" The company and its employees also the company in amounts as high as hundreds of thousands engaged in a fraudulent scheme to minimize the company's of dollars, enabling the company to obscure the purpose tax obligations in Bolivia by using false invoices to claim and recipients of the money paid to government officials?" false offsets to its value-added tax obligations. The scheme In addition to bribery charges, the company was charged resulted in material overstatements of the company's net with internal controls and books and records violations. income in the company's financial statements, which vio- Good internal controls can prevent not only FCPA lated the Exchange Aces anti-fraud and reporting provi- violations, but also other illegal or unethical conduct by the sions. Both schemes also violated the books and records company, its subsidiaries, and its employees. DOJ and SEC and internal controls provisions. have repeatedly brought FCPA cases that also involved other types of misconduct, such as financial fraud?" 41 EFTA01080338 What Are Management's Other Obligations? chapter 3 Sarbanes-Oxley Act of 2002 The FCPA: In 2002, in response to a series ofaccounting scandals Accounting Provisions involving US. companies, Congress enacted the Sarbanes- Oxley Act (Sarbanes-Oxley or SOX),la which strength- ened the accounting requirements for issuers. All issuers auditor must attest to and report on its assessment of the must comply with Sarbanes-Oxley's requirements, several effectiveness of the company's internal controls over finan- of which have FCPA implications. cial reporting. As directed by Section 404, SEC has adopted SOX Section 302 (15 U.S.C. § 7241)—Responsibility rules requiring issuers and their independent auditors to of Corporate Officers for the Accuracy and Validity of report to the public on the effectiveness of the compa- Corporate Financial Reports ny's internal controls over financial reporting.1°' These Section 302 of Sarbanes-Oxley requires that a com- internal controls include those related to illegal acts and pany's "principal officers" (typically the Chief Executive fraud—including acts of bribery—that could result in a Officer (CEO) and Chief Financial Officer (CFO)) take material misstatement of the company's financial state- responsibility for and certify the integrity of their compa- ments?"' In 2007, SEC issued guidance on controls over ny's financial reports on a quarterly basis. Under Exchange financial reporting?" Act Rule 13a-14, which is commonly called the "SOX cer- tification" rule, each periodic report filed by an issuer must SOX Section 802 (18 U.S.C. §§ 1519 and 1520)— include a certification signed by the issuer's principal execu- Criminal Penalties for Altering Documents tive officer and principal financial officer that, among other Section 802 of Sarbanes-Oxley prohibits altering, things, states that: (i) based on the officer's knowledge, the destroying, mutilating, concealing, or falsifying records, report contains no material misstatements or omissions; documents, or tangible objects with the intent to obstruct, (ii) based on the officer's knowledge, the relevant financial impede, or influence a potential or actual federal investiga- statements are accurate in all material respects; (iii) inter- tion. This section also prohibits any accountant from know- nal controls are properly designed; and (iv) the certifying ingly and willfully violating the requirement that all audit officers have disclosed to the issuer's audit committee and or review papers be maintained for a period of five years. auditors all significant internal control deficiencies. Who Is Covered by the Accounting SOX Section 404 (15 U.S.C. § 7262)—Reporting Provisions? on the State of a Company's Internal Controls over Financial Reporting Civil Liability for Issuers, Subsidiaries, and Affiliates Sarbanes-Oxley also strengthened a company's The FCPA's accounting provisions apply to every required disclosures concerning the state ofits internal con- issuer that has a class of securities registered pursuant to trol over financial reporting. Under Section 404, issuers are Section 12 of the Exchange Act or that is required to file required to present in their annual reports management's annual or other periodic reports pursuant to Section 15(d) conclusion regarding the effectiveness of the company's of the Exchange Act?'" These provisions apply to any issuer internal controls over financial reporting. This statement whose securities trade on a national securities exchange in must also assess the effectiveness of such internal controls the United States, including foreign issuers with exchange- and procedures. In addition, the company's independent traded American Depository Receipts?"' They also apply 42 EFTA01080339 to companies whose stock trades in the over-the-counter Civil Liability for Individuals and Other Entities market in the United States and which file periodic reports Companies (including subsidiaries of issuers) and with the Commission, such as annual and quarterly reports. individuals may also face civil liability for aiding and abet- Unlike the FCPA's anti-bribery provisions, the accounting ting or causing an issuer's violation of the accounting pro- provisions do not apply to private companies?* visions.260 For example, in April 2010, SEC charged four Although the FCPA's accounting requirements are individuals—a Country Manager, a Senior Vice President directed at Issuers," an issuer's books and records include ofSales, a Regional Financial Director, and an International those of its consolidated subsidiaries and affiliates. An issu- Controller of a US. issuer—for their roles in schemes to er's responsibility thus extends to ensuring that subsidiaries bribe Kyrgyz and Thai government officials to purchase or affiliates under its control, including foreign subsidiar- tobacco from their employer. The complaint alleged that, ies and joint venture partners, comply with the accounting among other things, the individuals aided and abetted the provisions. For instance, DOJ and SEC brought enforce- issuer company's violations of the books and records and ment actions against a California company for violating the internal controls provisions by "knowingly provid[ing] FCPA's accounting provisions when two Chinese joint ven- substantial assistance to" the parent company.2" All four tures in which it was a partner paid more than $400,000 in executives settled the charges against them, consenting to bribes over a four-year period to obtain business in China.' the entry of final judgments permanently enjoining them Sales personnel in China made the illicit payments by obtain- from violating the accounting and anti-bribery provisions, ing cash advances from accounting personnel, who recorded with two executives paying civil penalties.'" As in other the payments on the books as "business fees" or "travel and areas of federal securities law, corporate officers also can be entertainment" expenses. Although the payments were made held liable as control persons."' exclusively in China by Chinese employees of the joint ven- Similarly, in October 2011, SEC brought an admin- ture, the California company failed to have adequate internal istrative action against a US. water valve manufacturer and controls and failed to act on red flags indicating that its affili- a former employee of the company's Chinese subsidiary ates were engaged in bribery. The California company paid for violations of the FCPA's accounting provisions."' The $1.15 million in civil disgorgement and a criminal monetary Chinese subsidiary had made improper payments to employ- penalty of $1.7 million. ees of certain design institutes to create design specifications Companies may not be able to exercise the same level that favored the company's valve products. The payments ofcontrol over a minority-owned subsidiary or affiliate as were disguised as sales commissions in the subsidiary's books they do over a majority or wholly owned entity. Therefore, and records, thereby causing the US. issuer's books and if a parent company owns less than 50% of a subsidiary or records to be inaccurate. The general manager of the subsid- affiliate, the parent is only required to use its best efforts iary, who approved the payments and knew or should have to cause the minority-owned subsidiary or affiliate to known that they were improperly recorded, was ordered to devise and maintain a system of internal accounting con- cease-and-desist from committing or causing violations of trols consistent with the issuer's own obligations under the accountingprovisions, among other charges?* the FCPA.?" In evaluating an issuer's good faith efforts, Additionally, individuals and entities can be held all the circumstances—including "the relative degree of directly civilly liable for falsifying an issuer's books and the issuer's ownership of the domestic or foreign firm and records or for circumventing internal controls. Exchange the laws and practices governing the business operations Act Rule 13b2-1 provides: "No person shall, directly or of the country in which such firm is located"—are taken indirectly, falsify or cause to be falsified, any book, record into account?' or account subject to [the books and records provision] of the Securities Exchange Act."'" And Section 13(b)(5) of 43 EFTA01080340 the Exchange Act (15 U.S.C. § 78m(b)(5)) provides that Inio person shall knowingly circumvent or knowingly fail chapter 3 to implement a system of internal accounting controls or The FCPA: knowingly falsify any book, record, or account ....""7 The Accounting Provisions Exchange Act defines "person" to include a "natural person, company, government, or political subdivision, agency, or instrumentality of a government?"' controls, falsifying books and records, making false state- An issuer's officers and directors may also be held civ- ments to accountants, and signing false certifications."'" He illy liable for making false statements to a company's audi- consented to the entry of an injunction and paid disgorge- tor. Exchange Act Rule 13b2-2 prohibits officers and direc- ment and a civil penalty." He also later pleaded guilty in tors from making (or causing to be made) materially false the United Kingdom to conspiring to corrupt Iraqi and or misleading statements, including an omission of material Indonesian officials." facts, to an accountant. This liability arises in connection with any audit, review, or examination of a company's finan- Criminal Liability for Accounting Violations cial statements or in connection with the filing of any docu- Criminal liability can be imposed on companies ment with SEC.~S9 and individuals for knowingly failing to comply with the Finally, the principal executive and principal finan- FCPA's books and records or internal controls provisions.'" cial officer, or persons performing similar functions, can As with the FCPA's anti-bribery provisions, individuals are be held liable for violating Exchange Act Rule 13a-14 by only subject to the FCPA's criminal penalties for violations signing false personal certifications required by SOX. of the accounting provisions if they acted "willfully."" Thus, for example, in January 2011, SEC charged the for- For example, a French company was criminally mer CEO of a US. issuer for his role in schemes to bribe charged with failure to implement internal controls and Iraqi government officials in connection with the United failure to keep accurate books and records, among other Nations Oil-For-Food Programme and to bribe Iraqi and violations."' As part of its deferred prosecution agreement, Indonesian officials to purchase the company's fuel addi- the company admitted to numerous internal control fail- tives. There, the company used false invoices and sham con- ures, including failure to implement sufficient anti-bribery sulting contracts to support large bribes that were passed compliance policies, maintain a sufficient system for the on to foreign officials through an agent, and the bribes were selection and approval of consultants, and conduct appro- mischaracterized as legitimate commissions and travel fees priate audits of payments to purported "business consul- in the company's books and records. The officer directed tants."'" Likewise, a German company pleaded guilty to and authorized the bribe payments and their false recording internal controls and books and records violations where, in the books and records. He also signed annual and quar- from 2001 through 2007, it made payments totaling terly SOX certifications in which he falsely represented that approximately $1.36 billion through various mechanisms, the company's financial statements were fairly presented including $805.5 million as bribes and $554.5 million for and the company's internal controls sufficiently designed, unknown purposes."' as well as annual representations to the company's external Individuals can be held criminally liable for accounting auditors where he falsely stated that he complied with the violations. For example, a former managing director of a US. company's code of ethics and was unaware of any violations bank's real estate business in China pleaded guilty to conspir- of the code of ethics by anyone else. The officer was charged ing to evade internal accounting controls in order to trans- with aiding and abetting violations of the books and records fer a multi-million dollar ownership interest in a Shanghai and internal controls provisions, circumventing internal building to himself and a Chinese public official with whom 44 EFTA01080341 he had a personal friendship. The Conner managing director company's operations and financial condition. A company's repeatedly made false representations to his employer about financial statements should be complete and fairly repre- the transaction and the ownership interests involved?" sent the company's financial condition?" Thus, under U.S. GAAP, any payments to foreign government officials must Conspiracy and Aiding and Abetting Liability be properly accounted for in a company's books, records, As with the FCPA's anti•bribery provisions, compa- and financial statements. nies (including subsidiaries of issuers) and individuals may US. laws, including SEC Rules, require issuers to face criminal liability for conspiring to commit or for aid- undergo an annual external audit oftheir financial statements ing and abetting violations of the accounting provisions. and to make those audited financial statements available to For example, the subsidiary of a Houston•based the public by filing them with SEC. SEC Rules and the rules company pleaded guilty both to conspiring to commit and and standards issued by the Public Company Accounting to aiding and abetting the company's books and records Oversight Board (PCAOB) under SEC oversight, require and anti-bribery violations."' The subsidiary paid bribes external auditors to be independent of the companies that of over $4 million and falsely characterized the payments they audit. Independent auditors must comply with the rules as "commissions' "fees," or "legal services," consequently and standards set forth by the PCAOB when they perform causing the company's books and records to be inaccurate. an audit of a public company. These audit standards govern, Although the subsidiary was not an issuer and therefore for example, the auditor's responsibility concerning material could not be charged directly with an accounting violation, errors, irregularities, or illegal acts by a client and its officers, it was criminally liable for its involvement in the parent directors, and employees. Additionally, the auditor has a company's accounting violation. responsibility to obtain an understanding ofan entity's inter- Similarly, a US. subsidiary of a Swiss freight for- nal controls over financial reporting as part ofits audit and warding company that was not an issuer was charged with must communicate all significant deficiencies and material conspiring to commit and with aiding and abetting the weaknesses identified during the audit to management and books and records violations of its customers, who were the audit committee?" issuers and therefore subject to the FCPA's accounting Under Section 10A of the Exchange Act, indepen- provisions?" The U.S. subsidiary substantially assisted the dent auditors who discover an illegal act, such as the pay- issuer-customers in violating the FCPA's books and records ment ofbribes to domestic or foreign government officials, provision by masking the true nature of the bribe payments have certain obligations in connection with their audits of in the invoices it submitted to the issuer-customers?" The public companies?" Generally, Section 10A requires audi- subsidiary thus faced criminal liability for its involvement tors who become aware of illegal acts to report such acts to in the issuer-customers FCPA violations even though it appropriate levels within the company and, if the company was not itselfsubject to the FCPA's accounting provisions. fails to take appropriate action, to notify SEC. Auditor Obligations All public companies in the United States must file annual financial statements that have been prepared in conformity with US. Generally Accepted Accounting Principles (U.S. GAAP). These accounting principles are among the most comprehensive in the world. U.S. GAAP requires an accounting of all assets, liabilities, revenue, and expenses as well as extensive disclosures concerning the 45 EFTA01080342 chapter 3 The FCPA: Accounting Provisions 46 EFTA01080343 EFTA01080344 chapter 4 Other Related U.S. Laws OTHER RELATED U.S. LAWS Businesses and individuals should be aware that conduct that violates the FCPA's anti-bribery or accounting provisions may also violate other statutes or regulations. Moreover, payments to foreign government officials and intermedi- aries may violate these laws even if all of the elements of an FCPA violation are not present. Travel Act Act in 2009 where the relevant "unlawful activity" under The Travel Act, 18 U.S.C. § 1952, prohibits travel the Travel Act was an FCPA violation involving a bribery in interstate or foreign commerce or using the mail or any scheme in Azerbaijan.' Also in 2009, a California com- facility in interstate or foreign commerce, with the intent pany that engaged in both bribery of foreign officials in vio- to distribute the proceeds of any unlawful activity or to lation of the FCPA and commercial bribery in violation of promote, manage, establish, or carry on any unlawful activ- California state law pleaded guilty to conspiracy to violate ity.2" "Unlawful activity" includes violations of not only the FCPA and the Travel Act, among other charges.2" the FCPA, but also state commercial bribery laws. Thus, bribery between private commercial enterprises may, in Money Laundering some circumstances, be covered by the Travel Act. Said dif- Many FCPA cases also involve violations of anti- ferently, if a company pays kickbacks to an employee of a money laundering statutes." For example, two Florida private company who is not a foreign official, such private- executives ofa Miami-based telecommunications company to-private bribery could possibly be charged under the were convicted of FCPA and money laundering conduct Travel Act. where they conducted financial transactions involving the DOJ has previously charged both individual and proceeds of specified unlawful activities—violations of the corporate defendants in FCPA cases with violations of FCPA, the criminal bribery laws ofHaiti, and wire fraud— the Travel Act." For instance, an individual investor was in order to conceal and disguise these proceeds. Notably, convicted ofconspiracy to violate the FCPA and the Travel although foreign officials cannot be prosecuted for FCPA 48 EFTA01080345 violations,' three former Haitian officials involved in the sale of defense articles and services valued at $500,000 or same scheme were convicted ofmoney laundering? more triggers disclosure requirements concerning fees and commissions, including bribes, in an aggregate amount of Mail and Wire Fraud $100,000 or more." Violations of AECA and ITAR can •ihe mail and wire fraud statutes may also apply. In result in civil and criminal penalties?' 2006, for example, a wholly owned foreign subsidiary of a US. issuer pleaded guilty to both FCPA and wire fraud Tax Violations counts where the scheme included overbilling the sub- Individuals and companies who violate the FCPA may sidiary's customers—both government and private—and also violate US. tax law, which explicitly prohibits tax deduc- usingpart of the overcharged money to pay kickbacks to the tions for bribes, such as false sales "commissions" deductions customers employees. •Ihe wire fraud charges alleged that intended to conceal corrupt payments?' Internal Revenue the subsidiary had funds wired from its parent's Oregon Service-Criminal Investigation has been involved in a num- bank account to off-the-books bank accounts in South ber ofFCPA investigations involving tax violations, as well as Korea that were controlled by the subsidiary. •Ihe funds, other financial crimes like money laundering. amounting to almost $2 million, were then paid to manag- ers of state-owned and private steel production companies in China and South Korea as illegal commission payments and kickbacks that were disguised as refunds, commissions, and other seemingly legitimate expenses.' Certification and Reporting Violations Certain other licensing, certification, and reporting requirements imposed by the US. government can also be implicated in the foreign bribery context. For example, as a condition of its facilitation of direct loans and loan guar- antees to a foreign purchaser of US. goods and services, the Export-Import Bank of the United States requires the US. supplier to make certifications concerning commis- sions, fees, or other payments paid in connection with the financial assistance and that it has not and will not violate the FCPA." A false certification may give rise to criminal liability for false statements.' manufacturers. exporters. and brokers of certain defense articles and services are subject to regis- tration. licensing, and reporting requirements under the Arms Export Control Act (AECA), 22 U.S.C. § 2751. a seq., and its implementing regulations, the International Traffic in Arms Regulations (ITAR), 22 C.F.R. § 120, a seq. For example, under AECA and ITAR, all manufactur- ers and exporters of defense articles and services must reg- ister with the Directorate of Defense Trade Controls. The 49 EFTA01080346 chapter 4 Other Related U.S. Laws SO EFTA01080347 EFTA01080348 chapter 5 Guiding Principles of Enforcement GUIDING PRINCIPLES OF ENFORCEMENT What Does DOJ Consider When federal interest, the prosecutor is advised to "weigh all rel- Deciding Whether to Open an evant considerations," including the nature and seriousness Investigation or Bring Charges? of the offense; the deterrent effect of prosecution; the per- Whether and how DOJ will commence, decline, son's culpability in connection with the offense; the per- or otherwise resolve an FCPA matter is guided by the son's history with respect to criminal activity; the person's Principles of Federal Prosecution in the case of individu- willingness to cooperate in the investigation or prosecu- als, and the Principles of Federal Prosecution of Business tion of others; and the probable sentence or other conse- Organizations in the case ofcompanies. quences if the person is convicted. The Principles ofFederal Prosecution also set out the considerations to be weighed DOJ Principles of Federal Prosecution when deciding whether to enter into a plea agreement with The Principles of Federal Prosecution, set forth in an individual defendant, including the nature and serious- Chapter 9-27.000 of the US. Attorney's Manual?" pro- ness ofthe offense and the person's willingness to cooperate, vide guidance for DOJ prosecutors regarding initiating as well as the desirability of prompt and certain disposition or declining prosecution, selecting charges, and plea-bar- of the case and the expense of trial and appeal.2P9 gaining. The Principles ofFederal Prosecution provide that prosecutors should recommend or commence federal pros- DOJ Principles of Federal Prosecution of Business ecution if the putative defendant's conduct constitutes a Organizations federal offense and the admissible evidence will probably be The Principles of Federal Prosecution of Business sufficient to obtain and sustain a conviction unless (1) no Organizations, set forth in Chapter 9-28.000 of the US. substantial federal interest would be served by prosecution; Attorney's Manual?" provide guidance regarding the resolu- (2) the person is subject to effective prosecution in another tion of cases involving corporate wrongdoing. The Principle, jurisdiction; or (3) an adequate non-criminal alternative to of Federal Prosecution of Business Organizations recognize prosecution exists. In assessing the existence ofa substantial that resolution of corporate criminal cases by means other 52 EFTA01080349 than indictment, including non-prosecution and deferred corporation or its employee asserts an advice-of-counsel prosecution agreements, may be appropriate in certain cir- defense and when the attorney-client communications were cumstances. Nine factors are considered in conducting an in furtherance of a crime or fraud. Otherwise, an organi- investigation, determining whether to charge a corporation, zation's cooperation may only be assessed on the basis of and negotiating plea or other agreements: whether it disclosed the relevant/arts underlying an inves- • the nature and seriousness of the offense, including tigation—and not on the basis of whether it has waived its the risk ofharm to the public; attorney-client privilege or work product protection."' • the pervasiveness of wrongdoing within the corpo- ration, including the complicity in, or the condon- What Does SEC Consider When ing of, the wrongdoing by corporate management; Deciding Whether to Open an • the corporation's history of similar misconduct, Investigation or Bring Charges? including prior criminal, civil, and regulatory SEC's Enforcement Manual, published by SEC's enforcement actions against it; Enforcement Division and available on SEC's website,2" • the corporation's timely and voluntary disclosure of sets forth information about how SEC conducts inves- wrongdoing and its willingness to cooperate in the tigations, as well as the guiding principles that SEC staff investigation ofits agents; considers when determining whether to open or close an • the existence and effectiveness of the corporation's investigation and whether civil charges are merited. There pre-existing compliance program; are various ways that potential FCPA violations come to • the corporation's remedial actions, including any the attention of SEC staff including: tips from informants efforts to implement an effective corporate compli- or whisdeblowers; information developed in other inves- ance program or improve an existing one, replace tigations; self-reports or public disclosures by companies; responsible management, discipline or terminate referrals from other offices or agencies; public sources, such wrongdoers, pay restitution, and cooperate with the as media reports and trade publications; and proactive relevant government agencies; investigative techniques, including risk-based initiatives. • collateral consequences, including whether there Investigations can be formal, such as where SEC has issued is disproportionate harm to shareholders, pension a formal order of investigation that authorizes its staff to holders, employees, and others not proven person- issue investigative subpoenas for testimony and documents, ally culpable, as well as impact on the public arising or informal, such as where the staffproceeds with the inves- from the prosecution; tigation without the use of investigative subpoenas. • the adequacy of the prosecution ofindividuals In determining whether to open an investigation and, responsible for the corporation's malfeasance; and if so, whether an enforcement action is warranted, SEC • the adequacy ofremedies such as civil or regulatory staff considers a number of factors, including: the statutes enforcement actions. or rules potentially violated; the egregiousness ofthe poten- As these factors illustrate, in many investigations it tial violation; the potential magnitude of the violation; will be appropriate for a prosecutor to consider a corpora- whether the potentially harmed group is particularly vul- tion's pre-indictment conduct, including voluntary disclo- nerable or at risk; whether the conduct is ongoing; whether sure, cooperation, and remediation, in determining whether the conduct can be investigated efficiently and within the to seek an indictment. In assessing a corporation's coopera- statute oflimitations period; and whether other authorities, tion, prosecutors are prohibited from requesting attorney- including federal or state agencies or regulators, might be client privileged materials with two exceptions—when a better suited to investigate the conduct. SEC staffalso may 53 EFTA01080350 consider whether the case involves a possibly widespread industry practice that should be addressed, whether the chapter 5 case involves a recidivist, and whether the matter gives SEC Guiding Principles an opportunity to be visible in a community that might not of Enforcement otherwise be familiar with SEC or the protections afforded by the securities laws. For more information about the Enforcement to cooperate in deciding whether a prosecution should Division's procedures concerning investigations, enforce- be undertaken and how it should be resolved. Although a ment actions, and cooperation with other regulators, see willingness to cooperate will not, by itself, generally relieve the Eilarrement Manual at http://vmw.sec.govidivisions/ a person of criminal liability, it may be given "serious con- enforce.shtml. sideration" in evaluating whether to enter into a plea agree- ment with a defendant, depending on the nature and value Self-Reporting, Cooperation, and of the cooperation offered?" Remedial Efforts The US. Sentencing Guidelines similarly take into While the conduct underlying any FCPA investiga- account an individual defendant's cooperation and volun- tion is obviously a fundamental and threshold consider- tary disclosure. Under 3 5K1.I, a defendant's cooperation, ation in deciding what, if any, action to take, both DOJ if sufficiently substantial, may justify the government filing and SEC place a high premium on self-reporting, along a motion for a reduced sentence. And under 3 5K2.16, a with cooperation and remedial efforts, in determining the defendant's voluntary disclosure of an offense prior to its appropriate resolution ofFCPA matters. discovery—if the offense was unlikely to have been discov- ered otherwise—may warrant a downward departure in Criminal Cases certain circumstances. Under DOJ's Principles of Federal Prosecution of Chapter 8 of the Sentencing Guidelines, which gov- Business Organizations, federal prosecutors consider a erns the sentencing oforganizations, takes into account an company's cooperation in determining how to resolve a organization's remediation as part of an "effective compli- corporate criminal case. Specifically, prosecutors consider ance and ethics program." One of the seven elements of whether the company made a voluntary and timely dis- such a program provides that after the detection ofcrimi- closure as well as the company's willingness to provide rel- nal conduct, 'the organization shall take reasonable steps evant information and evidence and identify relevant actors to respond appropriately to the criminal conduct and to inside and outside the company, including senior execu- prevent further similar criminal conduct, including mak- tives. In addition, prosecutors may consider a company's ing any necessary modifications to the organization's remedial actions, including efforts to improve an existing compliance and ethics program."2" Having an effective compliance program or appropriate disciplining of wrong- compliance and ethics program may lead to a three-point doers?" A company's remedial measures should be mean- reduction in an organization's culpability score under ingful and illustrate its recognition of the seriousness of the § 8C2.5, which affects the fine calculation under the misconduct, for example, by taking steps to implement the Guidelines. Similarly, an organization's self-reporting, personnel, operational, and organizational changes neces- cooperation, and acceptance of responsibility may lead to sary to establish an awareness among employees that crimi- fine reductions under 3 8C2.5(g) by decreasing the culpa- nal conduct will not be tolerated.'" bility score. Conversely, an organization will not qualify The Principles ofFederal Prosecution similarly provide for the compliance program reduction when it unreason- that prosecutors may consider an individual's willingness ably delayed reporting the offense.'" Similar to 3 51O.1 54 EFTA01080351 for individuals, organizations can qualify for departures limit SEC's broad discretion to evaluate every case indi- pursuant to § 8O4.1 of the Guidelines for cooperating in vidually on its own unique facts and circumstances. Similar the prosecution ofothers. to SEC's treatment of cooperating individuals, credit for cooperation by companies may range from taking no Civil Cases enforcement action to pursuing reduced sanctions in con- nection with enforcement actions. SEC's Framework for Evaluating Cooperation by Companies SEC's Framework for Evaluating Cooperation by SEC's framework for evaluating cooperation by com- Individuals panies is set forth in its 2001 Report ofInvestigation Purruast In 2010, SEC announced a new cooperation program to Section 21(a) ofthe Securities &change Act of 1934 and for individuals?' SEC staff has a wide range of tools to Commizion Statement on the Relationship ofCooperation to facilitate and reward cooperation by individuals, from tak- Agency Enforcement Decisions, which is commonly known ingno enforcement action to pursuing reduced sanctions in as the Seaboard Report.298 The report, which explained the connection with enforcement actions. Although the evalu- Commission's decision not to take enforcement action ation ofcooperation depends on the specific circumstances, against a public company for certain accounting violations SEC generally evaluates four factors to determine whether, caused by its subsidiary, details the many factors SEC consid- to what extent, and in what manner to credit cooperation en in determining whether, and to what extent, it grants leni- by individuals: ency to companies for cooperating in its investigations and • the assistance provided by the cooperatingindi- for related good corporate citizenship. Specifically, the report vidual in SEC's investigation or related enforce- identifies four broad measures ofa company's cooperation: ment actions, including, among other things: the • self-policing prior to the discovery of the miscon- value and timeliness of the cooperation, including duct, including establishing effective compliance whether the individual was the first to report the procedures and an appropriate tone at the top; misconduct to SEC or to offer his or her coopera- • self-reportingofmisconduct when it is discovered, tion; whether the investigation was initiated based including conductinga thorough review of the upon the information or other cooperation by the nature, extent, origins, and consequences of the mis- individual; the quality of the cooperation, includ- conduct, and promptly, completely, and effectively ing whether the individual was truthful and the disclosing the misconduct to the public, to regula- cooperation was complete; the time and resources tory agencies, and to self-regulatory organizations; conserved as a result of the individual's coopera- • remediation, including dismissing or appropriately tion; and the nature of the cooperation, such as the disciplining wrongdoers, modifying and improv- type of assistance provided; ing internal controls and procedures to prevent • the importance of the matter in which the indi- recurrence of the misconduct, and appropriately vidual provided cooperation; compensating those adversely affected; and • the societal interest in ensuring that the cooperat- • cooperation with law enforcement authorities, ing individual is held accountable for his or her including providing SEC staff with all informa- misconduct, including the severity of the individ- tion relevant to the underlying violations and the ual's misconduct, the culpability of the individual, company's remedial efforts. and the efforts undertaken by the individual to Since every enforcement matter is different, this ana- remediate the harm; and lytical framework sets forth general principles but does not 55 EFTA01080352 • the appropriateness of a cooperation credit in light of the profile of the cooperating individual. chapter 5 Guiding Principles Corporate Compliance Program of Enforcement In a global marketplace, an effective compliance pro- gram is a critical component of a company's internal con- trols and is essential to detecting and preventing FCPA Sentencing Guidelines elements of an effective compliance Effective compliance programs are tailored to the program, as set forth in § 8B2.1 of the Guidelines. company's specific business and to the risks associated with These considerations reflect the recognition that that business. They are dynamic and evolve as the business a company's failure to prevent every single violation does and the markets change. not necessarily mean that a particular company's compli- An effective compliance program promotes "an orga- ance program was not generally effective. DOJ and SEC nizational culture that encourages ethical conduct and a understand that "no compliance program can ever prevent commitment to compliance with the law."JD1 Such a program all criminal activity by a corporation's employees;'" and protects a company's reputation, ensures investor value and they do not hold companies to a standard of perfection. An confidence, reduces uncertainty in business transactions, and assessment of a company's compliance program, including secures a company's assetsJO" A well-constructed, thought- its design and good faith implementation and enforcement, fully implemented, and consistently enforced compliance is an important part of the government's assessment of and ethics program helps prevent, detect, remediate, and whether a violation occurred, and if so, what action should report misconduct, including FCPA violations. be taken. In appropriate circumstances, DOJ and SEC may In addition to considering whether a company has decline to pursue charges against a company based on the self-reported, cooperated, and taken appropriate remedial company's effective compliance program, or may otherwise actions, DOJ and SEC also consider the adequacy of a seek to reward a company for its program, even when that company's compliance program when deciding what, if any, program did not prevent the particular underlying FCPA action to take. The program may influence whether or not violation that gave rise to the investigation?' charges should be resolved through a deferred prosecution DOJ and SEC have no formulaic requirements agreement (DPA) or non-prosecution agreement (NPA), regarding compliance programs. Rather, they employ a as well as the appropriate length of any DPA or NPA, or common-sense and pragmatic approach to evaluating com- the term of corporate probation. It will often affect the pliance programs, making inquiries related to three basic penalty amount and the need for a monitor or self-report- questions: ing."' As discussed above, SEC's Seaboard Report focuses, • Is the company's compliance program well among other things, on a company's self-policing prior to designed? the discovery of the misconduct, including whether it had • Is it being applied in good faith? established effective compliance procedures?" Likewise, • Does it workjJ° three of the nine factors set forth in DOD's Principles of This guide contains information regarding some of Federal Prosecution of Business Organizations relate, either the basic elements DOJ and SEC consider when evaluating directly or indirectly, to a compliance program's design and compliance programs. Although the focus is on compliance implementation, including the pervasiveness of wrongdo- with the FCPA, given the existence of anti-corruption ing within the company, the existence and effectiveness of laws in many other countries, businesses should consider the company's pre-existing compliance program, and the designing programs focused on anti-corruption compli- company's remedial actions?" DOJ also considers the U.S. ance more broadly?" 56 EFTA01080353 Hallmarks of Effective Compliance not enforced in good faith, such as when corporate man- Programs agement explicitly or implicitly encourages employees to Individual companies may have different compliance engage in misconduct to achieve business objectives, will be needs depending on their size and the particular risks asso- ineffective. DOJ and SEC have often encountered compa- ciated with their businesses, among other factors. When it nies with compliance programs that are strong on paper but comes to compliance, there is no one-size-fits-all program. that nevertheless have significant FCPA violations because Thus, the discussion below is meant to provide insight into management has failed to effectively implement the pro- the aspects of compliance programs that DOJ and SEC gram even in the face of obvious signs of corruption. This assess, recognizing that companies may consider a variety may be the result of aggressive sales staff preventing com- of factors when making their own determination of what pliance personnel from doing their jobs effectively and of is appropriate for their specific business needs.y10 Indeed, senior management, more concerned with securing a valu- small- and medium-size enterprises likely will have different able business opportunity than enforcing a culture ofcom- compliance programs from large multi-national corpora- pliance, siding with the sales team. The higher the financial tions, a fact DOJ and SEC take into account when evaluat- stakes of the transaction, the greater the temptation for ing companies' compliance programs. management to choose profit over compliance. Compliance programs that employ a "check-the-box" A strong ethical culture directly supports a strong approach may be inefficient and, more importantly, ineffec- compliance program. By adhering to ethical standards, tive. Because each compliance program should be tailored senior managers will inspire middle managers to reinforce to an organization's specific needs, risks, and challenges, those standards. Compliant middle managers, in turn, will the information provided below should not be considered encourage employees to strive to attain those standards a substitute for a company's own assessment of the corpo- throughout the organizational structure."' rate compliance program most appropriate for that particu- In short, compliance with the FCPA and ethical rules lar business organization. In the end, if designed carefully, must start at the top. DOJ and SEC thus evaluate whether implemented earnestly, and enforced fairly, a company's senior management has clearly articulated company stan- compliance program—no matter how large or small the dards, communicated them in unambiguous terms, adhered organization—will allow the company generally to prevent to them scrupulously, and disseminated them throughout violations, detect those that do occur, and remediate them the organization. promptly and appropriately. Code of Conduct and Compliance Policies and Commitment from Senior Management and a Procedures Clearly Articulated Policy Against Corruption A company's code of conduct is often the foundation Within a business organization, compliance begins upon which an effective compliance program is built. As with the board of directors and senior executives setting DOJ has repeatedly noted in its charging documents, the the proper tone for the rest of the company. Managers and most effective codes are clear, concise, and accessible to all employees take their cues from these corporate leaders. employees and to those conducting business on the com- Thus, DOJ and SEC consider the commitment of corpo- pany's behalf. Indeed, it would be difficult to effectively rate leaders to a 'culture of compliance"" and look to see implement a compliance program if it was not available in if this high-level commitment is also reinforced and imple- the local language so that employees in foreign subsidiaries mented by middle managers and employees at all levels of can access and understand it. When assessing a compliance a business. A well-designed compliance program that is program, DOJ and SEC will review whether the company 57 EFTA01080354 has taken steps to make certain that the code of conduct remains current and effective and whether a company has chapter 5 periodically reviewed and updated its code. Guiding Principles Whether a company has policies and procedures that of Enforcement outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and doc- umentation policies, and set forth disciplinary procedures adequate autonomy from management, and sufficient will also be considered by DOJ and SEC. These types of resources to ensure that the company's compliance program policies and procedures will depend on the size and nature is implemented effectively.'" Adequate autonomy gener- of the business and the risks associated with the business. ally includes direct access to an organization's governing Effective policies and procedures require an in-depth authority, such as the board of directors and committees understanding of the company's business model, includ- of the board of directors (e.g., the audit committee)" 5 ing its products and services, third-party agents, custom- Depending on the size and structure of an organization, ers, government interactions, and industry and geographic it may be appropriate for day-to-day operational responsi- risks. Among the risks that a company may need to address bility to be delegated to other specific individuals within include the nature and extent of transactions with foreign a company."' DOJ and SEC recognize that the reporting governments, including payments to foreign officials; use structure will depend on the size and complexity of an of third parties; gifts, travel, and entertainment expenses; organization. Moreover, the amount of resources devoted charitable and political donations; and facilitating and to compliance will depend on the company's size, complex- expediting payments. For example, some companies with ity, industry, geographical reach, and risks associated with global operations have created web-based approval pro- the business. In assessing whether a company has reasonable cesses to review and approve routine gifts, travel, and enter- internal controls, DOJ and SEC typically consider whether tainment involving foreign officials and private customers the company devoted adequate staffing and resources to the with clear monetary limits and annual limitations. Many of compliance program given the size, structure, and risk pro- these systems have built-in flexibility so that senior manage- file of the business. ment, or in-house legal counsel, can be apprised of and, in appropriate circumstances, approve unique requests. These Risk Assessment types of systems can be a good way to conserve corporate Assessment of risk is fundamental to developing a resources while, if properly implemented, preventing and strong compliance program, and is another factor DOJ detecting potential FCPA violations. and SEC evaluate when assessing a company's compliance prograrrLSO Regardless of the specific policies and procedures One-size-fits-all compliance programs are implemented, these standards should apply to personnel at generally ill-conceived and ineffective because resources all levels of the company. inevitably are spread too thin, with too much focus on low- risk markets and transactions to the detriment ofhigh-risk Oversight, Autonomy, and Resources areas. Devoting a disproportionate amount of time polic- In appraising a compliance program, DOJ and SEC ing modest entertainment and gift-giving instead of focus- also consider whether a company has assigned respon- ing on large government bids, questionable payments to sibility for the oversight and implementation of a com- third-party consultants, or excessive discounts to resellers pany's compliance program to one or more specific senior and distributors may indicate that a company's compli- executives within an organization."' Those individuals ance program is ineffective. A 350 million contract with a must have appropriate authority within the organization, government agency in a high-risk country warrants greater 58 EFTA01080355 scrutiny than modest and routine gifts and entertainment. business partners.' 8 For example, many larger companies Similarly, performing identical due diligence on all third- have implemented a mix of web-based and in-person train- party agents, irrespective of risk factors, is often counter- ing conducted at varying intervals. Such training typically productive, diverting attention and resources away from coven company policies and procedures, instruction on those third parties that pose the most significant risks. applicable laws, practical advice to address real-life scenar- DOJ and SEC will give meaningful credit to a company ios, and case studies. Regardless ofhow a company chooses that implements in good faith a comprehensive, risk-based to conduct its training, however, the information should compliance program, even if that program does not pre- be presented in a manner appropriate for the targeted audi- vent an infraction in a low risk area because greater atten- ence, including providing training and training materials tion and resources had been devoted to a higher risk area. in the local language. For example, companies may want to Conversely, a company that fails to prevent an FCPA viola- consider providing different types of training to their sales tion on an economically significant, high-risk transaction personnel and accounting personnel with hypotheticals because it failed to perform a level of due diligence com- or sample situations that are similar to the situations they mensurate with the size and risk of the transaction is likely might encounter. In addition to the existence and scope of to receive reduced credit based on the quality and effective- a company's training program, a company should develop ness ofits compliance program. appropriate measures, depending on the size and sophisti- As a company's risk for FCPA violations increases, cation of the particular company, to provide guidance and that business should consider increasing its compliance advice on complying with the company's ethics and com- procedures, including due diligence and periodic internal pliance program, including when such advice is needed audits. The degree of appropriate due diligence is fact-spe- urgently. Such measures will help ensure that the compli- cific and should vary based on industry, country, size, and ance program is understood and followed appropriately at nature of the transaction, and the method and amount of all levels of the company. third-party compensation. Factors to consider, for instance, include risks presented by: the country and industry sector, Incentives and Disciplinary Measures the business opportunity, potential business partners, level In addition to evaluating the design and implementa- of involvement with governments, amount of government tion of a compliance program throughout an organization, regulation and oversight, and exposure to customs and enforcement of that program is fundamental to its effec- immigration in conducting business affairs. When assessing tiveness.31t A compliance program should apply from the a company's compliance program, DOJ and SEC take into board room to the supply room—no one should be beyond account whether and to what degree a company analyzes its reach. DOJ and SEC will thus consider whether, when and addresses the particular risks it faces. enforcing a compliance program, a company has appropri- ate and clear disciplinary procedures, whether those proce- Training and Continuing Advice dures are applied reliably and promptly, and whether they Compliance policies cannot work unless effectively are commensurate with the violation. Many companies communicated throughout a company. Accordingly, DOJ have found that publicizing disciplinary actions internally, and SEC will evaluate whether a company has taken steps to where appropriate under local law, can have an important ensure that relevant policies and procedures have been com- deterrent effect, demonstrating that unethical and unlawful municated throughout the organization, including through actions have swift and sure consequences. periodic training and certification for all directors, officers, DOJ and SEC recognize that positive incentives can relevant employees, and, where appropriate, agents and also drive compliant behavior. These incentives can take many 59 EFTA01080356 forms such as personnel evaluations and promotions, rewards for improving and developing a company's compliance pro- chapter 5 gram, and rewards for ethics and compliance leadership?" Guiding Principles Some organizations, for example, have made adherence to of Enforcement compliance a significant metric for management's bonuses so that compliance becomes an integral part of management's everyday concern. Beyond financial incentives, some compa- transactions. Risk-based due diligence is particularly impor- nies have highlighted compliance within their organizations tant with third parties and will also be considered by DOJ by recognizing compliance professionals and internal audit and SEC in assessing the effectiveness of a company's com- staff. Others have made working in the company's compli- pliance program. ance organization a way to advance an employee's career. Although the degree of appropriate due diligence SEC, for instance, has encouraged companies to embrace may vary based on industry, country, size and nature of the methods to incentivize ethical and lawful behavior: transaction, and historical relationship with the third-party, some guiding principles always apply. [M]alce integrity, ethics and compliance part of the First as part of risk-based due diligence, companies promotion, compensation and evaluation processes as well. For at the end of the day, the most effective should understand the qualifications and associations of way to communicate that "doing the right thing" is a its third-party partners, including its business reputation, priority, is to reward it. Conversely, if employees are and relationship, if any, with foreign officials. The degree of led to believe that, when it comes to compensation and career advancement, all chat counts is short-term scrutiny should increase as red flags surface. profitability, and chat cuttingethical corners is an ac- Second. companies should have an understanding of ceptable way of getting there, they'll perform to that the business rationale for including the third party in the measure. To cite an example from a different walk of life: a college football coach can be told chat the transaction. Among other things, the company should graduation rates of his players are what matters, but understand the role of and need for the third party and he'll know differently if the sole focus of his contract ensure that the contract terms specifically describe the ser- extension talks or the decision to fire him is his win- loss record. 321 vices to be performed. Additional considerations include payment terms and how those payment terms compare to No matter what the disciplinary scheme or potential typical terms in that industry and country, as well as the incentives a company decides to adopt, DOJ and SEC will timing of the third party's introduction to the business. consider whether they are fairly and consistently applied Moreover, companies may want to confirm and document across the organization. No executive should be above com- that the third party is actually performing the work for pliance, no employee below compliance, and no person which it is being paid and that its compensation is com- within an organization deemed too valuable to be disci- mensurate with the work being provided. plined, if warranted. Rewarding good behavior and sanc- Third, companies should undertake some form of tioning bad behavior reinforces a culture ofcompliance and ongoing monitoring of third-party relationships?' Where ethics throughout an organization. appropriate, this may include updating due diligence peri- odically, exercising audit rights, providing periodic train- Third-Party Due Diligence and Payments ing, and requesting annual compliance certifications by the DOJ's and SEC's FCPA enforcement actions dem- third party. onstrate that third parties, including agents, consultants, In addition to considering a company's due dili- and distributors, are commonly used to conceal the pay- gence on third parties, DOJ and SEC also assess whether ment of bribes to foreign officials in international business the company has informed third parties of the company's 60 EFTA01080357 Compliance Program Case Study Recent DOJ and SEC actions relating to a financial institution's real estate transactions with a government agency in China illustrate the benefits of implementing and enforcing a comprehensive risk-based compliance program. The case involved a joint venture real estate investment in the Luwan District of Shanghai, China, between a U.S.-based financial institution and a state-owned entity that functioned as the District's real estate arm. The government entity conducted the transactions through two special purpose vehicles ("SPVs"), with the second SPV purchasing a 12% stake in a real estate project. The financial institution, through a robust compliance program, frequently trained its employees, imposed a comprehensive payment-approval process designed to prevent bribery, and staffed a compliance department with a direct reporting line to the board of directors. As appropriate given the industry, market, and size and structure of the transactions, the financial institution (1) provided extensive FCPA training to the senior executive responsible for the transactions and (2) conducted extensive due diligence on the transactions, the local government entity, and the SPVs. Due diligence on the entity included reviewing Chinese government records; speaking with sources familiar with the Shanghai real estate market checking the government entity's payment records and credit references; conducting an on-site visit and placing a pretextual telephone call to the entity's offices; searching media sources; and conducting background checks on the entity's principals. The financial institution vetted the SPVs by obtaining a letter with designated bank account information from a Chinese official associated with the government entity (the "Chinese Official"); using an international law firm to request and review SO documents from the SPVs' Canadian attorney; interviewing the attorney; and interviewing the SPVs' management. Notwithstanding the financial institution's robust compliance program and good faith enforcement of it, the company failed to learn that the Chinese Official personally owned nearly 50% of the second SPV (and therefore a nearly 6% stake in the joint venture) and that the SPV was used as a vehicle for corrupt payments. This failure was due, in large part, to misrepresentations by the Chinese Official, the financial institution's executive in charge of the project, and the SPV's attorney that the SPV was 100% owned and controlled by the government entity. DOJ and SEC declined to take enforcement action against the financial institution, and its executive pleaded guilty to conspiracy to violate the FCPA's internal control provisions and also settled with SEC. compliance program and commitment to ethical and law- and properly funded process for investigating the allegation ful business practices and, where appropriate, whether it and documenting the company's response, including any has sought assurances from third parties, through certifica- disciplinary or remediation measures taken. Companies will tions and otherwise, of reciprocal commitments. These can want to consider taking lessons learned" from any reported be meaningful ways to mitigate third-party risk. violations and the outcome of any resulting investigation to update their internal controls and compliance program and Confidential Reporting and Internal Investigation focus future training on such issues, as appropriate. An effective compliance program should include a mechanism for an organization's employees and others to Continuous Improvement: Periodic Testing and report suspected or actual misconduct or violations of the Review company's policies on a confidential basis and without fear of Finally, a good compliance program should constantly retaliation.'" Companies may employ, for example, anony- evolve. A company's business changes over time, as do the mous hotlines or ombudsmen. Moreover, once an allegation environments in which it operates, the nature ofits custom- is made, companies should have in place an efficient, reliable, ers, the laws that govern its actions, and the standards ofits 61 EFTA01080358 industry.In addition, compliance programs that do not just exist on paper but are followed in practice will inevitably chapter 5 uncover compliance weaknesses and require enhancements. Guiding Principles Consequently, DOJ and SEC evaluate whether companies of Enforcement regularly review and improve their compliance programs and not allow them to become stale. According to one survey, 64%ofgeneral counsel whose such actions demonstrate to DOJ and SEC a company's companies are subject to the FCPA say there is room for commitment to compliance and are taken into account improvement in their FCPA training and compliance pro- when evaluating any potential enforcement action. For grams?" An organization should take the time to review and example, DOJ and SEC declined to take enforcement test its controls, andit should think critically about its poten- action against an acquiring issuer when the issuer, among tial weaknesses and risk areas. For example, some companies other things, uncovered the corruption at the company have undertaken employee surveys to measure their compli- being acquired as part of due diligence, ensured that the ance culture and strength of internal controls, identify best corruption was voluntarily disclosed to the government, practices, and detect new risk areas. Other companies period- cooperated with the investigation, and incorporated the ically test their internal controls with targeted audits to make acquired company into its compliance program and inter- certain that controls on paper are working in practice. DOJ nal controls. On the other hand, SEC took action against and SEC will give meaningful credit to thoughtful efforts the acquired company, and DOJ took action against a sub- to create a sustainable compliance program if a problem is sidiary of the acquired company-3' When pre-acquisition later discovered. Similarly, undertaking proactive evaluations due diligence is not possible, DOJ has described proce- before a problem strikes can lower the applicable penalty dures, contained in Opinion Procedure Release No. 08.02, range under the US. Sentencing Guidelines?" Although the pursuant to which companies can nevertheless be rewarded nature and the frequency of proactive evaluations may vary if they choose to conduct thorough post-acquisition FCPA dependingon the size and complexity ofan organization, the due diligence?" idea behind such efforts is the same: continuous improve- FCPA due diligence, however, is normally only a ment and sustainability?" portion of the compliance process for mergers and acquisi- tions. DOJ and SEC evaluate whether the acquiring com- Mergers and Acquisitions: Pre-Acquisition Due pany promptly incorporated the acquired company into all Diligence and Post-Acquisition Integration of its internal controls, including its compliance program. In the context of the FCPA, mergers and acquisi- Companies should consider training new employees, reeval- tions present both risks and opportunities. A company uating third parties under company standards, and, where that does not perform adequate FCPA due diligence prior appropriate, conducting audits on new business units. to a merger or acquisition may face both legal and business For example, as a result of due diligence conducted risks.'" Perhaps most commonly, inadequate due diligence by a California-based issuer before acquiring the majority can allow a course of bribery to continue—with all the interest in a joint venture, the issuer learned ofcorrupt pay- attendant harms to a business's profitability and reputation, ments to obtain business. However, the issuer only imple- as well as potential civil and criminal liability. mented its internal controls "halfway so as not to "choke In contrast, companies that conduct effective FCPA the sales engine and cause a distraction for the sales guys." due diligence on their acquisition targets are able to evalu- As a result, the improper payments continued, and the ate more accurately each target's value and negotiate for the issuer was held liable for violating the FCPA's internal con- costs of the bribery to be borne by the target. In addition, trols and books and records provisions?"0 62 EFTA01080359 Other Guidance on Compliance and 2010, were draked based on consultations with the private International Best Practices sector and civil society and set forth specific good practices In addition to this guide, the US. Departments of for ensuring effective compliance programs and measures CornmerceandStatehavebothissuedpublicationsthatcontain for preventing and detecting foreign bribery. In addition, guidance regarding compliance programa The Department businesses may wish to refer to the following resources: of Commerce's International Trade Administration has pub- • Asia-Pacific Economic Cooperation—Anti- lished Business Ethics: A Manualfor Managing a Responsible Corruption Code of Conductfor Businesses Business Entetprise in Emerging Market Economies,"' and the • International Chamber ofCommerce—ICC Rules Department ofState haspublishedFightingGlobalComrption: on Combating Corntption;"4 Business Risk Managnnent.3 • Transparency International—Business Principlesfor There is also an emerging international consensus on Countering Briberyr compliance best practices, and a number of inter-govern- • United Nations Global Compact—De Ten mental and non-governmental organizations have issued Prinriplesr guidance regarding best practices for compliance."' Most • World Bank—Integrity Compliance notably, the OECD's 2009 Anti-Bribery Recommendation GuMelinen)nand and its Annex II, Good Practice Guidance on Internal • World Economic Forum—Partnering Against Controls, Ethics, and Compliance,"' published in February Corruption-Primnplesfor Countering Bribery?* Hypothetical: Third-Party Vetting Part 1: Consultants Company A, a U.S. issuer headquartered in Delaware, wants to start doing business in a country that poses high risks of corruption. Company A learns about a potential $50 million contract with the country's Ministry of Immigration. This is a very attractive opportunity to Company A, both for its profitability and to open the door to future projects with the government. At the suggestion of the company's senior vice president of international sales (Sales Executive), Company A hires a local businessman who assures them that he has strong ties to political and government leaders in the country and can help them win the contract. Company A enters into a consulting contract with the local businessman (Consultant). The agreement requires Consultant to use his best efforts to help the company win the business and provides for Consultant to receive a significant monthly retainer as well as a success fee of 3% of the value of any contract the company wins. What steps should Company A consider taking before hiring Consultant? There are several factors here that might lead Company A to perform heightened FCPA-related due diligence prior to retaining Consultant: (1) the market (high-risk country); (2) the size and significance of the deal to the company; (3) the company's first time use of this particular consultant; (4) the consultant's strong ties to political and government leaders; (5) the success fee structure of the contract; and (6) the vaguely-defined services to be provided. In order to minimize the likelihood of incurring FCPA liability, Company A should carefully vet Consultant and his role in the transaction, including dose scrutiny of the relationship between Consultant and any Ministry of Immigration officials or other government officials. Although there is nothing inherently illegal about contracting with a third party that has close connections to politicians and government officials to perform legitimate services on a transaction, this type of relationship can be susceptible to corruption. Among other things, Company A may consider conducting due diligence on Consultant, including background IM) 63 EFTA01080360 chapter 5 Guiding Principles of Enforcement and reference checks; ensuring that the contract spells out exactly what services and deliverables (such as written status reports or other documentation) Consultant is providing; training Consultant on the FCPA and other anti-corruption laws; requiring Consultant to represent that he will abide by the FCPA and other anti-corruption laws; including audit rights in the contract (and exercising those rights); and ensuring that payments requested by Consultant have the proper supporting documentation before they are approved for payment. Part 2: Distributors and Local Partners Assume the following alternative facts: Instead of hiring Consultant, Company A retains an often-used local distributor (Distributor) to sell Company Ks products to the Ministry of Immigration. In negotiating the pricing structure, Distributor, which had introduced the project to Company A, claims that the standard discount price to Distributor creates insufficient margin for Distributor to cover warehousing, distribution, installation, marketing, and training costs and requests an additional discount or rebate, or, in the alternative, a contribution to its marketing efforts, either in the form of a lump sum or as a percentage of the total contract. The requested discount/allowance is significantly larger than usual, although there is precedent at Company A for granting this level of discount in unique circumstances. Distributor further advises Company A that the Ministry's procurement officials responsible for awarding the contract have expressed a strong preference for including a particular local company (Local Partner) in the transaction as a subcontractor of Company A to perform installation, training, and other services that would normally have been performed by Distributor or Company A_ According to Distributor, the Ministry has a solid working relationship with Local Partner, and it would cause less disruption for Local Partner to perform most of the on-site work at the Ministry. One of the principals (Principal 1) of the Local Partner is an official in another government ministry. What additional compliance considerations do these alternative facts raise? As with Consultant in the first scenario above, Company A should carefully vet Distributor and Local Partner and their roles in the transaction in order to minimize the likelihood of incurring FCPA liability. While Company A has an established relationship with Distributor, the fact that Distributor has requested an additional discount warrants further inquiry into the economic justification for the change, particularly where, as here, the proposed transaction structure contemplates paying Local Partner to provide many of the same services that Distributor would otherwise provide. In many cases, it may be appropriate for distributors to receive larger discounts to account for unique circumstances in particular transactions. That said, a common mechanism to create additional margin for bribe payments is through excessive discounts or rebates to distributors. Accordingly, when a company has pre-existing relationships with distributors and other third parties, transaction-specific due diligence—including an analysis of payment terms to confirm that the payment is commensurate with the work being performed—can be critical even in circumstances where due diligence of the distributor or other third party raises no initial red flags. Company A should carefully scrutinize the relationship among Local Partner, Distributor, and Ministry of Immigration officials. While there is nothing inherently illegal about contracting with a third party that is recommended by the end-user, or even hiring a government official to perform legitimate services on a transaction unrelated to his or her government job, these facts raise additional red flags that warrant significant scrutiny. Among other things, Company A would be well-advised to require Principal 1 to verify that he will have no role in the Ministry of Immigration's decision to award the contract to Company A, notify the Ministry of Immigration and his own ministry of his proposed involvement in the transaction, and certify that he will abide by the FCPA and other anti-corruption laws and that his involvement in the transaction is permitted under local law. 64 EFTA01080361 Assume the following additional facts: Under its company polity for a government transaction of this size, Company A requires both finance and compliance approval. The finance officer is concerned that the discounts to Distributor are significantly larger than what they have approved for similar work and will cut too deeply into Company A's profit margin. The finance officer is also skeptical about including Local Partner to perform some of the same services that Company A is paying Distributor to perform. Unsatisfied with Sales Executive's explanation, she requests a meeting with Distributor and Principal 1. At the meeting, Distributor and Principal 1 offer vague and inconsistent justifications for the payments and fail to provide any supporting analysis, and Principal 1 seems to have no real expertise in the industry. During a coffee break, Distributor comments to Sales Executive that the finance officer is naïve about "how business is done in my country." Following the meeting, Sales Executive dismisses the finance officer's concerns, assuring her that the proposed transaction structure is reasonable and legitimate. Sales Executive also reminds the finance officer that "the deal is key to their growth in the industry." The compliance officer focuses his due diligence on vetting Distributor and Local Partner and hires a business investigative firm to conduct a background check. Distributor appears reputable, capable, and financially stable and is willing to take on real risk in the project, financial and otherwise. However, the compliance officer learns that Distributor has established an off-shore bank account for the transaction. The compliance officer further learns that Local Partner's business was organized two years ago and appears financially stable but has no expertise in the industry and has established an off-shore shell company and bank account to conduct this transaction. The background check also reveals that Principal 1 is a former college roommate of a senior official of the Ministry of Immigration. The Sales Executive dismisses the compliance officer's concems, commenting that what Local Partner does with its payments "isn't our problem? Sales Executive also strongly objects to the compliance officer's request to meet with Principal 1 to discuss the off-shore company and account, assuring him that it was done for legitimate tax purposes and complaining that if Company A continues to "harass" Local Partner and Distributor, they would partner with Company A's chief competitor. The compliance officer and the finance officer discuss their concerns with each other but ultimately sign off on the deal even though their questions had not been answered. Their decision is motivated in large part by their conversation with Sales Executive, who told them that this was the region's most important contract and that the detailed FCPA questionnaires and robust anti-corruption representations in the contracts placed the burden on Distributor and Local Partner to act ethically. Company A goes forward with the Distributor and Local Partner agreements and wins the contract after six months. The finance officer approves Company A's payments to Local Partner via the offshore account, even though Local Partner's invoices did not contain supporting detail or documentation of any services provided. Company A recorded the payments as legitimate operational expenses on its books and records. Sales Executive received a large year-end bonus due to the award of the contract. In fact, Local Partner and Distributor used part of the payments and discount margin, respectively, to funnel bribe payments to several Ministry of Immigration officials, including Principal 1% former college roommate, in exchange for awarding the contract to Company A. Thousands of dollars are also wired to the personal offshore bank account of Sales Executive. How would DOJ and SEC evaluate the potential FCPA liability of Company A and its employees? This is not the case of a single "rogue employee" circumventing an otherwise robust compliance program. Although Company A's finance and compliance officers had the correct instincts to scrutinize the structure and economics of the transaction and the role of the third parties, their due diligence was incomplete. When the initial inquiry identified significant red flags, they approved the transaction despite knowing that their concems were unanswered or the answers they received raised additional concerns and red flags. Relying on due diligence questionnaires and anti-corruption representations is insufficient, particularly when the risks are readily apparent. Nor can Company A or its employees shield themselves from liability because it was Distributor and Local Partner—rather than Company A directly—that made the payments. The facts suggest that Sales Executive had actual knowledge of or was willfully blind to the consultant's payment of the bribes. He also personally profited from the scheme (both from the kickback and from the bonus he received from the company) and intentionally discouraged the finance and compliance officers from learning the full story. Sales Executive is therefore subject to liability under the anti-bribery, books and records, and internal controls provisions of the FCPA, and others may be as well. Company A may also be liable for violations of the anti-bribery, books and records, and internal controls provisions of the FCPA given the number and significance of red flags that established a high probability of bribery and the role of employees and agents acting on the company's behalf. 65 EFTA01080362 chapter 5 Guiding Principles of Enforcement 66 EFTA01080363 EFTA01080364 chapter 6 FCPA Penalties, Sanctions, and Remedies FCPA PENALTIES, SANCTIONS, AND REMEDIES What Are the Potential Consequences Fines imposed on individuals may not be paid by their for Violations of the FCPA? employer or principal?' The FCPA provides for different criminal and civil penalties for companies and individuals. U.S. Sentencing Guidelines When calculating penalties for violations of the FCPA, Criminal Penalties DOJ focuses its analysis on the US. Sentencing Guidelines For each violation of the anti•bribery provisions, the (Guidelines)"' in all ofits resolutions, including guilty pleas, FCPA provides that corporations and other business enti- DPAs, and NPAs. The Guidelines provide a very detailed and ties are subject to a fine of up to $2 million."' Individuals, predictable structure for calculating penalties for all federal including officers, directors, stockholders, and agents of crimes, including violations of the FCPA. To determine the companies, are subject to a fine of up to $100,000 and appropriate penalty, the `offense lever is first calculated by imprisonment for up to five years?' examining both the severity of the crime and facts specific to For each violation of the accounting provisions, the the crime, with appropriate reductions for cooperation and FCPA provides that corporations and other business enti- acceptance of responsibility, and, for business entities, addi- ties are subject to a fine ofup to $25 million."' Individuals tional factors such as voluntary disclosure, cooperation, pre- are subject to a fine ofup to $5 million and imprisonment existingcompliance programs, and remediation. for up to 20 years?' The Guidelines provide for different penalties for the Under the Alternative Fines Act, 18 U.S.C. § 3571(d). different provisions of the FCPA. The initial offense level courts may impose significantly higher fines than those pro- for violations of the and-bribery provisions is determined vided by the FCPA—up to twice the benefit that the defen- under § 2C1.1, while violations of the accounting provi- dant sought to obtain by making the corrupt payment, as sions are assessed under § 201.1. For individuals, the initial long as the facts supporting the increased fines are included offense level is modified by factors set forth in Chapters 3, in the indictment and either proved to the jury beyond a 4, and 5 of the Guidelines"' to identify a final offense level. reasonable doubt or admitted in a guilty plea proceeding?' This final offense level, combined with other factors, is used 68 EFTA01080365 to determine whether the Guidelines would recommend acts; the involvement in or tolerance of criminal activ- that incarceration is appropriate, the length of any term of ity by high-level personnel within the organization; and incarceration, and the appropriate amount of any fine. For prior misconduct or obstructive behavior. The culpability corporations, the offense level is modified by factors par- score is reduced if the organization had an effective pre- ticular to organizations as described in Chapter 8 to deter- existing compliance program to prevent violations and if mine the applicable organizational penalty. the organization voluntarily disclosed the offense, cooper- For example, violations of the anti-bribery provi- ated in the investigation, and accepted responsibility for sions are calculated pursuant to $ 2C1.1. The offense level the criminal conduct?" is determined by first identifying the base offense level; " adding additional levels based on specific offense charac- Civil Penalties teristics, including whether the offense involved more than Although only DOJ has the authority to pursue crim- one bribe, the value of the bribe or the benefit that was con- inal actions, both DOJ and SEC have civil enforcement ferred, and the level of the public official )9° adjusting the authority under the FCPA. DOJ may pursue civil actions offense level based on the defendant's role in the offense" for anti-bribery violations by domestic concerns (and their and using the total offense level as well as the defendant's officers, directors, employees, agents, or stockholders) and criminal history category to determine the advisory guide- foreign nationals and companies for violations while in the line range.'6' For violations of the accounting provisions United States, while SEC may pursue civil actions against assessed under $ 281.1, the procedure is generally the issuers and their officers, directors, employees, agents, or same, except that the specific offense characteristics differ. stockholders for violations of the anti•bribery and the For instance, for violations of the FCPA's accounting pro- accounting provisions."' visions, the offense level may be increased if a substantial For violations of the anti-bribery provisions, cor- part of the scheme occurred outside the United States or if porations and other business entities are subject to a civil the defendant was an officer or director ofa publicly traded penalty of up to $16,000 per violation.'" Individuals, company at the time of the offense.'" including officers, directors, stockholders, and agents of For companies, the offense level is calculated pur- companies, are similarly subject to a civil penalty of up to suant to 55 2C1.1 or 281.1 in the same way as for an $16,000 per violation,'" which may not be paid by their individual—by starting with the base offense level and employer or principal.s° increasing it as warranted by any applicable specific For violations of the accounting provisions, SEC may offense characteristics. The organizational guidelines obtain a civil penalty not to exceed the greater of (a) the found in Chapter 8, however, provide the structure for gross amount of the pecuniary gain to the defendant as a determining the final advisory guideline fine range for result of the violations or (b) a specified dollar limitation. organizations. The base fine consists of the greater of the The specified dollar limitations are based on the egregious- amount corresponding to the total offense level, calcu- ness of the violation, ranging from $7,500 to $150,000 for lated pursuant to the Guidelines, or the pecuniary gain or an individual and $75,000 to $725,000 for a company!" loss from the offense?" This base fine is then multiplied SEC may obtain civil penalties both in actions filed in fed- by a culpability score that can either reduce the fine to as eral court and in administrative proceedings." little as five percent of the base fine or increase the recom- mended fine to up to four times the amount of the base Collateral Consequences fine.'" As described in 5 8C2.5, this culpability score is In addition to the criminal and civil penalties described calculated by taking into account numerous factors such above, individuals and companies who violate the FCPA may as the size of the organization committing the criminal face significant collateral consequences, includingsuspension 69 EFTA01080366 or debarment from contracting with the federal government, cross-debarment by multilateral development banks, and the chapter 6 suspension or revocation ofcertain export privileges. FCPA Penalties, Sanctions, and Remedies Debarment Under federal guidelines governing procurement, an individual or company that violates the FCPA or other committing a federal crime and the factual admissions criminal statutes may be barred from doingbusiness with the underlying a resolution are factors that the independent federal government The Federal Acquisition Regulations debarment authorities may consider. Moreover, indictment (FAR) provide for the potential suspension or debarment alone can lead to suspension of the right to do business of companies that contract with the government upon with the government.'" The US. Attorney's Manual also conviction of or civil judgment for bribery, falsification or provides that when a company engages in fraud against the destruction of records, the making of false statements, or government, a prosecutor may not negotiate away an agen- "(clommission ofany other offense indicating a lack ofbusi- cy's right to debar or delist the company as part of the plea ness integrity or business honesty that seriously and directly bargaining process)" In making debarment determina- affects the present responsibility of a Government contrac- tions, contracting agencies, including at the state and local tor or subcontractor."'" These measures are not intended level, may consult with DOJ in advance of awarding a con- to be punitive and may be imposed only if "in the public's tract Depending on the circumstances, DOJ may provide interest for the Government's protection.."J" information to contracting authorities in the context of Under the FAR, a decision to debar or suspend is dis- the corporate settlement about the facts and circumstances cretionary. The decision is not made by DOJ prosecutors or underlying the criminal conduct and remediation measures SEC staff; but instead by independent debarment authorities undertaken by the company, if any. This information shar- within each agency, such as the Department of Defense or ing is not advocacy, and the ultimate debarment decisions the General Services Administration, which analyze a mun- are squarely within the purview of the independent debar- ber of factors to determine whether a company should be sus- ment authorities. In some situations, the contracting agency pended, debarred, or otherwise determined to be ineligible may impose its own oversight requirements in order for a for government contracting. Such factors include whether company that has admitted to violations of federal law to be the contractor has effective internal control systems in place, awarded federal contracts, such as the Corporate Integrity self-reported the misconduct in a timely manner, and has Agreements often required by the Department of Health taken remedial measures)" If a cause for debarment exists, and Human Services. the contractor has the burden of demonstrating to the satis- faction of the debarringofficial that it is presently responsible Cross-Debarment by Multilateral Development and that debarment is not necessary.'" Each federal depart- Banks ment and agency determines the eligibility of contractors Multilateral Development Banks (MDBs), like the with whom it deals. However, if one department or agency World Bank, also have the ability to debar companies and debars or suspends a contractor, the debarment or suspension individuals for corrupt practices)" Each MDB has its own applies to the entire executive branch of the federal govern- process for evaluating alleged corruption in connection ment, unless a department or agency shows compelling rea- with MDB-funded projects. When appropriate, DOJ and sons not to debar or suspend the contractor."' SEC work with MDBs to share evidence and refer cases. Although guilty pleas, DPAs, and NPAs do not result On April 9, 2010, the African Development Bank Group, in automatic debarment from US. government contracting, the Asian Development Bank, the European Bank for 70 EFTA01080367 Reconstruction and Development, the Inter-American reporting requirements may be part of criminal and civil Development Bank Group, and the World Bank Group resolutions of FCPA matters. The amount of enhanced entered into an agreement under which entities debarred compliance and kind of reporting required varies according by one MDB will be sanctioned for the same misconduct to the facts and circumstances of individual cases. by other signatory MDBs.n This cross-debarment agree- In criminal cases, a company's sentence, or a DPA or ment means that if a company is debarred by one IvlDB, it NPA with a company, may require the appointment of an is debarred by all.n independent corporate monitor. Whether a monitor is appropriate depends on the specific facts and circumstances Loss of Export Privileges of the case. In 2008, DOJ issued internal guidance regard- Companies and individuals who violate the FCPA ing the selection and use of corporate monitors in DPAs may face consequences under other regulatory regimes, and NPAs with companies. Additional guidance has since such as the Arms Export Control Act (AECA), 22 U.S.C. been issued.n A monitor is an independent third party who § 2751, a seq., and its implementing regulations, the assesses and monitors a company's adherence to the com- International Traffic in Arms Regulations (ITAR), 22 pliance requirements of an agreement that was designed to C.F.R. § 120, a seq. AECA and ITAR together provide reduce the risk of recurrence of the company's misconduct. for the suspension, revocation, amendment, or denial of an Appointment of a monitor is not appropriate in all circum- arms export license if an applicant has been indicted or con- stances, but it may be appropriate, for example, where a com- victed for violating the FCPA.n They also set forth certain pany does not already have an effective internal compliance factors for the Department of State's Directorate of Defense program or needs to establish necessary internal controls. In Trade Controls (DDTC)sr; to consider when determining addition, companies are sometimes allowed to engage in self- whether to grant, deny, or return without action license monitoring, typically in cases when the company has made applications for certain types of defense materials. One of a voluntary disclosure, has been fully cooperative, and has those factors is whether there is reasonable cause to believe demonstrated a genuine commitment to reform. that an applicant for a license has violated (or conspired to violate) the FCPA; if so, the Department of State 'may disapprove the application."»s In addition, it is the policy of the Department of State not to consider applications for Factors DOJ and SEC Consider licenses involving any persons who have been convicted of When Determining Whether a Compliance Monitor Is Appropriate Include: violating the AECA or convicted of conspiracy to violate the AECA `"6 In an action related to the criminal resolu- • Seriousness of the offense tion of a UK. military products manufacturer, the DDTC • Duration of the misconduct imposed a 'policy of denial* for export licenses on three of • Pervasiveness of the misconduct, including the company's subsidiaries that were involved in violations whether the conduct cuts across geographic and/ of AECA and ITAR.n or product lines • Nature and size of the company When Is a Compliance Monitor or • Quality of the company's compliance program at Independent Consultant Appropriate? the time of the misconduct One of the primary goals of both criminal prosecu- • Subsequent remediation efforts tions and civil enforcement actions against companies that violate the FCPA is ensuring that such conduct does not occur again. As a consequence, enhanced compliance and 71 EFTA01080368 In civil cases, a company may similarly be required to retain an independent compliance consultant or moni- chapter 6 tor to provide an independent, third•party review of the FCPA Penalties, company's internal controls. The consultant recommends Sanctions, and Remedies improvements, to the extent necessary, which the company must adopt. When both DOJ and SEC require a com- pany to retain a monitor, the two agencies have been able to coordinate their requirements so that the company can retain one monitor to fulfill both sets ofrequirements. The most successful monitoring relationships are those in which the company embraces the monitor or con- sultant. If the company takes the recommendations and suggestions seriously and uses the monitoring period as a time to find and fix any outstanding compliance issues, the company can emerge from the monitorship with a stronger, long-lasting compliance program. 72 EFTA01080369 EFTA01080370 chapter 7 Resolutions RESOLUTIONS What Are the Different Types of The plea agreement may jointly recommend a sentence Resolutions with DOJ? or fine, jointly recommend an analysis under the US. Sentencing Guidelines, or leave such items open for Criminal Complaints, Informations, and Indictments argument at the time ofsentencing. Charges against individuals and companies are brought in three different ways under the Federal Rules of Deferred Prosecution Agreements Criminal Procedure: criminal complaints, criminal infor- Under a deferred prosecution agreement, or a DPA mations, and indictments. as it is commonly known, DOJ files a charging document DOJ may agree to resolve criminal FCPA mat- with the court' but it simultaneously requests that the ten against companies either through a declination or, in prosecution be deferred, that is, postponed for the pur- appropriate cases, a negotiated resolution resultingin a plea pose of allowing the company to demonstrate its good agreement, deferred prosecution agreement, or non-prose- conduct. DPAs generally require a defendant to agree to cution agreement. For individuals, a negotiated resolution pay a monetary penalty, waive the statute of limitations, will generally take the fort of a plea agreement, which may cooperate with the government, admit the relevant facts, include language regarding cooperation, or a non-prosecu- and enter into certain compliance and remediation com- tion cooperation agreement. When negotiated resolutions mitments, potentially including a corporate compliance cannot be reached with companies or individuals, the mat- monitor. DPAs describe the company's conduct, coopera- ter may proceed to trial. tion, and remediation, if any, and provide a calculation of the penalty pursuant to the U.S. Sentencing Guidelines. Plea Agreements In addition to being publicly filed, DOJ places all of its Plea agreements—whether with companies or DPAs on its website. If the company successfully com- individuals—are governed by Rule 11 of the Federal pletes the term of the agreement (typically two or three Rules of Criminal Procedure. The defendant gener- years), DOJ will then move to dismiss the filed charges. A ally admits to the facts supporting the charges, admits company's successful completion of a DPA is not treated guilt, and is convicted of the charged crimes when the as a criminal conviction. plea agreement is presented to and accepted by a court. 74 EFTA01080371 Non-Prosecution Agreements The Principles of Federal Prosecution provide addi- Under a non-prosecution agreement, or an NPA as tional commentary about each of these factors. For it is commonly known, DOJ maintains the right to file instance, they explain that prosecutors should take into charges but refrains from doing so to allow the company account federal law enforcement priorities because federal to demonstrate its good conduct during the term of the law enforcement and judicial resources are not sufficient NPA. Unlike a DPA, an NPA is not filed with a court but is to permit prosecution of every alleged offense over which instead maintained by the parties. In circumstances where federal jurisdiction exists. The deterrent effect of prosecu- an NPA is with a company for FCPA-related offenses, it is tion should also be kept in mind because some offenses, made available to the public through DOJ's website. The "although seemingly not ofgreat importance by themselves, requirements of an NPA are similar to those of a DPA, if commonly committed would have a substantial cumula- and generally require a waiver of the statute oflimitations, tive impact on the community."'" ongoing cooperation, admission of the material facts, and As discussed above, the Principles of Federal compliance and remediation commitments, in addition to Prosecution ofBusiness Organizations require prosecutors to payment of a monetary penalty. If the company complies consider nine factors when determining whether to prose- with the agreement throughout its term, DOJ does not file cute a corporate entity for an FCPA violation, including the criminal charges. If an individual complies with the terms nature and seriousness of the offense; the pervasiveness of ofhis or her NPA, namely, truthful and complete coopera- wrongdoing within the company; the company's history of tion and continued law-abidingconduct, DOJ will not pur- similar conduct; the existence and effectiveness of the com- sue criminal charges. pany's pre-existing compliance program; and the adequacy ofremedies, such as civil or regulatory enforcement actions. Declinations Pursuant to these guidelines, DOJ has declined to As discussed above, DOJ's decision to bringor decline prosecute both individuals and corporate entities in numer- to bring an enforcement action under the FCPA is made ous cases based on the particular facts and circumstances pursuant to the Principles ofFederal Prosecution, in the case presented in those matters, taking into account the avail- of individuals, and the Principles of Federal Prosecution able evidence?' To protect the privacy rights and other of Business Organizations, in the case of companies. As interests of the uncharged and other potentially interested described, in the case ofindividuals, the Principles ofFederal parties, DOJ has a long-standing policy not to provide, Prosecution advise prosecutors to weigh all relevant consid- without the party's consent, non-public information on erations, including: matters it has declined to prosecute. To put DOJ's declina- • federal law enforcement priorities; tions in context, however, in the past two years alone, DOJ • the nature and seriousness of the offense; has declined several dozen cases against companies where • the deterrent effect ofprosecution; potential FCPA violations were alleged. • the person's culpability in connection with the As mentioned above, there are rare occasions in offense; which, in conjunction with the public filing of charges • the person's history ofcriminal activity; against an individual, it is appropriate to disclose that a • the person's willingness to cooperate in the investi- company is not also being prosecuted. That was done in a gation or prosecution ofothers; and recent case where a former employee was charged but the • the probable sentence or other consequences if the former corporate employer was not."' person is convicted?" 75 EFTA01080372 What Are the Different Types of Resolutions with SEC? chapter 7 Resolutions Civil Injunctive Actions and Remedies In a civil injunctive action, SEC seeks a court order compelling the defendant to obey the law in the future. Violating such an order can result in civil or criminal con- proceedings that the professional be censured, suspended, tempt proceedings. Civil contempt sanctions, brought by or barred from practicing before SEC." SEC staff can seek SEC, are remedial rather than punitive in nature and serve an order from an administrative law judge requiring the one of two purposes: to compensate the party injured as a respondent to cease and desist from any current or future result of the violation of the injunction or force compliance violations ofthe securities laws. In addition, SEC can obtain with the terms of the injunction. disgorgement, pre-judgment interest, and civil money pen- Where a defendant has profited from a violation of alties in administrative proceedings under Section 21B law, SEC can obtain the equitable relief of disgorgement of the Exchange Act, and also can obtain other equitable of ill-gotten gains and pre-judgment interest and can also relief, such as enhanced remedial measures or the retention obtain civil money penalties pursuant to Sections 21(d)(3) of an independent compliance consultant or monitor. and 32(c) of the Exchange Act. SEC may also seek ancillary relief (such as an accounting from a defendant). Pursuant Deferred Prosecution Agreements to Section 21(d)(5), SEC also may seek, and any federal A deferred prosecution agreement is a written agree- court may grant, any other equitable relief that may be ment between SEC and a potential cooperating individual appropriate or necessary for the benefit of investors, such or company in which SEC agrees to forego an enforcement as enhanced remedial measures or the retention ofan inde- action against the individual or company if the individual pendent compliance consultant or monitor. or company agrees to, among other things: (I) cooper- ate truthfully and fully in SEC's investigation and related Civil Administrative Actions and Remedies enforcement actions; (2) enter into a long-term tolling SEC has the ability to institute various types ofadmin- agreement; (3) comply with express prohibitions and/ istrative proceedings against a person or an entity that it or undertakings during a period of deferred prosecution; believes has violated the law. This type ofenforcement action and (4) under certain circumstances, agree either to admit is brought by SEC's Enforcement Division and is litigated or not to contest underlying facts that SEC could assert before an SEC administrative law judge Qua The ALJ's to establish a violation of the federal securities laws. If the decision is subject to appeal directly to the Securities and agreement is violated during the period ofdeferred prosecu- Exchange Commission itself, and the Commission's decision tion, SEC staff may recommend an enforcement action to is in turn subject to review by a US. Court of Appeals. the Commission against the individual or company for the Administrative proceedings provide for a variety of original misconduct as well as any additional misconduct. relief. For regulated persons and entities, such as broker- Furthermore, if the Commission authorizes the enforce- dealers and investment advisers and persons associated with ment action, SEC staff may use any factual admissions them, sanctions include censure, limitation on activities, made by the cooperating individual or company in support suspension of up to twelve months, and bar from associa- of a motion for summary judgment, while maintaining the tion or revocation of registration. For professionals such as ability to bring an enforcement action for any additional attorneys and accountants, SEC can order in Rule 102(e) misconduct at a later date. 76 EFTA01080373 In May of 2011, SEC entered into its first deferred Enforcement Manual The same factors that apply to SEC prosecution agreement against a company for violating the staff's determination of whether to recommend an enforce- FCPA.38$ In that case, a global manufacturer of steel pipe ment action against an individual or entity apply to the products violated the FCPA by bribing Uzbekistan govern- decision to close an investigation without recommending ment officials during a bidding process to supply pipelines enforcement action.? for transporting oil and natural gas. The company made Generally, SEC staff considers, among other things: almost $5 million in profits when it was subsequently • the seriousness of the conduct and potential viola- awarded several contracts by the Uzbekistan government. tions; The company discovered the misconduct during a world- • the resources available to SEC staff to pursue the wide review of its operations and brought it to the govern- investigation; ment's attention. In addition to self-reporting, the company • the sufficiency and strength of the evidence; conducted a thorough internal investigation; provided • the extent of potential investor harm if an action is complete, real-time cooperation with SEC and DOJ staff; not commenced; and and undertook extensive remediation, including enhanced • the age of the conduct underlying the potential anti-corruption procedures and training. Under the terms violations. of the DPA, the company paid $5.4 million in disgorge- SEC has declined to take enforcement action against ment and prejudgment interest The company also paid a both individuals and companies based on the facts and cir- $3.5 million monetary penalty to resolve a criminal investi- cumstances present in those matters, where, for example, gation by DOJ through an NPA.3" the conduct was not egregious, the company fully coop- For further information about deferred prosecution erated, and the company identified and remediated the agreements, see SEC's Enforcement Manual."' misconduct quickly. SEC Enforcement Division policy is to notify individuals and entities at the earliest opportu- Non-Prosecution Agreements nity when the staff has determined not to recommend an A non-prosecution agreement is a written agreement enforcement action against them to the Commission. This between SEC and a potential cooperating individual or com- notification takes the form of a termination letter. pany. entered into in limited and appropriate circumstances, In order to protect the privacy rights and other inter- that provides that SEC will not pursue an enforcement ests of the uncharged and other potentially interested par- action against the individual or company if the individual or ties, SEC does not provide non-public information on mat- company agrees to, among other things: (I) cooperate truth- ters it has declined to prosecute. fully and fully in SEC's investigation and related enforce- ment actions; and (2) comply. under certain circumstances, What Are Some Examples of Past with express undertakings. If the agreement is violated, SEC Declinations by DOJ and SEC? staff retains its ability to recommend an enforcement action Neither DOJ nor SEC typically publicizes declina- to the Commission against the individual or company. tions but, to provide some insight into the process, the fol- For further information about non-prosecution lowing are recent, anonymized examples of matters DOJ agreements, see SEC's Enforcement Manualstr and SEC have declined to pursue: Termination Letters and Declinations Example 1: Public Company Declination As discussed above, SEC's decision to bring or DOJ and SEC declined to take enforcement action decline to bring an enforcement action under the FCPA is against a public US. company. Factors taken into consider- made pursuant to the guiding principles set forth in SEC's ation included: 77 EFTA01080374 • The company discovered that its employees had received competitor bid information from a third chapter 7 party with connections to the foreign government. Resolutions • The company began an internal investigation, withdrew its contract bid, terminated the employees involved, severed ties to the third-party agent, and voluntarily disclosed the conduct to DOJ's Antitrust bribes paid by a small foreign subsidiary. Factors taken into Division, which also declined prosecution. consideration included: • During the internal investigation, the company • The company self-reported the conduct to DOJ uncovered various FCPA red flags, including prior and SEC. concerns about the third-party agent, all of which • The total amount of the improper payments was the company voluntarily disclosed to DOJ and SEC. relatively small, and the activity appeared to be • The company immediately took substantial steps to an isolated incident by a single employee at the improve its compliance program. subsidiary. • The profits potentially obtained from the improper Example 2: Public Company Declination payments were very small. DOJ and SEC declined to take enforcement action • The payments were detected by the company's against a public US. company. Factors taken into consider- existing internal controls. The company's audit ation included: committee conducted a thorough independent • With knowledge of employees of the company's internal investigation. The results of the investiga- subsidiary, a retained construction company tion were provided to the government. paid relatively small bribes, which were wrongly • The company cooperated fully with investigations approved by the company's local law firm, to for- by DOJ and SEC. eign building code inspectors. • The company implemented significant remedial • When the company's compliance department actions and enhanced its internal control structure. learned of the bribes, it immediately ended the conduct, terminated its relationship with the con- Example 4: Public Company Declination struction company and law firm, and terminated or DOJ and SEC declined to take enforcement action disciplined the employees involved. against a US. publicly held oil-and-gas services company • The company completed a thorough internal inves- for small bribes paid by a foreign subsidiary's customs agent. tigation and voluntarily disclosed to DOJ and SEC. Factors taken into consideration included: • The company reorganized its compliance depart- • The company's internal controls timely detected a ment, appointed a new compliance officer dedi- potential bribe before a payment was made. cated to anti-corruption, improved the training • When company management learned of the and compliance program, and undertook a potential bribe, management immediately reported review ofall of the company's international third- the issue to the company's General Counsel and party relationships. Audit Committee and prevented the payment from occurring. Example 3: Public Company Declination • Within weeks oflearning of the attempted bribe, DOJ and SEC declined to take enforcement action the company provided in-person FCPA training against a U.S. publicly held industrial services company for to employees of the subsidiary and undertook 78 EFTA01080375 an extensive internal investigation to determine extensive FCPA training to employees of the new whether any of the company's subsidiaries in the subsidiary, and promptly incorporated the new same region had engaged in misconduct. subsidiary into the company's existing internal • The company self-reported the misconduct and the controls and compliance environment. results of its internal investigation to DOJ and SEC. • The company cooperated fully with investigations Exempla 6: Private Company Declination by DOJ and SEC. In 2011, DOJ declined to take prosecutorial action • In addition to the immediate training at the relevant against a privately held U.S. company and its foreign subsid- subsidiary, the company provided comprehensive iary. Factors taken into consideration included: FCPA training to all ofits employees and conducted • The company voluntarily disclosed bribes paid to an extensive review ofits anti-corruption compliance social security officials in a foreign country. program. • The total amount of the bribes was small. • The company enhanced its internal controls and • When discovered, the corrupt practices were imme- record-keeping policies and procedures, includ- diately terminated. ing requiring periodic internal audits ofcustoms • The conduct was thoroughly investigated, and the payments. results of the investigation were promptly provided • As part ofits remediation, the company directed that to DOJ. local lawyers rather than customs agents be used to • All individuals involved were either terminated handle its permits, with instructions that "no matter or disciplined. The company also terminated its what, we don't pay bribes"—a policy that resulted in relationship with its foreign law firm. a longer and costlier permit procedure. • The company instituted improved training and compliance programs commensurate with its size Example 5: Public Company Dadination and risk exposure. DOJ and SEC declined to take enforcement action against a U.S. publicly held consumer products company in connection with its acquisition of a foreign company. Factors taken into consideration included: • The company identified the potential improper payments to local government officials as part ofits pre-acquisition due diligence. • The company promptly developed a comprehen- sive plan to investigate, correct, and remediate any FCPA issues after acquisition. • The company promptly self-reported the issues prior to acquisition and provided the results ofits investi- gation to the government on a real-time basis. • The acquiring company's existing internal controls and compliance program were robust. • Aker the acquisition closed, the company imple- mented a comprehensive remedial plan, ensured that all improper payments stopped, provided 79 EFTA01080376 chapter 7 Resolutions 80 EFTA01080377 EFTA01080378 chapter 8 Whistleblower Provisions and Protections WHISTLEBLOWER PROVISIONS AND PROTECTIONS Assistance and information from a whistleblower who knows of possible secu- rities law violations can be among the most powerful weapons in the law en- forcement arsenal. Through their knowledge of the circumstances and individu- als involved, whistleblowers can help SEC and DOJ identify potential violations much earlier than might otherwise have been possible, thus allowing SEC and DOJ to minimize the harm to investors, better preserve the integrity of the U.S. capital markets, and more swiftly hold accountable those responsible for unlawful conduct. The Sarbanes-Oxley Act of 2002 and the Dodd-Frank protections. Section 21F authorizes SEC to provide mon- Act of 2010 both contain provisions affecting whistleblow- etary awards to eligible individuals who voluntarily come ers who report FCPA violations. Sarbanes-Oxley prohibits forward with high quality, original information that leads issuers from retaliating against whistleblowers and provides to an SEC enforcement action in which over 31,000,000 in that employees who are retaliated against for reporting pos- sanctions is ordered.'" The awards range is between 10% sible securities law violations may file a complaint with the and 30% of the monetary sanctions recovered by the gov- Department of Labor, for which they would be eligible to ernment. The Dodd-Frank Act also prohibits employers receive reinstatement, back pay, and other compensation."' from retaliating against whisdeblowers and creates a private Sarbanes-Oxley also prohibits retaliation against employee right of action for employees who are retaliated against)" whistleblowers under the obstruction of justice statute)" Furthermore, businesses should be aware that retali- In 2010, the Dodd-Frank Act added Section 2IF to ation against a whistleblower may also violate state, local, the Exchange Act, addressing whisdeblower incentives and and foreign laws that provide protection of whisdeblowers. 82 EFTA01080379 On August 12, 2011, the final rules for SEC's Whistleblower Program became effective. These rules set SEC Office of the Whistleblower forth the requirements for whisdeblowers to be eligible for awards consideration, the factors that SEC will use to deter- 100 F Street NE, Mail Stop 5971 mine the amount of the award, the categories of individuals Washington, DC 20549 who are excluded from award consideration, and the cate- Facsimile: (703) 813-9322 gories of individuals who are subject to limitations in award Online Report Form: http://www.sec.gov/ whistleblower considerations.'" The final rules strengthen incentives for employees to report the suspected violations internally through internal compliance programs when appropriate, although it does not require an employee to do so in order to qualify for an award.'" Individuals with information about a possible viola- tion of the federal securities laws, including FCPA viola- tions, should submit that information to SEC either online through SEC's Tips, Complaints, and Referrals (TCR) Intake and Resolution System (available at https://dene- bleo.sec.goviTCRExtemal/disclaimenhtml) or by mail- ing or faxing a completed Form TCR to the Commission's Office of the Whistleblower. Whistleblowers can submit information anony- mously. To be considered under SEC's whistleblower pro- gram as eligible for a reward, however, the information must be submitted on an anonymous whistleblower's behalf by an attorney.'" Whether or not a whistleblower reports anonymously, SEC is committed to protecting the identity of a whistleblower to the fullest extent possible under the statute."' SEC's Office of the Whisdeblower administers SEC's Whistleblower Program and answers questions from the public regarding the program. Additional informa- tion regarding SEC's Whistleblower Program, including answers to frequently asked questions, is available online at hup://vAinvsec.gov/whistleblower. 83 EFTA01080380 chapter 8 Whistleblower Provisions and Protections 84 EFTA01080381 EFTA01080382 chapter 9 DOJ Opinion Procedure DOJ OPINION PROCEDURE DOJ's opinion procedure is a valuable mechanism for companies and individu- als to determine whether proposed conduct would be prosecuted by DOJ under the FCPA." Generally speaking, under the opinion procedure process, parties submit information to DOJ, after which DOJ issues an opinion about whether the proposed conduct falls within its enforcement policy. All of DOJ's prior opinions are available online." Parties interested in obtaining such an opinion should follow these steps:" Finn, those seeking an opinion should evaluate whether receive an opinion." If the transaction involves more than their question relates to actual, prospective conducti01 The one issuer or domestic concern, consider making a request opinion procedure cannot be used to obtain opinions on for an opinion jointly, as opinions only apply to the parties purely historical conduct or on hypothetical questions. DOJ that request them.i0' will not consider a request unless that portion of the transac- Third, those seeking an opinion must put their request tion for which an opinion is sought involves only prospective in writing. The request must be specific and accompanied conduct, although the transaction as a whole may have com- by all relevant and material information bearing on the con- ponents that already have occurred. An executed contract duct and circumstances for which an opinion is requested. is not a prerequisite and, in most—if not all—instances, an Material information includes background information, opinion request should be made before the requestor com- complete copies of all operative documents, and detailed mits to proceed with a transaction.102 Those seeking request statements of all collateral or oral understandings, if any. should be aware that FCPA opinions relate only to the Those seeking opinions are under an affirmative obligation FCPA's anti•bribery provisions." to make full and true disclosures.1 ' Materials disclosed to Second, before making the request, the company or DOJ will not be made public without the consent of the individual should check that they are either an issuer or a party submitting them.' domestic concern, as only those categories of parties can 86 EFTA01080383 Fourth, the request must be signed. For corporate requestors, the signatory should be an appropriate senior officer with operational responsibility for the conduct that is the subject of the request and who has been designated by the corporation's chief executive officer. In appropriate cases, DOJ also may require the chief executive officer to sign the request. Those signing the request must certify that it contains a true, correct, and complete disclosure with respect to the proposed conduct and the circumstances of the conduct.'" Rib, an original and five copies of the request should be addressed to the Assistant Attorney General in charge of the Criminal Division, Attention: FCPA Opinion Group.'" The mailing address is M. Box 28188 Central Station, Washington, M. 20038. DOJ also asks that you send an electronic courtesy copy to FCPA.Fraud@usdoj.gov. DOJ will evaluate the request for an FCPA opinion 010 A party may withdraw a request for an opinion at any time prior to the release of an opinion.011 If the request is complete and all the relevant information has been submitted, DOJ will respond to the request by issuing an opinion within 30 days.i12 lithe request is incomplete, DOJ will identify for the requestor what additional information or documents are required for DOJ to review the request. Such information must be pro- vided to DOJ promptly. Once the additional information has been received, DOJ will issue an opinion within 30 days of receipt of that additional infonnation."3 DOJ's FCPA opin- ions state whether, for purposes of DOIs present enforcement policy, the prospective conduct would violate either the issuer or domestic concern anti-bribery provisions of the FCPA.i1' DOJ also may take other positions in the opinion as it con- siders appropriate.'" To the extent that the opinion concludes that the proposed conduct would not violate the FCPA, a rebuttable presumption is created that the requestor's con- duct that was the basis of the opinion is in compliance with the FCPAf18 In order to provide non-binding guidance to the business community, DOJ makes versions of its opinions pub- licly available on its website.'"- ffi after receiving an opinion, a party is concerned about prospective conduct that is beyond the scope of conduct speci- fied in a previous request, the party may submit an additional request for an opinion using the procedures outlined above."8 87 EFTA01080384 chapter 9 DOJ Opinion Procedure 88 EFTA01080385 EFTA01080386 Conclusion CONCLUSION The FCPA was designed to prevent corrupt practices, protect investors, and provide a fair playing field for those honest companies trying to win busi- ness based on quality and price rather than bribes. Following Congress' leader- ship in enacting the FCPA 35 years ago, and through determined international diplomatic and law enforcement efforts in the time since, laws like the FCPA prohibiting foreign bribery have been enacted by most of the United States' major trading partners. This guide is designed to provide practical advice about, and useful in- sights into, our enforcement considerations. For businesses desiring to com- pete fairly in foreign markets, it is our goal to maximize those businesses' ability to comply with the FCPA in the most effective and efficient way suitable to their business and the markets in which they operate. Through our ongoing efforts with the U.S. and international business and legal communities and non- governmental organizations, DOJ and SEC can continue effectively to protect the integrity of our markets and reduce corruption around the world. 90 EFTA01080387 EFTA01080388 The Foreign Corrupt Practices Act THE FOREIGN CORRUPT PRACTICES ACT: 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3, 78m, 78ff 15 US.C. 5 78dd-I [Section 30A of the Securities Exchange Act of (2) any foreign political parry or official thereof or any candidate for 15341 Prohibited foreign trade practices by issuers foreign political office for purposes of— (a) Prohibition (A) (i) influencing any act or decision ofsuch party. official, or candi- date in its or his official capacity, (ii) inducing such party. official, or It shall be unlawful for any issuer which has a class of securities regis- candidate to do or omit to do an act in violation of the lawful duty of tered pursuant to section 781 of this ride or which is required to file such party, official, or candidate, or (iii) securing any improper advan- reports under section 780(d) of this title, or for any officer. director. tage; or employee. or agent of such issuer or any stockholder thereof acting on behalf of such issuer. to make use of the main or any means or (8) inducing such party, official, or candidate to use its or his influ- instrumentality ofinterstate commerce corruptly in furtherance ofan ence with a foreign government or instrumentality thereof to affect or offer, payment, promise to pay, or authorization of the payment of any influence any actor decision of such government or instrumentality, money. or offer. gift. promise to give. or authorization of the giving of in order to assist such issuer in obtaining or retaining business for or anything of value to— with, or directing business to. any person; or (1) any foreign official for purposes of— (3) any person, while knowing that all or a portion of such money or chins ofvalue will be offered, given, or promised, directly or indirectly. (A) (i) influencing any act or decision of such foreign official in his to any foreign official, to any foreign political party or official thereof. official capacity, (ii) inducing such foreign official to do or omit to do or to any candidate for foreign political office, for purposes of— any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or (A) (i) influencing any act or decision of such foreign official, politi- cal party. party official, or candidate in his or its official capacity, (ii) (8) inducing such foreign official to use his influence with a foreign inducing such foreign official. political party. party official, or candi- government or instrumentality thereof to affect or influence any act date to do or omit to do any act in violation of the lawful duty of or decision of such government or instrumentality. in order to assist such foreign official, political party. parry official. or candidate, or (iii) such issuer in obtaining or retaining business for or with, or directing securing any improper advantage; or business to. any person; (8) inducing such foreign official, political parry, party official, or 92 EFTA01080389 candidate to use his or its influence with a foreign government or present enforcement policy regarding die preceding provisions of this instrumentality thereof to affect or influence any act or decision of section. The Attorney General shall issue die guidelines and procedures such government or instrumentality. in order to assist such issuer in referred to in the preceding sentence in accordance with the provisions obtaining or retaining business for or with, or directing business to, ofsubchapter II of chapter 5 of Title 5 and those guidelines and proce- any person. dures shall be subject to the provisions ofchapter 7 ofthat tide. (b) Exception for routine governmental action (e) Opinions of Attorney General Subsections (a) and (g) of this section shall not apply to any facilitat- ( I ) The Attorney General, after consultation with appropriate depart- ing or expeditingpayment Co a foreign official, political party, or parry ments and agencies of the United States and after obtaining the views official the purpose of which is to expedite or to secure the perfor- of all interested persons through public notice and comment pro- mance of a routine governmental action by a foreign official, political cedures, shall establish a procedure to provide responses to specific party. or party official. inquiries by issuers concerning conformance of their conduct with the Department ofJustice's present enforcement policy regarding the pre- (c) Affirmative defenses ceding provisions of this section. The Attorney General shall, within 30 days after receiving such a request, issue an opinion in response It shall be an affirmative defense to actions under subsection (a) or (g) to that request. The opinion shall state whether or not certain speci- of this section that— fied prospective conduct would, for purposes of the Department of Justice's present enforcement policy, violate the preceding provisions (1) the payment. gift, offer, or promise of anything of value that was of this section. Additional requests for opinions may be filed with the made. was lawful under the written laws and regulations of the foreign Attorney General regarding other specified prospective conduct that official's, political party's, party official's, or candidate's country: or is beyond the scope of conduct specified in previous requests. In any action brought under the applicable provisions of this section. there (2) the payment. gift, offer, or promise of anything of value that was shall be a rebuttable presumption that conduct, which is specified in a made. was a reasonable and bona fide expenditure, such as travel and request by an issuer and for which the Attorney General has issued an lodging expenses, incurred by or on behalf of a foreign official, party, opinion that such conduct is in conformity with the Department of party official, or candidate and was directly related to— Justice's present enforcement policy. is in compliance with the preced- ingprovisions of this section. Such a presumption may be rebutted by (A) the promotion. demonstration, or explanation ofproducts or ser- a preponderance of the evidence. In considering the presumption for viCes; Of purposes of this paragraph, a court shall weight all relevant factors. including but not limited to whether the information submitted to (B) the execution or performance of a contract with a foreign govern- the Attorney General was accurate and complete and whether it was ment or agency thereof. within the scope of the conduct specified in any request received by the Attorney General. The Attorney General shall establish the pro- (d) Guidelines by Attorney General cedure required by this paragraph in accordance with the provisions of subchapter II of chapter 5 of Title 5 and that procedure shall be Not later than one year after August 23. 1988. the Attorney General, subject to the provisions ofchapter 7 of that title. after consultation with the Commission, the Secretary of Commerce, the United States Trade Representative. the Secretary of State. and the (2) Any document or other material which is provided to. received by. Secretary of the Treasury, and after obtaining the views of all interested or prepared in the Department ofJustice or any other department or persons through public notice and comment procedures. shall deter- agency of the United States in connection with a request by an issuer mine to what extent compliance with this section would be enhanced under the procedure established under paragraph (I), shall be exempt and the business community would be assisted by further clarification of from disclosure under section 552 of Title 5 and shall not, except the preceding provisions ofthis section and may. based on such determi- with the consent of the issuer, be made publicly available, regardless of nation and to the extent necessary and appropriate. issue— whether the Attorney General responds to such a request or the issuer withdraws such request before receiving a response. (1) guidelines describing specific types of conduct. associated with common types of export sales arrangements and business contracts, (3) Any issuer who has made a request to the Attorney General which for purposes of the Department of Justice's present enforce- under paragraph (1) may withdraw such request prior to the time the ment policy, the Attorney General determines would be in confor- Attorney General issues an opinion in response to such request. Any mance with the preceding provisions of this section; and request so withdrawn shall have no force or effect. (2) general precautionary procedures which issuers may use on a vol- (4) The Attorney General shall. to the maximum extent practicable. untary• basis to conform their conduct to the Department ofJustice's provide timely guidance concerning the Department of Justice's 93 EFTA01080390 present enforcement policy with respect to the preceding provi- sions of this section to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to such The Foreign provisions Such guidance shall be limited to responses to requests Corrupt under paragraph (1) concerning conformity of specified prospective Practices Act conduct with the Department ofJustice's present enforcement policy regarding the preceding provisions ofthis section and general explain- lions of compliance responsibilities and of potential liabilities under the precedingprovisions of this section. (v) actions of a similar nature. (f) Definitions (B) The term 'routine governmental action" does not include any decision by a foreign official whether. or on what terms, to award For purposes of this section: new business to or to continue business with a particular party, or any action taken by a foreign official involved in the decision-making (1)(A) The term "foreign official' means any officer or employee of process to encourage a decision to award new business to or continue a foreign government or any department, agency. or instrumentality business with a particular party. thereof. or of a public international organization, or any person act- ing in an official capacity for or on behalf of any such government or (g) Alternative Jurisdiction department. agency. or instrumentality, or for or on behalfofany such public international organization. (I) It shall also be unlawful for any issuer organized under the laws of the United Stites or a State. territory, possession, or commonwealth (B) For purposes ofsubparagraph (A), the term "public international of the United States or a political subdivision thereof and which has organization" means— a class of securities registered pursuant to section 78/ of this title or (i) an organization that is designated by Executive Order pursuant which is required to file reports under section 78o(d)) of this tide, or to section 1 of the International Organizations Immunities Act (22 for any United States person chat is an officer, director, employee, or USC. 5 288); or agent of such issuer or a stockholder thereof acting on behalf of such (ii) any other international organization chat is designated by the issuer. to commtly do any act outside the United Scams in furtherance President by Executive order for the purposes of this section, effective of an offer, payment. promise to pay, or authorization of the payment as of the date ofpublication of such order in the Federal Register. of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any of the persons or entities set forth (2) (A) A person's state ofmind is 'knowing" with respect to conduct. in paragraphs (1), (2). and (3) of this subsection (a) of this section a circumstance, or a result if— for the purposes set forth therein, irrespective of whether such issuer (i) such person is aware that such person is engaging in such conduct, or such officer, director, employee. agent, or stockholder makes use that such circumstance exists. or that such result is substantially cer- of the mails or any means or instrumentality of interstate commerce tain to occur; or in furtherance ofsuch offer, gift, payment, promise. or authorization. (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur. (2) As used in this subsection, the term "United States person" means a national of the United States (as defined in section 101 of the (B) When knowledge of the existence of a particular circumstance is Immigration and Nationality Act (8 U.S.C. $ 1101)) or any corpo- required for an offense. such knowledge is established if a person is ration, partnership, association, joint-stock company. business trust, aware ofa high probability of the existence ofsuch circumstance, unless unincorporated organization, or sole proprietorship organized under the person actually believes this such circumstance does not exist. (helms ofthe United States or any State. territory, possession. or com- monweakh of the United States. or any political subdivision thereof. (3)(A) The term "routine governmental action" means only an action which is ordinarily and commonly performed by a foreign official in— 15 US.C. $ 78dd-2 Prohibited foreign trade practices by domestic (i) obtainingpermits licenses, or other official documents to qualify a concerns person to do business in a foreign country; (ii) processing governmental papers, such as visas and work orders; (a) Prohibition (iii) providing police protection, mail pick-up and delivery. or sched- uling inspections associated with contract performance or inspections It shall be unlawful for any domestic concern. ocher than an issuer [elated to transit ofgoods across country; which is subject to section 78dd-I of this tide.or for any officer, direc- (iv) providing phone service, power and water supply. loading and tor. employee, or agent of such domestic concern or any stockholder unloading cargo. or protecting perishable products or commodities thereof acting on behalf of such domestic concern, to make use of from deterioration; or the mails or any means or instrumentality of interstate commerce 94 EFTA01080391 corruptly in furtherance of an offer, payment. promise to pay. or official the purpose of which is to expedite or to secure the perfor- authorization of the payment of any money, or offer, gift. promise to mance of a routine governmental action by a foreign official, political give, or authorization of the giving ofanything of value to— party. or parry official. (I) any foreign official for purposes of— (c) Affirmative defenses (A) (i) influencing any act or decision of such foreign official in his It shall be an affirmative defense to actions under subsection (a) or (i) official capacity. (ii) inducing such foreign official to do or omit to do of this section that— any act in violation of the lawful duty of such official, or (iii) securing any improper advantage: or (1) the payment, gift. offer, or promise of anything of value that was made. was lawful under the written laws and regulations of the foreign (8) inducing such foreign official to use his influence with a foreign official's political party's. parry official's. or candidate's country; or government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist (2) the payment, gift. offer, or promise of anything of value that was such domestic concern in obtaining or retaining business for or with. made, was a reasonable and bona fide expenditure, such as travel and or directing business to. any person; or lodging expenses. incurred by or on behalf of a foreign official, party. party official, or candidate and was directly related to— (2) any foreign political party or official thereof or any candidate for foreign political office for purposes of— (A) the promotion. demonstration, or explanation ofproducts or ser- vices; or (A) (i) influencing any act or decision of such party, official. or candi- date in its or his official capacity, (ii) inducingsuch party, official.or tin- (8) the execution or performance of a contract with a foreign govern- didate to do or omit to do an act in violation of the lawful duty ofsuch ment or agency thereof party, official, or candidate, or (iii) securing any improper advantage; or (d) Injunctive relief (8) inducing such parry, official, or candidate to use its or his influ- ence with a foreign government or instrumentality thereofto affect or (1) When it appears to the Attorney General than any domestic con- influence any act or decision of such government or instrumentality. cern to which this section applies, or officer, director, employee, agent. in order to assist such domestic concern in obtaining or rttainingbusi- or stockholder thereof. is engaged. or about to engage. in any act or ness for or with, or directingbusiness to. any person; practice constituting a violation of subsection (a) or (i) of this sec- tion. the Attorney General may. in his discretion, bring a civil action (3) any person, while knowing that all or a portion of such money or in an appropriate district court of the United States to enjoin such act thingofvalue will be offered, given, or promised,direcdy or indirectly. or practice. and upon a proper showing. a permanent injunction or a to any foreign official, to any foreign political party or official thereof. temporary restraining order shall be granted without bond. or to any candidate for foreign political office, for purposes of— (2) For the purpose of any civil investigation which, in the opinion of (A) (i) influencing any act or decision of such foreign official, politi- the Attorney General. is necessary and proper to enforce this section, cal party. party official, or candidate in his or its official capacity, (ii) the Attorney General or his designee are empowered to administer inducing such foreign official, political party, party official, or candi- oaths and affirmations. subpoena witnesses. cake evidence, and require date to do or omit to do any act in violation of the lawful duty of the production of any books. papers. or other documents which the such foreign official, political party. party official.or candidate,or (iii) Attorney General deems relevant or material to such investigation. securing any improper advantage; or The attendance of witnesses and the production of documentary evi- dence may be required from any place in the United States, or any (8) inducing such foreign official, political party. party official, or territory. possession, or commonwealth of the United States. at any candidate to use his or its influence with a foreign government or designated place ofhearing. instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such domestic (3) In case of contumacy by, or refusal to obey a subpoena issued to. concern in obtaining or retaining business for or with, or directing any person, the Attorney General may invoke the aid of any court of business to, any person. the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries (b) Exception for routine governmental action on business. in requiring the attendance and testimony of witnesses and the production of books. papers, or other documents. Any such Subsections (a) and (i) of this section shall not apply to any Facilitat- court may issue an order requiring such person to appear before the ingor expeditingpayment to a foreign official, political party. or party Attorney General or his designee, there to produce records, if so 95 EFTA01080392 ordered, or to give testimony touching the matter under investigation. Any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in any such case may be saved The Foreign in the judicial district in which such person resides or may be found. Corrupt The Attorney General may make such rules relating to civil investiga- Practices Act tions as may be necessary or appropriate to implement the provisions of this subsection. (e) Guidelines by Attorney General by a domestic concern and for which the Attorney General has issued an opinion that such conduct is in conformity with the Department of Not later than 6 months after August 23.1988, the Attorney General. Justice's present enforcement policy. is in compliance with the preced- after consultation with the Securities and Exchange Commission, the ingprovisions of this section. Such a presumption may be rebutted by a Secretary of Commerce. the United States Trade Representative. the preponderance ofthe evidence. In considering the presumption for pur- Secretary ofState, and the Secretary of the Treasury, and after obtain- poses of this paragraph, a court shall weigh all relevant factors. including ing the views ofall interested persons through public notice and com- but not limited to whether the infomution submitted to the Attorney ment procedures, shall determine to what extent compliance with General was accurate and complete and whether it was within the this section would be enhanced and the business community would scope of the conduct specified in any request received by the Attorney be assisted by further clarification of the preceding provisions of this General. The Attorney General shall establish the procedure required section and may, based on such determination and to the extent neces- by this paragraph in accordance with the provisions ofsubchapter II of sary and appropriate, issue— chapter 5 ofTide 5 and that procedure shall be subject to the provisions ofehapter 7 ofthat tide (I) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, (2) Any document or other material which is provided to, received by, which for purposes of the Department of Justice's present enforce- or prepared in the Department ofJustice or any other department or ment policy. the Attorney General determines would be in confor- agency of the United States in connection with a request by a domes- mance with the preceding provisions of this section; and tic concern under the procedure established under paragraph (0.shall be exempt from disclosure under section 552 ofTide 5 and shall not. (2) general precautionary procedures which domestic concerns may except with the consent of the domestic concern. by made publicly use on a voluntary basis to conform their conduct to the Department available, regardless of whether the Attorney General response to of amlet's present enforcement policy regarding the preceding prtNi- such a request or the domestic concern withdraws such request before sions of this section. receiving a response. The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provi- (3) Any domestic concern who has made a request to the Attorney sions of subchapter II ofchapter 5 ofTide 5 and those guidelines and General under paragraph (1) may withdraw such request prior to procedures shall be subject to the provisions ofchapter 7 of that title. the time the Attorney General issues an opinion in response to such request. Any request so withdrawn shall have no force or effect. (f) Opinions of Attorney General (4) The Attorney General shall. to the maximum extent practicable. (I) The Attorney General, after consultation with appropriate depart- provide timely guidance concerning the Department ofJustice's pres- ments and agencies of the United States and after obtaining the views of ent enforcement policy with respect to the preceding provisions of all interested persons through public notice and comment procedures. this section to potential exporters and small businesses that are unable shall establish a procedure to provide responses to specific inquiries by to obtain specialized counsel on issues pertaining to such provisions. domestic concerns concerning conformance of their conduct with the Such guidance shall be limited to responses to requests under para- Department ofJustice's present enforcement policy regarding the pre- graph (I) concerning conformity of specified prospective conduct ceding provisions of this section. The Attorney General shall. within with the Department ofJustice's present enforcement policy regard- 30 days after receiving such a request. issue an opinion in response to ing the preceding provisions of this section and general explanations that request. The opinion shall state whether or not certain specified of compliance responsibilities and of potential liabilities under the prospective conduct would. for purposes °Eche Department °hamlet's precedingprovisions of this section. present enforcement policy, violate the precedingprovisions of this sec- tion. Additional requests for opinions may be filed with the Attorney (g) Penalties General regarding other specified prospective conduct that is beyond the scope of conduct specified in previous requests. In any action (1)(A) Any domestic concern that is not a natural person and that brought under the applicabk provisions of this section. there shall be violates subsection (a) or (i) of this section shall be fined not more a rebuttable presumption that conduct. which is specified in a request than 42,000.000. 96 EFTA01080393 (B) Any domestic concern that is not a natural person and that vio- (3)(A) A person's state ofmind is 'knowing' with respect to conduct. lates subsection (a) or (i) of this section shall be subject to a civil pen- a circumstance, or a result if— alty of not molt than $10,000 imposed in an action brought by the (i) such person is aware that such person is engaging in such conduct. Attorney General. that such circumstance exists. or that such result is substantially cer- tain to occur; or (2)(A) Any natural person that is an officer, director, employee. or (ii) such person has a firm belief that such circumstance exists or that agent of a domestic concern. or stockholder acting on behalfof such such result is substantially certain to occur. domestic concern, who willfully violates subsection (a) or (i) of this section shall be fined not more than 5100.000 or imprisoned not (B) When knowledge of the existence of a particular circumstance more than 5 years, or both. is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance. (B) Any natural person that is an officer, director, employee, or agent unless the person actually believes that such circumstance does not of a domestic concern, or stockholder acting on behalfof such domes- exist. tic concern, who violates subsection (a) or (i) of this section shall be subject to a civil penalty of not molt than 810.0® imposed in an (4)(A) The term "routine governmental action means only an action action brought by the Attorney General. which is ordinarily and commonly performed by a foreign official in— (i) obtainingpermits, licenses, or other official documents to qualify a (3) Whenever a fine is imposed under paragraph (2) upon any officer. person to do business in a foreign country; director. employee. agent, or stockholder of a domestic concern, such (ii) processinggovernmental papers, such as visas and work orders; fine may not be paid. directly or indirectly, by such domestic concern. (iii) providing police protection. mail pick-up and delivery. or sched- uling inspections associated with contract performance or inspections (h) Definitions related to transit ofgoods across country; (iv) providing phone service, power and water supply. loading and For purposes of this section: unloading cargo, or protecting perishable products or commodities from deterioration; or (I) The term "domestic concern means— (v) actions of a similar nature. (A) any individual who is a citizen. national, or resident of the United (B) The term 'routine governmental action does not include any States; and decision by a foreign official whether. or on what terms, to award new business to or to continue business with a particular party, or (B) any corporation. partnership. association, joint-stock company. any action taken by a foreign official involved in the decision-making business trust, unincorporated organization, or sok proprietorship process to encourage a decision to award new business to or continue which has its principal place ofbusiness in the United States, or which business with a particular party. is organized under the laws of a State of the United States or a terri- tory, possession, or commonwealth of the United SUMS. (5) The term "interstate commerce" means trade, commerce, transpor- tation. or communication among the several States, or between any (2)(A) The term "foreign official' means any officer or employee of foreign country and any State or between any State and any place or a foreign government or any department, agency. or instrumentality ship outside thereof, and such term includes the intrastate use of— thereof, or of a public international organization. or any person aa- ing in an Official capacity for or on behalf of any such government or (A) a telephone or other interstate means ofcommunication. or department, agency, or instrumentality, or for or on behalfofany such public international organization. (B) any other interstate instrumentality. (B) For purposes of subparagraph (A), the term "public international (i) Alternative Jurisdiction organization' means— (1) It shall also be unlawful for any United States person to corruptly (i) an organization that has been designated by Executive order pursu- do any act outside the United States in furtherance of an offer, pay- ant to Section I of the International Organizations Immunities Act ment, promise to pay, or authorization of the payment of any money, (22 US.C. $ 288); or or offer, gift, promise to give, or authorization of the giving of any- thing of value to any of the persons or entities set forth in paragraphs (ii) any other international organization chat is designated by the (1), (2). and (3) of subsection (a). for the purposes set forth therein, President by Executive order for the purposes of this section, effective irrespective of whether such United States person makes use of the as of the date ofpublication of such order in the Federal Register. mails or any means or instrumentality of interstate commerce in fur- therance ofsuch offer, gift, payment. promise. or authorization. 97 EFTA01080394 (2) As used in this subsection, a "United Stares person" means a national of the United States (as defined in section 101 of the Immigration and Nationality Act (8 US.C. $ 1101)) or any corpo- The Foreign ration. partnership, association, joint-stock company, business trust. Corrupt unincorporated organization. or sole proprietorship organized under Practices Act the laws of the United States or anyScare, territory, possession, or com- monwealth of the United States, or any political subdivision thereof. 15 US.C.$ 78dd-3 Prohibited foreign trade practices by persons (A) (i) influencing any act or decision of such foreign official, politi- other than issuers or domestic concerns cal party, party official, or candidate in his or its official capacity, (ii) inducing such foreign official. political party. party official, or candi- (a) Prohibition date to do or omit to do any act in violation of the lawful duty of such foreign official, political party, party official, or candidate, or (iii) It shall be unlawful for any person other than an issuer that is subject securing any improper advantage; or to section 78dd.1 [Section 30A of the Exchange Act[ of this title or a domestic concern, or for any officer, director, employee, or agent of (B) inducing such foreign official, political party, party official. or can- such person or any stockholder thereof acting on behalf of such per- didate to use his or its influence with a foreign government or instru- son, while in the territory of the United States, corruptly to make use mentality thereof to affect or influence any act or decision ofsuch gov- ofthe mails or any means or instrumentality ofinterstate commerce or ernment or instrumentality, in order to assist such person in obtaining to do any ocher act in furtherance of an offer. payment. promise to pay or retainingbusiness for or with. or directingbusiness to. any person. or authorization of the payment of any money, or offer. gift. promise to give, or authorization of the givingofanything ofvalue to— (b) Exception for routine governmental action (1) any foreign official for purposes of— Subsection (a) of this section shall not apply to any facilitating or expediting payment to a foreign official, political parry, or party offi- (A) (i) influencing any act or decision of such foreign official in his cial the purpose of which is to expedite or to secure the performance official capacity, (ii) inducing such foreign official to do or omit to do of a routine governmental action by a foreign official, political party, any act in violation of the lawful duty of such official, or (iii) securing or party official. any improper advantage; or (c) Affirmative defenses (B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act It shall be an affirmative defense to actions under subsection (a) of this or decision of such government or instrumentality. in order to assist section that— such person in obtaining or retaining business for or with, or directing business to, any person; (1) the payment, gift, offer. or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign (2) any foreign political party or official thereof or any candidate for official's, political party's, party official's, or candidate's country; or foreign political office for purposes of— (2) the payment, gift. offer. or promise of anything of value that was (A) (i) influencing any act or decision of such party, official, or candi- made, was a reasonable and bona fide expenditure. such as travel and date in its or his official capacity, (ii) inducingsuch party, officiator cm- lodging expenses, incurred by or on behalfof a foreign official, party. did.= to do or omit to do an act in violation of the lawful duty ofsuch party official, or candidate and was directly related to— party, official, or candidate, or (iii) securing any improper advantage; or (A) the promotion, demonstration. or explanation of products or ser- (B) inducing such party, official. or candidate to use its or his influ- vices; or ence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality (B) the execution or performance ofa contract with a foreign govern- in order to assist such person in obtainingor retaining business for or ment or agency thereof. with, or directing business to, any person; or (d) Injunctive relief (3) any person. while knowing that all or a portion of such money or thingofvalue will be offered, given, or promised. direcdy or indirectly. (I) When it appears to the Attorney General chat any person to which m any foreign official, to any foreign political party or official thereof, this section applies, or officer, director. employee. agent. or stock- or to any candidate for foreign political office, for purposes of— holder thereof. is engaged. or about to engage, in any act or practice 98 EFTA01080395 constituting a violation of subsection (a) of this section. the Attorney (1) Definitions General may, in his discretion, bring a civil action in an appropri- ate district court of the United States to enjoin such act or practice, For purposes of this section: and upon a proper showing, a permanent injunction or a temporary restraining order shall be granted without bond. (1) The term "person:" when referring to an offender, means any natu- ral person other than a national of the United Stares (as defined in (2) For the purpose ofany civil investigation which, in the opinion of 8 US.C. § 1101) or any corporation. partnership. association. joint- the Attorney General, is necessary and proper to enforce this section, stock company, business trust. unincorporated organization, or sole the Attorney General or his designee are empowered to administer proprietorship organized under the law ofa foreign nation or a politi- oaths and affirmations, subpoena witnesses, take evidence, and require cal subdivision thereof the production of any books, papers, or other documents which the Attorney General deems relevant or material to such investigation. (2)(A) The term "foreign official' means any officer or employee of The attendance of witnesses and the production of documentary evi- a foreign government or any department. agency, or instrumentality dence may be required from any place in the United Stares. or any thereof. or of a public international organization, or any person act- territory. possession. or commonwealth of the United States, at any ing in an official capacity for or on behalf of any such government or designated place of hearing. department. agency. or instrumentality, or for or on belulfofany such public international organization. (3) In case of contumacy by. or refusal to obey a subpoena issued to, any person, the Attorney General may invoke the aid of any court of For purposes of subparagraph (A). the term "public international the United States within the jurisdiction of which such investigation organization" means— or proceeding is carried on, or where such person resides or carries (i) an organization that has been designated by Executive Order pur- on business, in requiring the attendance and testimony of witnesses suant to Section 1 of the International Organizations Immunities Act and the production of books, papers. or other documents. Any such (22 US.C.5 288); or court may issue an order requiring such person to appear before the (ii) any other international organization char is designated by the Attorney General or his designee. there to produce records. if so President by Executive order for the purposes of this section. effective ordered.or to give testimony touching the matter under investigation. as of the date ofpublication of such order in the Federal Register. Any failure to obey such order of the court may be punished by such court as a contempt thereof. (3)(A) A person's state ofmind is 'knowing' with respect to conduct. a circumstance, or a result if— (4) All process in any such case may be served in the judicial district (i) such person is aware that such person is engaging in such conduct. in which such person resides or may be found. The Attorney General that such circumstance exists. or that such result is substantially cer- may make such rules relating to civil investigations as may be necessary tain to occur; or or appropriate to implement the provisions of this subsection. (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur. (e) Penalties (B) When knowledge of the existence of a particular circumstance (1)(A) Any juridical person that violates subsection (a) of this section is required for an offense, such knowledge is established if a person shall be fined not more than 42,000,000. is aware of a high probability of the existence of such circumstance. unless the person actually believes that such circumstance does nor (B) Any juridical person char violates subsection (a) of this section exist. shall be subject to a civil penalty ofnot more than $10,000 imposed in an action brought by the Attorney General. (4)(A) The term "routine governmental action" means only an action which is ordinarily and commonly performed by a foreign official in— (2)(A) Any natural person who willfully violates subsection (a) of (i) obtainingpermits, licenses, or other official documents to qualify a this section shall be fined nor more than 5100.000 or imprisoned not person to do business in a foreign country; more than 5 years. or both. (ii) processing governmental papers, such as visas and work orders; (iii) providing police protection, mail pick-up and delivery. or sched- (B) Any natural person who violates subsection (a) ofthis section shall uling inspections associated with contract performance or inspections be subject to a civil penalty of nor more than 510,000 imposed in an related to transit ofgoods across country; action brought by the Attorney General. (iv) providing phone service, power and water supply. loading and unloading cargo. or protecting perishable products or commodities (3) Whenever a fine is imposed under paragraph (2) upon any officer, from deterioration; or director, employee, agent, or stockholder of a person, such fine may (v) actions of a similar nature. not be paid, directly or indirectly, by such person. 99 EFTA01080396 (B) The term "routine governmental action does not include any decision by a foreign official whether. or on what terms. to award new business to or to continue business with a particular party, or The Foreign any action taken by a foreign official involved in the decision-making Corrupt process to encourage a decision to award new business to or continue Practices Act business with a particular party. (5) The term "interstate commerce means trade, commerce. transpor- tation. or communication among the several States, or between any or revised financial accounting standard until such date chat a com- foreign country and any State or between any State and any place or pany that is not an issuer (as defined under section 7201 of this title) ship outside thereof, and such term includes the intrastate use of— is required to comply with such new or revised accounting standard.if such standard applies to companies that are not issuers. (A) a telephone or other interstate means ofcommunication. or (b) Form ofreport; books, records, and internal accounting; directives (B) any other interstate instrumentality. ( 0 The Commission may prescribe, in regard to reports made pursu- ••• ant to this chapter. the form or forms in which the required informa- tion shall be set forth, the items or details to be shown in the balance IS U.S.C. 78m [Section 13 of the Securities Exchange Act of sheet and the earnings statement, and the methods to be followed in 1934i the preparation of reports, in the appraisal or valuation of assets and liabilities. in the determination of depreciation and depletion, in the Periodical and other reports differentiation of recurring and nonrecurring income. in the differen- tiation of investment and operating income, and in the preparation. (a) Reports by issuer of security; contents where the Commission deems it necessary or desirable, of separate and/or consolidated balance sheets or income accounts of any person Every issuer ofa security registered pursuant to section 781of this tide directly or indirectly controlling or controlled by the issuer, or any shall fik with the Commission, in accordance with such rules and reg- person under direct or indirect common control with the issuer; but ulations as the Commission may prescribe as necessary or appropriate in the case of the reports of any person whose methods of accounting for the proper protection of investors and to insure fair dealing in the are prescribed under the provisions of any law of the United States, security— or any rule or regulation thereunder, the rules and regulations of the Commission with respect to reports shall not be inconsistent with (1) such information and documents (and such copies thereof) as the the requirements imposed by such law or rule or regulation in respect Commission shall require to keep reasonably current the information of the same subject matter (except that such rules and regulations of and documents required to be included in or filed with an applica- the Commission may be inconsistent with such requirements to the tion or registration statement filed pursuant to section 78Iofthis title. extent that the Commission determines that the public interest or the except chat the Commission may not require the filingof any material protection ofinvestors so requires). contract wholly executed before luly 1.1%2. (2) Every issuer which has a class of securities registered pursuant to (2) such annual reports (and such copies thereof ), certified if required section 78Iofthis title and every issuer which is required to file reports by the rules and regulations of the Commission by independent pub- pursuant to section 78o(d) of this tide shall— lic accountants, and such quarterly reports (and such copies thereof). as the Commission may prescribe. (A) make and keep books. records. and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Every issuer of a security registered on a national securities exchange the assets of the issuer; shall also file a duplicate original of such information, documents. and reports with the exchange. In any registration statement. periodic (B) devise and maintain a system of internal accounting controls suf- report. or other reports to be filed with the Commission, an emerging ficient to provide reasonable assurances that— growth company need not present selected financial data in accor- dance with section 229.301 of title 17. Code of Federal Regulations. (i) transactions are executed in accordance with management's general for any period prior to the earliest audited period presented in con- or specific authorization; nection with its first registration statement that became effective under this chapter or the Securities Act of 1933 115 U.S.C. 44 77a. (ii) transactions are recorded as necessary (I) to permit preparation of et seq.) and, with respect to any such statement or reports. an emerg- financial statements in conformity with generally accepted accounting ing growth company may not be required to comply with any new 100 EFTA01080397 principles or any ocher criteria applicable to such statements, and (II) to use such influence shall be conclusively presumed to have complied to maintain accountability for assets; with the requirements ofparagraph (2). access CO assets is permitted only in accordance with manage- (iii) (7) For the purpose ofparagraph (2) ofthis subsection, the terms'rea- ment'sgeneral or specific authorization; and sonable assurances' and 'reasonable detail' mean such level of detail and degree of assurance as would satisfy prudent officials in the con- (iv) the recorded accountability for assets is compared with the exist- duct of their own affairs. ing assets at reasonable intervals and appropriate action is taken with respect to any differences: and (C) notwithstanding any other provision of law. pay the allocable 15 U.S.C. 78ffPenalties [Section 32 of the Securities Exchange share of such issuer of a reasonable annual accounting support fee or Act of 1934] fees. determined in accordance with section 7219 of this title. (a) Willful violations; false and misleadingstatements (3)(A) With respect to matters concerning the nationalsecurity of the United States, no duty or liability under paragraph (2) of this subsec- Any person who willfully violates any provision of this chapter (other tion shall be imposed upon any person acting in cooperation with the than section 78dd-1 of this title [Section 30A of the Exchange Act]). head ofany Federal department or agency responsible for such matters or any rule or regulation thereunder the violation of which is made if such act in cooperation with such head of a department or agency unlawful or the observance of which is required under the terms of was done upon the specific. written directive of the head of such this chapter, or any person who willfully and knowingly makes. or department or agency pursuant to Presidential authority to issue such causes to be made, any statement in any application, report, or docu- directives. Each directive issued under this paragraph shall set forth ment required to be filed under this chapter or any rule or regulation the specific facts and circumstances with respect to which the provi- thereunder or any undertaking contained in a registration statement sions of this paragraph are to be invoked. Each such directive shall, as provided in subsection (d) of section 78o of this title. or by any unless renewed in writing, expire one year after the date of issuance. self-regulatory organization in connection with an application for membership or participation therein or to become associated with a (B) Each head of a Federal department or agency of the United States member thereof, which statement was False or misleadingwith respect who issues such a directive pursuant to this paragraph shall main- to any material fact. shall upon conviction be fined not more than tain a complete file of all such directives and shall, on October I of 55.000.000. or imprisoned not molt than 20 years, or both. except each year. transmit a summary of matters covered by such directives that when such person is a person other than a natural person, a fine in force at any time during the previous year to the Permanent Select not exceeding 525.000.000 may be imposed; but no person shall be Committee on Intelligence of the House of Representatives and the subject to imprisonment under this section for the violation of any Select Committee on Intelligence of the Senate. rule or regulation if he proves that he had no knowledge ofsuch rule or regulation. (4) No criminal liability shall be imposed for failing to comply with the requirements of paragraph (2) of this subsection except as pro- (b) Failure to file information, documents, or reports vided in paragraph (5) of this subsection. Any issuer which fails to file information, documents, or reports (5) No person shall knowingly circumvent or knowingly Fail to imple- required to be filed under subsection (d) ofsection 78o of this title or ment a system ofinternal accounting controls or knowingly falsify any any rule or regulation thereunder shall forfeit to the United States the book, record, or account described in paragraph (2). sum of 4100 for each and every day such failure to file shall continue. Such forfeiture, which shall be in lieu of any criminal penalty for such (6) Where an issuer which has a class of securities registered pursu- failure to file which might be deemed to arise under subsection (a) of ant to section 781 of this title or an issuer which is required to file this section. shall be payable into the Treasury of the United States reports pursuant to section 78o(d) of this title holds 50 per centum and shall be recoverable in a civil suit in the name ofthe United States. or less of the voting power with respect to a domestic or foreign firm, the provisions of paragraph (2) require only that the issuer proceed (c) Violations by issuers, officers, directors. stockholders, employees. in good faith to use its influence, to the extent reasonable under the or agents ofissuers issuer's circumstances, to cause such domestic or foreign firm to devise and maintain a system ofinternal accounting controls consistent with (1)(A) Any issuer that violates subsection (a) or (g) of section 78dd-1 paragraph (2). Such circumstances include the relative degree of the [Section 30A ofthe Exchange Act) of this title shall be fined not more issuer's ownership of the domestic or foreign firm and the laws and than 52,00000. practices governing the business operations of the country in which such firm is located. An issuer which demonstrates good faith efforts (B) Any issuer that violates subsection (a) or (g) of section 78dd-1 101 EFTA01080398 [Section 30A of the Exchange Act )of this title shall be subject m a civil penalty of nor more than 510,000 imposed in an action brought by the Commission. The Foreign Corrupt (2)(A) Any officer. director, employee. or agent of an issuer. or stock- Practices Act holder acting on behalf of such issuer, who willfully violates subsec- tion (a) or (g) of section 78dd-I [Section 30A of the Exchange Act) of this title shall be fined not more than 5100.000. or imprisoned not more than 5 years, or both. (B) My officer, director, employee. or agent of an issuer, or stock- holder acting on behalf of such issuer, who violates subsection (a) or (g) of section 78dd-I [Section 30A of the Exchange Act) of this tide shall be subject to a civil penalty ofnot more than 510,000 imposed in an action brought by the Commission. (3) Whenever a fine is imposed under paragraph (2) upon any officer. director. employee, agent, or stockholder of an issuer, such fine may not be paid, directly or indirecdy, by such issuer. 102 EFTA01080399 EFTA01080400 Endnotes ENDNOTES S. REP. NO. 515414, at 4 (1977) Ihercinaficr S. REP. NO. 515-114 likely it is to be accompanied by other serious deficiencies in the rule of available at http://www.justice.gov/criminal/fraud/fcpa/history/1977/ law: smuggling. drug trafficking. criminal violence. human rights abuses. senaterpt-95-114.pdf. arid personalization ofpower."). Id.; H.R. REP. No. 95-640, at 4-5 (1977) [hereinafier H. R. REP. No. 'President George W. Bush observed in 2006 that "the culture of 95-640].availdde at http://wavjunice.govictiminal/fraud/fcpa/ corruption has undercut development and good governance and history/1977/houseprt-95-640.pdf. The House Report made clear .... impedes our efforts to promote freedom and democracy. end Congress's concerns: poverty. and combat international crime and terrorism: President's The payment ofbribes to influence the acts or Statement on Kleptocracy. 2 Pue. PAPERS 1504 (Aug. 10. 2006). decisions of foreign officials, foreign political panics available at http://georgewlaush-whitehouscarchives.gov/nays/ or candidates for foreign political office is unethical. releases/XO6/08/20060810Juml. The administrations of former It is counter to the moral expectations and values of President George W. Bush and President Barack Obama both recognized the American public. But not only is it unethical. it the threats posed to security and stability by corruption. For instance. is bad business as well. It erodes public confidence in issuing a proclamation remit-Ong the entry ofcertain corrupt foreign in the integrityof the free market system. It short- public officials. forma President George W. Bush recognized 'the circuits the marketplace by directing business to serious negative effects that corruption ofpublic institutions has on the those companies too inefficient to compete in terms United Stated efforts to promote security and to strengthen democratic ofprice. quality or service. or too lazy to engage in institutions and free market systems...." Proclamation No.7750. 69 honest salesmanship. or too intent upon unloading Fed. Reg. 2287 (Jan. 14. 2004). Similarly. President Barack Obamis marginal product.. In short. it rewards corruption National Security Strategy paper. released in May 2010. expressed the instead ofefficiency and puts pressure on ethical administration% efforts and commitment to promote the recognition that enterprises to lower their standards or risk losing 'pervasive corruption is a violation ofbasic human rights and a severe business. impediment to development and global security.' THE WHITE HOUSE, NATIONAL SECURITY STRATEGY 38 (2010). midair& at http:// 'See, e..g, US. AGENCY FOR INT.,. DEV.. USAID ANTICORRUPTION www.whitchouse.gov/sites/default/fileshrn_viewer/national_security_ STRATEGY 5-6 (2005). available at http://transition.usaid.gov/poliey/ strategy.pdf. ads/200/200mbo.pdf.Thc growing recognition that corruption poses 'See, e.g. INT.!. CHAMBER OF COMMERCE. ET Al-. CLEAN BUSINESS a severe threat to domain and international security has galvanized Is GOOD BUSINESS: THE BUSINESS CASE AGAINST CORRUPTION efforts to combat it in the United States and abroad. See, e..g, Intl And- (2008). arartrdie at http://www.unglolaalcompactag/docs/neves_ Corruption and Good Governance Act of 2000. Pub. L. No. 106-309, events/8.1/ekan_businns_n_good_busincapdf: World Health Org., $ 202,114 Stat. 1090 (codified as amended at 22 U.S.C. 4§ 2151-2152 Fart Skeet No. 335, Medicines: Corruption andMamma:aim& (Dec. (2000)) (noting that Ivelidapread corruption endangers the stability 2009).andableat http://www.who.a/mcdiacentre/factsheets/fs335/ and security ofsocieties, undermines democracy. and jeopardizes the ern; Daniel Kaufmann, Corruptron: The Eras. FOREIGN PoCY.Summer social. political. and economic development oh society.... (ad that] 1997. at 119-20; Paolo Mauro. Corruption and Growth. 110Q. J. Econ. Ielorruption facilitates criminal activities such as money laundering. 681.683.705 (1M) (finding that "corruption lowers private investment hinders economic development. inflates the costs of doinglausinen. and ... [and] reducles) economic growth THE WORLD BANK, THE undermines the legitimacy of the government and public trust"). DATA REVOLUTION: MEASURING GOVERNANCE AND CORRUPTION, 'See Marne Tremblay & Camille Karbani. Corruption andHuman (Apr. 8. 2004). evadable at http://goavoeldbank.org/87JUY8G)H0. Tnr.$ckinf 4 (Transparency Intl, Working Paper No. 3, 2011), are:lake `See, eg.. The Corruption Eruption, ECONOMIST (Apr. 29 2010), at available a: ('The hidden hurnan_trafficking_28jun_201I: U.S. AGENCY FOR hen DEV.. costs of corruption are almost always much higher than companies FOREIGN AID IN THE NATIONAL INTEREST 40 (2002).azwilabie at imagine. Corruption inevitably begets ever more corruption: bribe -takers http:Hpdf.usaagovipdf doesIPDABW900.pdf ("No problem does keep returning to the trough and bribe-given open themselves up to more to alienate citizens from their political leaden and institutions. blackmail:): Daniel Kaufmann and Shang-Jin Wei.Don 'Grnrse Along" and to undermine political stability and economic development. than Sped Up the Wheels ofCommene?2 (Nat'l Bureau ofEcon. Research. endemic corruption among the government. political party leaders. Working Paper No.7093. 1999). antilahle http://www.nbercirg/ judges. and bureaucrats. The more endemic the corruption is. the more papers/w7093.pdf ('Contrary to the 'efficient grease' theory. a: find 104 EFTA01080401 that firms that pay more bribes are also likely to spend more. not less. advantage, whether directly or through intermediaries. to a ford"n management time with bureaucrats negotiating regulations. and face public official. (or that official or for a third party. in order that the higher. not lower. cost ofcapital:). official act or refrain from acting in relation to the performance of ' For example. in a number of recent enforcement actions. the same official duties. in order to obtain or retain business or other improper employees who were directing or controlling the bribe payments were advantage in the conduct of international business: The Convention also enriching themselves at the expense of theS. COG See, e.g., and its commentaries also call on all parties (a) to ensure that aiding and Complaint. SEC v. Peterson. No. 12-ev-2033 2012), ECF abetting and authorization of an act of bribery are criminal offenses. (b) No. Lentils/drat http://www.see.gov/litigationnomplaints/2012/ to assert territorial jurisdiction 'broadly so that an extensive physical comp-pr2012-78. 0 1 Criminal Information. United States v. Peterson. connection to the bribery act is not required: and (e) to assert nationality 12-cr-224 2012). ECF No.7 )hereinafter UnitedStates v. jurisdiction consistent with the general principles and conditions ofeach Peterson]. availa eat ttp://www.justia.govicriminallfraudgepa/casa/ party's legal system.Id. at art. 1.2. ants. 25.26. petersong/petersongsinformation.pdf: Plea Agreement. United States v. See International Anti-Bribery and Fair Competition Act of 1998. Pub. Stanley. No.OS-a-597 l. Tea 2008). ECF No. 9 [hereinafter Lbited L 105-366. 112 Sat. 3302 (1998): so-also S. REP. No. 105-277. at 2-3 States ii. Stanley). availa eat http:llwww.justia.govlcriminall(rand/ (describingamendments to the FCPA to conform it to the requirements fcpa/caseshunleya/09-03-011sunlerplea-agree. ad f; Plea Agreement. of and to implement the OECD Conventionl. United States v. Sapsizian, Na 06-a-20797 Na. 2007). ECF No. 42 'There is no private right of action under the FCPA. Ste e.g.. Lamb v. [hereinafter UnitedStates rs. Sysitiaal. ands eat http://www.justice Phillip Morris. Inc, 915 F2d 1024, 1028-29(6th Cir. 1990): McLean v. govhriminaVfraud/fepakases/saprizianc/06-06-07sapsaiarSza.pdf. Intl Harvester Co.. 817 F.2d 1214. 1219 (5th Cir. 1987). 'See, e.g., Complaint. SEC v. Tyco Intl Ltd.. 06-ev-2942 2006). "U.S. DEPT. OFJUSTICE. US. ATTORNEYS MANUAL 9-47.110 ECF No. I (hercinafier SEC.,. 7yto Inal.anzilable at http://wwwsec. (2008) [hereinafter USAMI, antilaltle http://www.justiregov/usao/ gov/litigation/complaints/2006/comp196 I I 7.pdf; Complaint, SEC eousa/foia_reading_room/usam/. v. Willbros Group. Inc., No. 08-cv-I494 Ter. 2008), ECF No. 1 a.Itio to http://export.gov/worldwide_us/index.asp for more (hercinafier SECr. Maros). available at up://www-negovaitigation/ information. complaints/2008/comp20571.pdf. "Additional information about publicly available market research '"See Plea Agreement, United Staten. Bridgestone Corp., No. 11-er- and due diligence assistance is available online. SeeInl Trade Admin.. 651 Al Tea. 2011), ECF No. 21.am/fable-a http://www.justicegov/ Market Research andDue Diligence. available at http://export.gov/ erimin /fraud/fcpalcases/bridgestone/10-05-11bridgestonc-pka.pdf. salcsandmarketing/cg_main_018204.asp. The International Company "See S. REP. No. 95-114. at 6: H.R. REP. 95-640. at 4;radio A. Carl Profile reports include a listing of the potential partner's key officers Kotehian, The Repot: Lockheed's 70-Day AI inion to Tokjo. SATURDAY and senior management: banking relationships and other financial REv.,Jul.9, 1977, at 7. information about the company: and market information. including "US. SEC. AND EXCHANGE COMM., REPORT OF THE SECURITIES sales and profit figures and potential liabilities. They are not. however. AND EXCHANGE COMMISSION ON QUESTIONABLE AND ILLEGAL intended to substitute (or a company's own due diligence, and the CORPORATE PAYMENTS AND PRACTICES 2-3 (1974 Commercial Service does not offer ICP in countries where Dun & "SeeH.R. REP. No. 95-640. at 4-5; S. REP. No.95-114, at 3.4. Bradstreet or other private sector vendors are already performing this "H.R. REP. No. 95640. at 4-5: S. REP. No. 95-114, at 4. The Senate service. See Inl Trade Admin.. International Compaq Profit.amitotic at Report observed. for instance. that linlastagements which resort to http://exporagov/salesandmarketing/eg_main_018198.asp. corporate bribery and the falsification of records to enhance their 'The Commercial Services' domestic and foreign offices can also be business reveal a lack of confidence about themselves: while citing the found at http://export.gov/usoffices/index.asp and http://export.gov/ Secretaryof the Treasury's testimony that —hiking bribes—apart from worldwide_us/indexasp. beingmorally repugnant and illegal in most countries—is simply not 'This foam can be located at http://ter-aq>ort.gov/Fteport_a_Bankr/ necessary for the successful conduct ofbusiness here or overseas.— Id. index.asp. "See S. REP. No. 100-85. at 46 (1987) (recounting FCPA.s historical See IN1TRADE ADMIN.:DOING BUSINESS IN GUIDES. available at background and explaining that 'a strong antibribcry statute could help http://export.gov/about/eg_main_0161306.asp. US. corporations resist corrupt demands....) )hereinafter S. REP. No. 'The BusINESS ETHICS MANUAL is available at 100-85). http://wwwita.doe.gov/goodgovernance/businas_ethies/manualasp. "S. REP. No.95-114. at 7. 'Information about the Advocacy Center can be found at http://aport "Omnibus Trade and Competitiveness Act of 1988. Pub. L No. 100- gov/advocacy. 418, 4 5003.102 Star. 1107.1415-25 (1988): see aim H.R. REP. No. 'Reports on US. compliance with these treaties can be found at http:// 100-576. at 916.24 (1988) (discussing FCPA amendments including wsvw.triticcgov/aiminal/fraud/fcpa/intlagree/. changes to standard of liability for acts of third parties) 1hereinafia H.R. "See Statement on Signing the International Anti-Bribery and Fair REP. No. 100-5761 Competition Act of 1998.34 WEEKLY COMP. PRES. Doc. 2290. 2291 "Sec Omnibus Trade and Competitiveness Act of 1988.5 5003(d). The (Nov. 10. /998) ('U.S. companies have had to compete on an uneven amended statute included the followingdirective: playing field ....The OECD Contention... is designed to change all It is the sense ofthe Congress that the President that. Under the Convention. our major competitors will be obligated to should pursue the negotiation of an international criminalize the bribery of ford"n public officials in international business agreement. among the members ofthe Organization transactions:). of Economic Cooperation and Development. to 'Colombia is also a member of the WorkingGroup and is expected to govern persons from those countries concerning accede to the Anti-Bribery Convention. acts prohibited with respect to issuers and domestic "OECD. Country Monitoring ofthe OECD Anti-Bribery Convention. concerns by the amendments made by this section. awl/Akar hup://www.ocaLorg/document/12/0.3746. Such international agreement should include a en_2649_34859_35692940_1_1_1_1.00.html. process by which problems and conflicts associated "OECD, Phase 3 Country Monitoring ofde OECD Anti-Bribery with such acts could be resolved. COmiten, available at http://www.medsorg/document/31/0,3746, Id; Ter afro S. REP. NO. 105-277, at 2 (1998)(dTEEE161144°1" by en_2649_34859_44684959_1_1_1_1.00.html. Executive Branch to encourage U.S. trading partners to enact legislation "OECD, County Report:on theImplanentation ofthe OECD Anti- similar to FCPA following 1988 amendments) (hereinafter S. REP. No. Bribery Convention. available ai hap://www.occd.otedocument/2410.3 105-277). 746,en_2649_34859_1933144_1_1_1_1.00.htmL "Convention on Combating BriberyofFad"? Public Officials in "The OECD Phase 1.2. and 3 reports on the United States. as well as International Business Transactions an. 1.1. Dec. 18. 1997.37 M. 1 the US. responses to questionnaires. are available at http://www.justice. (hereinafter Anti-Bribery Convention). The Anti-Bribery Convention govirriminal/fraud/fcpa/intlagrec. requires manlier countries to make it a criminal offense 'for any person "See OECD Working Group on Bribery. (hilted States: Phase 3, Report intentionally to offer. promise or give any undue pecuniary or ocher on the Application oft& Convention on Combating Bribery ofForeign 105 EFTA01080402 Public Offitials inInternationalBusiness Transactions and the 2009 RevisalRawmnenelation on Combating Bribery inInternational Business Trunsactions. Oct. 2010. at 61-62 (recommending that the United States 'Hons.:slid= and summarise publicly available information on the application of the FCPA in rekvant sources"). entikftlear http://www. Endnotes occdnig/dataoccd/10/49/46213841.pdf. "United Nations Convention ling Corruption. Oct. M. 2003. S. TREATY Doc. No. 109-6.2349 41. available at http://www. unodc.org/documents/treatics/ /Publications/Convention/08- 50026_E.pdf(hereinafter UNCAC). "For more information about the UNCAC review mechanism. see alleekanismfor the Renew ofimplentematton oft!), UnitedNations complaints/2008/comp20829.pdf. Certain DOJ enforcement actions Contrition Abilltli Corruption. United Nations Office on Drugs have likewise involved foreign issuers. Set e.g.. Criminal Information. and Crime...au/aided, hap://vevew.unode.oredocumentatreatics/ United States v. Magyar Telekom, Plc.. No. I I -a-597 (E. Va. Dec. 29. UNCAC/Publications/Revkwhlechanism-BasicDocuments/ 2011). ECF No. Landed& at http://www.justiccgov/criminal/fraud/ Mechanism_(or_the Review_of Impkmcntion_-_Basic_ ta fcpa/cases/magyamtekkom/201I-12-29-information-magyarwelckons Documents_EptIC _- pdf: Non-Pros. Agreement. In re Deutsche Tckkom AG (Dec. 29. 2011), 'For information about the status of UNCAC. sec United Nations available at http://www.justice.gov/criminal/fraud/fcpahases/deutsche- Office on Drugs and Crime. UNCACSignature and Ratification Stilt. as telckom/201I -12-29-dcustchatekkom-npa.pdf: Criminal Information. ofI2Jus5. 2012. araiLible at http://www.ustodcing/unock/en/treatics/ United States v. Alcatel-Lucent. S.A.. No. 10wr-20907 S Fla. Dee CAC/signat ories.htmL 27. 2010), ECF No. 1 Ihercinafier :AnalStates a Aleatel-Lueent,S.da ' Organitation ofAmerican • State Inter-American Convention Against available at http://savw.justicc.gov/criminal/(raud/kpa/ases/alatel- Corruption. Mar. 29. 1996. 35 724. available at http://www.oaL etaVI2-27-10alcatelwt-alinfo.pdf; Criminal Information, United ons/juridico/english/treatie/b-5 tml. For additional information States v. Daintier AG, No. 10-cr-63 M. Mar. 22, 2010), ECF No. about the status ofthe IACAC. sec Organization of American State. I Ihereinafier UnitedStates a Daimler AC:bendable at http.thavw. Signatorie and Ratifications 'meltable at http://www.oatorg/juridico/ justice.govictiminal/fraud/(epalcascs/daimler/03-22-10daimIcrag-info. english/Sigs/b-58.html. pdf: Criminal Information, United States v. Siemens Akticitgesellschafi. "Council of Europe. Criminal Law Convention on Corruption.Jan. 27. No. 08-cr-367 Dee. 12, 2008), ECF No. I (hereinafter United 1999.381 505.am:it/Me at http://conventionscoe.int/Treaty/en/ Stales a Siemens!,mailable at lutp://www.justice.gew/criminal/ Treaties/ tm 173.lum. (raud/(epahases/siernats/12-12-08siemensakt-info.pdf. "For additional information about GRECO. sec Council of Europe. 'See http://www.sec.gov/divisions/corpfin/internatl/companiessfaml. Croup ofStates Against Corruption...suitable at http://vnvw.coc.int/e/ "See, eg_ Complaint.SEC v. Turner, a al., No. 10-a-1309 dghl/monitoring/greco/dcfault_ENwsp. Thc United States has not yet Aug. 4. 2010), ECF No.1 Ihercinaficr. SEC v. Turner) (charging a ratified the GRECO convention. Lelensesc/Canadian agent ofa UK company listed on US. exchange "Thc text ofthe FCPA statute is set fonh in the appendix. See also Jur • with violating the FCPA for bribes ofIraqi of anaitatste at http:// Instructions at 21-27, United States v. Fsquenni. No. 09-a-21010 www.secgov/litigation/complaints/2010 •i2I615.pdf; Indictment, Fla. Aug. 5, 2011). ECF No.520 (hereinafter UnitedStates a Esquenazi United States v. Naaman. No. 08wr-246 CM. Aug.7, 2008). ECF (FCPA jury instructions ; Jury Instructions at 14-25. United Stater v. No.3 Ihereinafier United States v. Neiman) (same), available at hap:// Kay, No. 01-e-914 Tex. Oct.6, 2004). ECF No. 142 (same). www.justice.govictimina//fraud/hpahmscshuamano/08-07-08naarnan- 513 F.3d432446.52 th Cir. 2007).meidead, 513 F.3,1461 (5 indict.pdf: Complaint. SEC v. Elkin. aid.. No. IO-cv-661 Cir. 2008) 1hereinafie United Stela v. K ury Instructions at 76-87. Apr. 28, 2010). ECF No. 1(hacinafier SEC.n Elkin) (charging an United States v. Jefferson. No. 07-a-209 Va.July 30, 2009). ECF employee of US. publicly traded company with violating FCPA for No.684 1hercinaficr &kited Stain v.Jetferson Sane): Jury Instructions bribery ofofficials in Knyetan). araiLtbie at http://wwwsec.gov/ at 8-10, United States v. Green. No. 08-a-59 M. Cal. Sept. II. litigation/complaints/2010/comp21Up'.• df; Criminal Information. 2009), ECF No. 288 1hereinalie United Stain v. Green) (same :Jury United States v. Elkin.No. 10-cr-I5 (M. W. Aug. 3. 2010). ECF No. Instructions at 23-29. United States v. Bourke, No. 05-cr-518 8 Ihereinafier UnitedStates a Elkin) (same). aswilable at http://www. July 2009) (hereinafter United States a Bourke) (same, not docketed justicc.govictiminal/fraud/(epa/cascs/elkin/08-03-10dkin-information. Jury Instructions at 2-8, United State v. Mead, No. 98-cr-240 pdf: indictment. United States v. Tesler. oaf.. No. 09-cr-98 Tex. Oct. 1998) Ihereinafier OnkelStates a Mead) (same). Feb. 17. 2009). ECF No. I Ihercinafier UnitedStates v. Tesler a rging "The provisions of the FCPA applying to issuers an pan ofthe Securities a British agent of U.S. publicly traded company with violating the Exchange Act of 1934 Ihereinafier Exchange Act). Thc anti-bribery FCPA for bribery of Nigerian officials). available at http://www.justice. provisions can be found at Section 30A of the Exchange Act. I5 US.C. gov/criminal/fraud/kpa/cascs/teskr/tedcmindict.pdf: Superseding f 78dd-1. Indictment. UnitedStales a Serpi:MILa al..supnr note 8. ECF 32 "15 US.C. 4 78/. (charging a French employee of French company traded on a U.S. '15 US.C.f 78o(d). exchange with violating the FCPA). 'SEC enforcement actions have involved a number of foreign "15 US.C.5 78dd-2. issuers. See. e.„..Complaint. SEC v. Magyar Telckom Pk.. a al.. No. a IS US.C. 711dd-2(h)(1). II -a-9646 (M. Dec. 29, 2011). ECF No. 1 (German and "15 US.C.5 78dd-2(a). See, e.g. Superseding.Lndictment. United States Hungarian companies)..intikirk at http://mvev.sec.gov/litigation/ v. Nexus Technologic...ed. No. 08-cr-522 (. Pa. Oct. 28, 2009). complaints/201I /comp22213-coLdf; Complaint, SEC v. Alcatel- ECF No. 106 Ihereinafier :AnalStates a Nexus Teeknelegial (private Lucent. S.A.. No. lOwv-24620 M. Fla. Dec. 27. 2010), ECF No. U.S. company and corporate executivescharged with violating FCPA for 1 [hereinafter SECtsdikatel-Luena] (French company).anzitableat bribes paid in Vietnam). available au http://www.justice.govictiminal/ http://www.sec.govAitigation/complaints/2010/com (=I I 21795.pdf: fraud/fepa/ease/nguyenn/09.04-08nguyen-indktpdf; Indictment. Complaint, SEC r. ABB. Ltd.. No. 10-te-1648 Sept. 29. 2010). United States v. Esquasazi. supra note 44. (private US. company and ECF No. 1 1hereinafie SECit ABB) (Swiss company . available at corporate executives charged with FCPA violations for bribes paid in http://msaysec.gov/litigation/complaints/2010/comL— , r2010.175. Haiti). antilable at http://www.justice.gov/criminal/fraud/hpa/ases/ pdf; Complaint, SEC v. Daimler AG, No. 10-cv473 M. Apt 1, esqucnaz6/12-08-09esqueuzi-indict.pdfi 2010), ECF No. 1 [hereinafter SEC v. Daimler AG) (German company), "1$ U.S.C.5 78dd-3(a). As discussed above. foreign companies that available at http://sec.gov/litigarion/complaints/2010/comp- have securities registered in the United States or that arc required to file pr2010-5LgiSomplaint. SEC v. Siemens Aktiengesellschaft. No. 08- periodic reports with the SEC. including certain foreign companies with cv-2167 M. Dec. 12, 2008). ECF No. I (hereinafter SEC v. Siemens American Depository Receipts. are covered by the FCPA's anti-bribery AC] (Germany company), antilable at http://www.secgov/litigation/ provisions governing-issuers" under 15 U.S.C. 78dd-I. 106 EFTA01080403 "See International Anti-Bribery and Fair Competition Act of 1998. Pub. official for the purpose of obtaining more favorable L 105.366, 112 Stat. 3302 (1998); 15 U.S.C. 78dd-3(a); see also US. tax treatment. The term should not. however. be DEPT. OF JUSTICE. CRIMINAL RESOURCE MANUAL 49.1018 (Nov. construed so broadly as to include lobbying or other 2000) (the Department -interprets [Section 78dd-3(1)) as conferring normal representations to government officials. jurisdiction whenever a foreign company or national mina an act to be H.R. REP. No. 100-576. at 1951-52 (internal citations omitted done within the territoryof the United States by any person acting as "Sec e.g.. Complaint, SEC v. Panalpina. Inc. No. 10.cv-4334 Tex. that company's or national's agent."). This interpretation is consistent Nov.4. 2010). ECF Na 1 [hereinafter SECit Panalpina, Inc).aawilable with U.S. treaty obligations. See S. REP. No. 105-2177 (1998) (expressing at http://wwwsee.govilitigationlcomplaints/2010/comp21727.pdf; Congress' intention that the 1998 amendments to the FCPA -conform Criminal Information, United Staten,. Panalpina. Inc, No. 10.cr- it to the requirements of and to implement the OECD Convention,: 7,624 Tex. Nov. 4. 2010), ECF No. [hereinafter United Slates rt. Anti-Bribery Convention at an. 4.1.supnr note 19 ("Each Party shall P prim, available al http://www.justice.govicriminal/fraud/ take such measures as may be necessary tonablish its jurisdiction over fepa/cases/panalpina-inciI I.04-10panalpina-info.pdf: Criminal the bribery of a foreign public official when the offence is committed in Information, United Sates v. Panalpina World Transport (Holding) whole or in part in its territory."). Ltd..No. 10-er-7691 Tex. Nov. 4. 2010). ECF No. 1. available "15 U.S.C. 78dd.3(1); see, tg.. Criminal Information. United Sates v. at http://www.justicegovieriminal/fraudiferthases/panalpina- a. Alcatel-Lucent France. S.A.. a No. 10-cr.20906 (F. Fla. Dec. 27. woddIl 1-04-10panalpina.world-info.pdf: see eise Press Release. US. 2010). ECF Na 1 (hereinafter UnitedStares v. Awe France) Sec. and Exchange Comm.. SEC Chairs Seven Oil Services and (subsidiary of French publicly traded company convicted of conspiracy Freight Forwarding Companies for Widespread Bribery ofCustoms to violate FCPA).aordatde at http://www.goticegovicriminal/fraud/ Officials (Nov. 4. 2010) ("The SEC alleges that the companies bribed fcpakasn/alcatel.lucent.sa.cia//12-27-10alcatel.ct-al-info.pdf: Criminal customs officials in more than 10 countries in exchange for such perks Information. United States v. DaimlaChrysla Automotive Russia as avoiding applicable customs duties on imported goods. expediting SAO. No. 10-co64 Mar. 22, 2010). ECF No. 1 (subsidiary of the importation of goods and equipment. extendingdrilling contracts. German publicly tra.ompany convicted ofviolating FCPA).andabte and lowering tax assessments:). available es hnp://www•see-gov/ at http:I/www.justice.govIeriminaVfraudIfepakasmIdaimler/03-22- news/pras/2010/2010-214.htm; Press Release. US. Dept. ofJustice. 10daimkrtussia-info.pdf; Criminal Information. United States v. Siemens Oil Services Companies and a Freight Forwarding Company Agree S.A. (Argentina). Na 08.a.368 Dec. 12. 2008). ECF No. 1 to Resolve Foreign Bribery Investigations and to Pay More Than $156 (subsidiary of German publicly trSiilompany convicted ofviolating Million in Criminal ['tinkles (Nov. 4. 2010) (logistics provider and its FCPA).aswiIable http://www.justice.govicriminal/fraud/fcpa/cases/ subsidiary engaged in scheme to pay thousands ofbribes totaling at least siemens/12.12-08siemensargen-info.pdf. $27 million to numerous foreign officials on behalfof customers in oil "See 15 US.C.54 Thdd-2(h)(5) (defining-interstate commerce), 78dd. and gas industry "to circumvent local rules and regulations relating to 3(1)(5) (same): see ate 15 U.S.C. 478c(a)(17). the import ofgoods and materials into numerous foreign jurisdictions"). "15 U.S.C. 44 78dd.2(h)(5),78dd.3(1)(5). anti/able http://www•.justice.gov/opa/pr/2010/November/10- "See 15 U.S.C.5 78dd-3. crm-1251.htmL 'Criminal Information. United States v.JGC Corp., No. 11.cr-260 "United States v. Kay. 359 F.3d 738.755-56 (5th Cir. 2004). Tex. Apr. 6. 2011). ECF Na 1 [hereinafter UnitedSlates &UGC "Id. at 749. Indeed. the Kay court found that Congress explicit carp.). awilabfeal http://www.justicegovicrimina//fraud/fcpa/cases/ exclusion of facilitation payments from the scope of the FCPA was jgeeorp/04.6-11jge-eorp-info.pdf; Criminal Information. Unitcd States evidence that 'Congress intended for the FCPA to prohibit allother v. Snamprogetti Netherlands B.V., Na 10.a-460 (I. Tex.JuL 7, 2010), illicit payments that are intended to influence non-trivial official foreign ECF No. [hereinafterL5 UnitedStales it Smampragetti . available at action in an effort to aid in obtaining or retainingbunts= for some http://www.justice.govicriminaVfraud/fcpa/cases/snamprogetti/07.07- penon." at 749-50 (emphasis added). lOsnamprogetti.info.pdf. "II. at 750. "See 15 US.C.54 78dd-1(g) (Irrespective of whether such issuer or such "hi. at 749-55. officer. director. employee. agent. or stockholder makes use of the mails "Id at 756 ("It still must be shown that the bribery was intended to or any mans or instrumentality ofinterstate commerce in furtherance produce an effect—here. through ax savings—that would 'assist in ofsuch offer. gifi. payment. promise. or authorization"). 78dd-2(i) obtaining or retaining business:1. (I) (Irrespective ofwhether such United State, person makes use of 'The FCPA does nor explicitly define -corruptly: but in drafting the the mails or any means or instrumentality of interstate commerce in statute Congress adopted the meaningascribed to the same tam in the furtherance ofsuch offer. gifi, payment. promise. or authorization"). domestic bribery statute. 18 U.S.C. 4 201(b). See H.R. REP. No. 95-640. 'S. REP. No. 105.277 at 2 (' he OECD Convention calls on panics at 7. to assert nationality jurisdiction whcn consistent with national legal "The House Report states in full: and constitutional principles. Accordingly. the Act amends the FCPA The word *corruptly" is used in order to make to provide for jurisdiction over the acts of U.S. businesses and nationals clear that the offer. payment. promise. or gifi. must in furtherance of unlawful payments that take place wholly outside be intended to induce the recipient to misuse the United States. This exercise ofjurisdiction over US. businesses and his official position: for example. wrongfully to nationals for unlawful conduct abroad is consistent with US. legal direct business to the papa or his client. to obtain and constitutional principles and is essential to protect US. interests preferential legislation or regulations. or to induce a abroad."). foreign official to fail to perform an official function. "Id. at 2-3. The word *corruptly" connotes an evil motive or "15 U.S.C. 44 78dd-1(a), 78dd.2(a), 78dd.3(a). purpose such as that required under 18 US.C. "See H.R. REP. No. 95.831. at 12 (referringto 'business purpose" test). 201(b) which prohibits domestic bribery. As in "See, e.g. Complaint. SEC at Siemens AG. supra note 48: Criminal 18 U.S.C. 201(6). the word 'corruptly" indicates Information. UnitedStates rt Siemens AG. supra note 48. an intent or desire wrongfully to influence the 'In amending the FCPA in 1988. Congress made clear that the business recipient. It does not require that the act [be) fully purpose clement. and specifically the 'retaining business" prong. was consummated or succeed in producing the desired meant to be interpreted broadly: Outcome. The Conferees wish to make clear that the reference Id. The Senate Report provides a nearly identical explanation of the to corrupt payments for 'retaining business" in meaning of the tam: present law is nor limited to the renewal of contracts The word "corruptly" is used in order to make or other business. but also includes a prohibition clear that the offer. payment. promise. or gifi. must against corrupt payments related to the execution be intended to induce the recipient to misuse or performance ofcontracts or the earning out of his official position in order to wrongfully direct existing!manna. such as a payment to a foreign business to the payer or his client. or to obtain 107 EFTA01080404 preferential legislation or a (astable regulation. The word 'corruptly' connotes an evil motive or purpose. an intent to wrongfully influence the APPENDIX recipient. S.RXr. No. 95.114, at 10. Endnotes "See 15 U.S.C. 44 78dd-1(a), 78dd-2(a), 78dd-3(a). See, e.g.. Complaint. SEC v. Monsanto Co., No. 05-ev-14 Jan. 6. 2005) (among other things. the company paid a $50.1Mic to influence an Indonesian official to repeal an unfavorable law, which was not repealed despite the Inibe).asieffaUear http://www-see.gov/ litigation/complaints/comp19023.pd r6 mCriminal Information. United States v. Monsanto Ca. No. 05-er-8 Jan. 6. 20O5)..wailabie at giving. offering. or promising"anyvhing of value: Numerous domestic http:livrecw.juiticc.govIctiminallfra=al . cases'monsanto-col01-06- bribery caws under Section 201 have involved "small dollar bribes. 04moruanto-irdo.pdi See, e.g.. United States v. Franco. 632 F.3d 880.882-84 (5th Cir. 2011) "Jury instructions in FCPA eases have defined 'corruptly" consistent (affirmingbriberyconvictions ofinmate for payingcorrectional officer with the definition found in the legislative history. See, e.g..Jury $325 to obtain cal phone. food, and marijuana. and noting that 18 Instructions at 22-23. United Stain a &quenchnone note 44; Jury U.S.C. 4 201 dots not contain minimum monetary threshold); United Instructions at 10. UnitedStria v. Green. supra note 44:Jury Instructions States v. Williams. 216 F.3d 1099.1103 Cir. 2000) (affirming at 35. United States oilman. supra note 44: Jury Instructions at 25. bribery conviction for $70 bribe to 'chic inspector): United States v. UnitedAda a Bout supra note 44: Jury Instructions at 17. United Train, 871 F.2d 368.396 Ord Cir. 1989) (alflrmingbriberyconviction Stain a Ky. supra note 44: Jury Instructions at 5. UnitedStain a Mead. for SI00 bribe paid to official of Occupational Health and Safety supra note 44. Administration): United States v. Hsieh Hui Mei Chen, 754 F.2d 817. "See Complaint, SEC v. Innospee, Inc., No. 10-ev-448 Max. 822 (9th Cir. 1985) (affirming bribery convictions including $I00 bribe 18. 2010). ECF Na I thereinafter SECv. Innosped.eat http:// to immigration official): United Statesv. Biskton. 463 F.2d 887.889 wwwice.goillirigation/complaints/2010/comp21454.pdf; Criminal Information at 8, United States v. Innospec Inc.. No. 10-cr-61 Mar. 17, 2010). ECF No. I thacinaher UnitedStain a Innosplier P oi' Cir. 1972) (affirming bribery conviction for $100 bribe to division District of Columbia Sewer Operations Division). "Complaint. SEC a Daimler/1G. supra note 48: Criminal Information. azwilable at http://www.junice.govhriminal/fraudffepabcases/innospec- United Stain v. Daimler dal:one note 48. ine/03-17-10innospec-info.pdf. "Com 1 aint. SEC v. Halliburton Company and KBR. Inc., No.09.ev- 'See Complaint, SECr lnyttopec supne note 79: Criminal Information. 399 Tat. Feb. 11, 2009). ECF No 1 [hereinafter SEC a Nalliburten UnitedStates a Innospet. supra note 79. and ',mailable at http://www.secgovaitigation/complaints/2009/ "See 15 U.S.C. 44 78dd-1(c)(2)(A).78dd-2(g)(2)(A). and 78dd-3(3)(2) eomp20897.pdf; Criminal Information, United St:rust Kellogg (A). Brown & Root LLC.No. 09.cr-71. ECF No.1 (.1. Tex. Feb. 6. 2009) 'Compare 15 U.S.C. 78(ffc)(1)(A) (corporate etimina/ liability under [hereinafter UnitedStara it KBR]. available at http://vevew.justice.gov/ issuer provision) with$ 78(f(c)(2)(A) (individual criminal liability under criminaVfraud/(cpakases/kcIloggb/02-06-09kIsr-info.pdf. issuer provision); compare. 15 U.S.C. 478dd-2(8)(1)(A) (corporate "Complaint. SEC a Halliburton andKBR.supra note 90; Criminal criminal liability under domestic concern provision) with 78dd-2(g) Information, UnitedStain a KBR. supra note 90. (2)(A) (individual criminal liability under issuer provision); compare "See, og.. Complaint.SEC v. RAE Sys. Inc., No. 10-ev-2093 15 U.S.C. 478t1d-3(e)(1)(A) (corporate criminal liability for territorial Dec. 10. 2010). ECF No. 1 thereinafier SEC a RdESys, Inc tar provision) wish 78,1d-3(e)(2)(A) (individual criminal liability for coat. among other extravagant gifts), antilable at http://www.secgov/ territorial provision). However, companies still must an corruptly. litigation/complaints/2010/comp21770.pdf; Non-Pros. Agreement, See Section 30A(a), 15 U.S.C.4 78dd-1(a): 15 US.C. 44 78,1d-2(1). In rc RAE. Sys. Inc. (Dec 10. 2010) thereinafter In re LIES?.Intl 78dd-3(a). (same). evadable at kup://www.justice.govictiminal/fraudffcpa/cases/ "'United States v. Kay, 513 F.3d 432.448 (5th Cir. 2007)zseed/so rat-systems/12-10-10rac-systems.pdf; Complaint, SEC ri. Daimler AG. Jury Instructions at 38, United States a Esquenati. supra note 44; Jury sups note 48 (armored Mercedes Benz worth 6300.000): Criminal Instructions at 10. UnitedStates v. Green. supra note 44:Jury Instructions Information. UnitedStates v. llisoder elG, supra note * 48 same). at 35. United States v.Niemen. supra note 44: Jury Instructions at 25. "See Complaint.SEC v. ABB Ltd. No. 04-cv-1141 July UnitedStates a Bourke, supra note 44: Jury Instructions at S. UnitedStates 6. 2004), ECF No. 1, mailable at http://www.secgov itigation/ a Mead, supra note 44. complaintskomp18775.pdf; Criminal Information. United States v. "Bryan v. United States. 524 US. 184, 191-92 (1998) (construing ABB Vetco Gray Inc., et al., Na 04-er-279 Mil Tex.June 22. 2004). 'willfully" in the context of 18 U.S.0 924(a)(1)(A)) (quoting Rambla ECF Na I (hereinafter UnitedStates v. AB efts Gray). available United States. 510 U.S. 135. 137 (1994)); see deo Kay, 513 F.3d at 446- at http://www.juwice.gov/crimina//fraudffcpa/cases/abb/06-22- 51 (discussing Bryan and term 'willfully' under the FCPA). 04abbrinco-info.pdf. "Kay. 513 F.3d at 447-48: Stichting Ter Behartiging Van de Belangen "Complaint. SEC v. UTStarcom. Inc.. No. 09-t-6094 il. Cal. Dec. Van Oudaandeelhouders In Het ICapitaal Van Saybolt Ini1B.V. v. 31.2009). ECF No. 1 thercinafierSECe. UTStarcornbanti able at Schreiber. 327 F.3d 173, 181(2d Cir. 2003). http://www.secgovaitigation/complaints/2009/comp21357.pdf; Non- 'The phrase 'anything of value" is not defined in the FCPA. but the Pros. Agreement. In re UTStarcom Inc. (Dec. 31, 2009) [hereinafter be re identical phrase under the domestic bribery statute has been broadly UTSomenr].anzilable at http://www.justiccgcw/criminallfraud/(epo/ construed to include both tangible and intangible benefits. Sec e.g. eases/utstarcom-inc/12-31-05runtarcorn-agrecpdf. United States v. Moore. 525 F.3d 1033.1048 (11th Cir. 2008) (rejecting "Complaint. SEC a UTStarrom. supra note 94: Non-Pros. Agreement. defendant's objection to instruction defining sex as a "thing of value: In re UTStarrom. supra note 94. which 'unambiguously covers intangible considerations"): United " Complaint.SEC a UTStarrom. supra note 94: Non-Pros. Agreement. States v. Gorman. 807 F.2d 1299.1304-05 (6th Cir. 1986) (holding that lure UTStarrom. supra note 94. loans and promises of future employment arc 'things of value"): United "Complaint, SEC v. Lucent Technologies Inc., No. 07-ev-2301 (=. States v. Williams. 705 F.2d 603.622-23 (2d Cir. 1983) (approving jury Dec. 21.2007), ECF No.1 therein/6er SEC a Lucent], available at instruction that stock could be a 'thing ofvalue" if defendant believed it http://www.secgovaitigation/complaUits/2007/comp20414.pdf; Non- had value. even though the shares had no commercial value, and noting Pros. Agreement. In re Lucent Technologies (Nov. 14. 2007) [hereinafter that Ulu phrase 'anything of value' in bribery and related statutes has In reLucent]. amitotic at kup://www.justice.gov/eriminabffraud/fcpa/ consistently been given a broad meaning'). cases/lucent-tech/11-14-07lucent-agree.pdf. 'Section 30A(a). 15 US.C. 78dd-1(a); 15 U.S.C. 44 78dd-2(a), 78dd- "Complaint. SEC a Lucent. supra note 97; Non-Pros. Agreement. & re 3(a) (emphasis added). Lucent. supra note 97. Like the FCPA. the domestic bribery statute, 18 U.S.C. 201, prohibits "'The company consented to the entry of a final judgment permanently 108 EFTA01080405 enjoining it from future violations of the books and records and internal SEC v. York 1ml Corp_ No. 07-ev-1750 Oct. L 2007), ECF controls provisions and paid a civil penalty of 51.500.000. Complaint. No. I (hereinafter SEC v. link ltra Corp.. bleat hnp://www.see. SEC n. Latent. supra note 97. Additionally. the company entered into a gov/litigation/complaints/2007/comp20319.pdf: Criminal Information, non-prosecution agreement with DOJ and paid a 51.000.000 monetary United States v. Yotk Intl Corp.. No. 07-er-253 Oct. 1, 2007). penalty. Non-Pros. Agreement.InnLuang, supra note 97. ECF No. 1 (hereinafter United Stein v. 124Ind asp. amenable& "United States v. Lebo. 923 F.2d 1308. 1311 (8th Cir. 1991). http://www.justicegovictiminal/fraud/fejnicases/york/10-01-07york- 'Judgment. United States v. Liam. No. 89-a-76 (D. Minn- Jan. 31. info.pdf: Complaint. SEC v. Textron Inc, No. 07-cv-15056 Aug. 1,92).erailable et http://www.justicegov/eriminal/fraud/fepakases/ 23, 2007). ECF No. 1 [hereinafter SEC's. Textron], drifild eat http:// liebor/1992-01-31-licbor-judgment.pdf. www.sec.govAitigationrcomplaints/2007/comp20251.pdf: Non-Pros. 'Complaint. SEC v. Schaing-Plough Corp.. No. 04-cv-945 (=. Agreement. In re Textron Inc. (Aug. 23. 2007). available as hup://www. June 9. 2004). ECF No. 1.available at http://www.sec.gov/litigation/ justice.gov/eriminaVfraud/fepa/cases/textron-ine/08-21-07textron- complaints/compl 8740.pdf; Admin. Proceeding Order. In the Matter agrec.pdf. DOJ has issued opinion procedure releases concerning ofSchering-Plough Corp.. Exchange Act Release No.49838 (June 9. payments (that were. in essence, donations) togovernment agencies or 2004) (finding that company violated FCPA accounting provisions and departments. Set U.S. DEPT. OF JUSTICE. FCPA OP. RELEASE 09.01 imposing 5500.000 civil monetary penalty). srailabk & http:lI www-see. (Aug. 3. 2009) (involvingdonation of 100 media/ devices to foreign gov/litigation/admin/34-4983&htm. government)..weilable at http://www.justiee.govieriminallfraud/ "FCPA opinion procedure releases can be found at http://www. fepa/opinion/2009/0901.pdf: U.S. DEPT. cos Jus-ncs. FCPA OP. justicegov/criminal/fraud/kpa/. In the case of the company seeking to RELEASE 06.01 (Oct. 16. 2006) (involving contribution of 525.000 to contribute the 51.42 million grant to a local MFI. DOJ noted that it had regional customs department to pay incentive rewards to improve local undertaken each of these due diligence steps and controls in addition to enforcement of anti-counterfeiting laws). awittble hup://wwrcjustice. others. that would minimize the likelihood that anythingofvalue would gov/criminal/kaud/kparnpinion/2006/0601.pdf. be given to any officials tithe Eurasian country. US. DEPT. OF JUSTICE. "The United States has some state-owned entities. like the Tennessee FCPA OP. RELEASE 10-02 (July 16, 2010), end/able et http://www. Valley Authority. that are instrumentalities of thegovernment. McCarthy justicegov/criminff /fitud/kpa/opinion/2010/1002-pdf. v. Middle Tenn. Eke. Membership Corp.. 466 F.3d 399.411 n.18 1"US.Din. OF JUSTICE, FCPA OR RELEASE 95-0l (Jan. II, (6th Cir. 2006) (IT)here is no question that TVA is an agency and 1995).erailable http://www.justice.gov/criminal/fraud/fepa/ instrumentality ofthe United States.') (internal quotes omitted). opinion/1995/9501.pdf. "'Duringdu period surrounding the FCPAti adoption. state-owned entities held virtual monopolies and operated under stare-controlled "Id. price-setting in many national industries around the world. Seegenemlb me US. DEPT. OF JUSTICE. FCPA OR RELEASE 97-02 (NOY. S. WORLD BANK, BUREAUCRATS IN Bus INESS: THE ECONOMICS 1977).erailable et http://www.justiecgov/eriminaliftaud/fepai AND POLITICS OF GOVERNMENT OWNERSHIP. WORLD BANK opinion/1997/9702-pd(, US. DEPT. OF JUSTICE, FCPA OP. RELEASE POLICY RESEARCH Report at 78 (1995); SUNITA KIKERI AND 06-01 (Oct. 16. 2006)..ratrilabk at http://www.justice.gerchriminal/ AISHETU KOLO.STATE ENTERPRISES, THE WORLD BANK GROUP fitud/kpa/opinion/2006/0601.pdc (Feb. 2006).am/table at http://rnzworldbankorgidocuments/ 'US.Dirt. OF Jus-ricE, FCPA OR RELEASE 06-01(Oct. 16, 2006). publiepolicyjourrial/304Kiketi_Kolo.pdf. "Id. at I ('AIfter more than two decades ofprivatization. government " °/i. ownership and control remains widespread in many regions—and in 'Ste Section 30A(a)(1)-(3) ofthe Exchange Act, 15 US.C.f 78dd-1(a) many parts ofthe world still dominates certain sectors?). (1)-(3); IS US.0 54 78d4I-2(a)(1)-(3).78tki-3(1)(1)-(3). "'To date. consistent with the approach taken by DOJ and SEC. all 'Section 30A(f WA) of the Exchange Act, 15 U.S.C. 478dd-I(f)(1) district courts that have considered this issue have concluded that this is (A): 15 US.C.5478‘141-2(h)(2)(A).78d41-3(f)(2)(A). an issue of fact for a jury to decide. See Order. United States v. Carson, "'Under the FCPA, any person 'actingin an official capacity for 2011 WL 5101701. No. 09-er-77 I Cal. May 18. 20/1). ECF No. or on behalf o1 a foreign government. a department. agency. or 373 (hereinafter UnitedStates v. Carson): United States v. Aguilar. 783 instrumentality thereof. or a public international organization. is a F. Sapp. 2d 1108 Cal. 2011); Order, UnitedSteles n lisquerz,zzi. &.reign official. Section 30A(f)(1)(A). 15 US.C. 78dd-1(O(1)(A); 15 supra note 44. EC . 309; meals° Order. United States v. O'Shea, No. US.C. 4478,1d-2(h)(2)(A).78dd-2(1)(2)(A). See also US. DEPT. OF 09-a-629 Tex. Jan. 3. 2012). ECF No. 142: Order. United States JUSTICE, FCPA OP. RELEASE No. 10.03. at 2 (Sept. 1, 2010).araffs6k v. Nguyen. No. 08-cr-522 Pa. Dee. 30. 2009). ECF No. 144. These at http://www.justice.govIeriminaViraudIrcpilopinion12010/1003.pdf district court decisions are consistent with the acceptance by district (luting safeguards to ensure that consultant was not actingon behalf of courts around the country of over 35 guilty picas by individuals who foreign government). admitted to violatingthe FCPA by bribing officials ofstate-owned or "'Burnt Sections 30A(b) and f(3)(A) ofthe Exchange Act, 15 US.C.4 state-controlled entities. See Government's Opposition to Defendants 78dd-1(6)8c (0(3); 15 U.S.C. 45 78dd-2(b) & (h)(4), 78dd-3(6)8c (f) Amended Motion to Dismiss Counts One trough Ten of the (4) (facilitating payments exception). Indictment at IS. UnitedStara v. Canon. niona note 119. ECF No. 332; "'Even though payments to a foreign government may not violate the Exhibit 1. !AiredStates R CADVIAsupni note 119. ECF No. 335 (list of anti-bribery provisions of the FCPA. such payments may violate other examples ofenforcement actions based on foreign officials ofstate-owned US. laws, including wire fraud money laundering. and the FCPA's entities). accounting provisions. This was the cue in a series ofmatters brought by Ilury Instructions. UnitedStiles St Esquenni. supra note 44, ECF No. DOJ and SEC involving kickbacks to the Iraqi government through the 520: Order at 5 and Jury Instructions. UnitedStara v. Co0707f.supra note United Nations Oil-for-Food Programme. See, erg. Complaint. SE.Cn. 119, ECF No. 373 and ECF No. 549: AguiLrr. 783 F. Supp. 2d at 1115. hamper, mine note 79: Criminal Information. United State, it Innospet. ee 79; Complaint. SEC v. Novo Nordisk A/S. No. 09-cv-862 (MCA. ''' Criminal Information, United States v. C.E. Hillier Corp.. et at. No. 82-cr-788 Sept. 17, 1982).am/146ket http.//www. s May 11. 2009). ECF No. 1, atadeble http://www.see.gov/ litigation/complainet/2009/romp21033.pdf: Criminal Information, justice.govhrimina fraud/kpa/cuts/ceriniller/1982-09-17-ce-milkr- information.pdf. United States v. Novo Nonlisk A/S. No. 09-cr-126 (=. May 11, "See Ccen . aint, SEC v. Sam P. Wallace Cu. Inc, es al, No. 81-ev- 2009). ECF No. lairs/Idle at http://www.justicegov/eriminal/ 1915I Aug. 31.1982): Criminal Information, United States v. fraud/kpa/cases/nordiskn/05-11-09novo-info.pdf: Cott. Sam P. Wallace Co.. Inc., No. 83-a-34 (MI. Feb. 23. 1983). damnable SEC v. Ingersoll-Rand Company Ltd..No. 07-cv-1955 Oct. et http://vevew.jusciee.govicriminal/frau cpakases/sam-wallacc- 31. 2007). ECF No. I.ansdable at http://www.see.gmillitigation/ computy/1983-02-23-samrnallace-company-information.pdf: sn also complaints/2007/cornp20353.pdf: Criminal Information, United States Criminal Information. United States v. Goodyear Intl Corp.. No. 89- v. Ingersoll-Rand Italian SpA, No.07-err-294 (=. Oct. 31, 2007). a-156 (=. May 11. 1989) (Iraqi Trading Company identified as ECF No. Lendable as http://www.junioe.gew/criminal/fraud/fepa/ instrumentality of the Government of the Republic ofhair). available cases/ingerand-italiasta/10-31-07ingenollrand-info.pdf: Complaint. et http://vevew.justiecgovicriminal/fraudgepaleases/goodyear/1989- 109 EFTA01080406 05-11-goodyear-in(ormation.pdf r. "See Complaint, SECa ABB, supra note 48: Criminal Information at 3. United States v. ABB Inc., No. 10-cr-664 Tea. Sept. 29.2010)• ECF No. 1 hcreinafla United Stela v. ABB ,antilable at hnp:// www.jrutiee.gov/aiminaUfraud/(epa/eases/abb/09.20-10ahbine-info Endnotes pdf; Constitution Politica dc los Fandos Unidos Mcxicanos 0). as amended. art. 27. Diasio Oficial de la FcderatiOn (DO). 5 de Fe rerodc 1917 (Mex.): Lcy Dcl Savicio Publicode Enagia Ekctrica. as amended. an. 1-3, 10. Diatio Oficial dc la Fedcracien IDOL 22 de Diciembrc dc 1975 (Ilex.). "'See Indictment at 2. United Stain a Esquenazi.supra notc 44. ECF Na 3; Affidavit ofNIL Louis Gary Lissade at 1-9. id.. ECF No.417-2. U.S.C. $4 78dc1-2(2)(3).78dd-3(a)(3). "Criminal Information at 30-31. United Slam P. Ateatetlagent Franca 1"See Section 30A(f)(2)(A) of the Exchange Act, 15 U.S.C. $ 78dti-l(f) aqua note 56. ECF No. 10. (2)(A): IS US.C. $4 78dr:1-2(h)(3)(A),78M-3(f)(3)(A). trim 'SeeSection 30A(f)(2)(B) ofthe Exchange An, 15 U.S.C. § 78dd-1(1) It'See International Anti-Bribery and Fair Competition Act of 1998. (2)(B); 15 U.S.C. 78dd-2(h)(3)(B), 78dd-3(f)(3)(B). The *knowing' Pub. L. 105-366$ 2.112 Stat. 3302. 3303. 3305. 3308 (1998). standard was intended to cover loth prohibited anions that are taken "Section 30A(F)(I)(B) ofthe Exchange An. 15 U.S.C. §78dd-1(O(1) with 'actual knowlcdge ofintended results as well as other actions (B): 15 US.C.4478,1d-2(h)(2)(B), 78dd-3(f )(2)(8). that. while falling short of what the law terms 'positive knowledge: 119Thitd parties and intermediaries themselves are also liable for FCPA nevathekss evidence a conscious disregard or deliberate ignorance violations. Section 30A(a) of the Exchange Act. IS U.S.C. $ 78dd-1(a); ofknown circumstances that should reasonably alert one to the high 15 U.S.C. 44 78dd-2(a), and 78,1d-3(1). probability of violations of the Act? H.R. REP. No. 100.576. at 920; see 10Section 30A(a)(3) ofthe Exchange An, 15 U.S.C.$ 78dd-1(a)(3); 15 abet Omnibus Trade and Competitiveness Act of 1988. Pub. L. No. 100- US.C.$478dti-2(a)(3), 78dd-3(a)(3). 418, 5003. 102 Stat. 1107, 1423-24 (1988). 'Sea e.., Complaint, SEC v. Johnson & Johnson, Na 1l-ev-686 'H.R. REP. No. 100.576. at 920 (1988). Apr. 8, 2011) ( hereinafla SEC tsarina daJohnsen) (bribes "'Section 30A(e)(1) ofthe Exchange An. IS US.0 §78dd-1(c)(1): 15 pat t rough Greek and Romanian agents)). aswilable at http://www&c. U.S.C. f$ 78dd-2(e)(1), 78dd-3(e)(1). govaitigation/complaints/2011/comp21922 1: Criminal Information, 'H.R. REP. No. 100.576. at 922. The conferees also noted that 'His United Stotts v. DePuy, Inc.. No. Il-tr-99 Apr. 8. 2011), ECF interpreting what is lawful under thc written laws and regulations' the No. 1 [hereinafter UnitedStares a DePary)( ' a paid through Greek normal rules oflegal construction would apply.' Id. agents).avaitable at http://www.justiec.govicriminalifraudliepahases/ "'See United States v. ICeeeny. 582 F. Supp. ad 535.537-40 depuy-inc/04-08-I1dcpuy-info.pdf: Complaint—SEC a ABB, 'Rpm note 2008). Likewise. the court found that a provision under Axerilay.at 48 (bribes paid through Mexican agents); Criminal Information. United relieved bribe payon of criminal liability if they were cxtortcd did Stela a ABB.;Rpm note 123 (tame); Criminal Information. United not make the bribe payments ItgaL Axai extortion law precludes the States v. Intl Harvester Co.. No. 82-a-244 Tcx. Nov. 17, 1982) prosecution o( the payor of the bribes (or the illegal payments. but it dots (bribes paid through Mexican agent). antila eat hap://www.justice. not make the payments IegaL Id. at 540-41. gov/eriminal/fiaud/(tpahases/intcrnational-harvater/1982-11-17- "'Section 30A(t)(2)(A), (B) of the Exchange An. IS U.S.C. § 78dd-1(c) intanational-harvesterinformation.pdf. (2):15 US.C.4478dd-2(e)(2),78dd-3(e)(2). "See Criminal Information. Unitcd States v. hlarubeni Cotp.. No. 12- "'For example. the Eighth Circuit Court of Appeals found that at, Tex.Jan. 17.2012), ECF No. 1 (hereinafter UnitedStates a providing airline tickets to a govcrnmcnt official in order to corruptly Ma a . evadable at http://wwwiustice.gov/criminal/fraud/fepa/ influence that official may form the basis for a violation ofthc FCRA's cases/mambeni/2012-01-17-marubeniinformation.pdf: Criminal anti-bribcry provisions. See Litt. 923 F. 2d at 1311-12. Information. UnitedStem v. JGC Corp.. supra note 60, ECF No. I: " 'Seegenerally US. DEPT. OF JUSTICE. FCPA OP. RELEASE 11.01 Criminal Information, UnitedMama a SnamprogeM.mpm note 60. ECF (June 30, 2011) (travel. lodging, and meal °Tana of two foreign No. I: Complaint. SEC v. Bill. and Snamprogeni Netherlands officials for two-day trip to United Snits to ham about %arias ofU.S. B.V., No. 10-tr-2414 e. Tex. J y 7. 2010), ECF No. 1, armitable at adoption service provider).arailatite http://www.justicagov/eriminaV http://www.sec.goilliogation/complaints/2010/comp-pr2010-119..:.ac fraud/ftpa/opinion/2011/11-01.pdf; US. DEPT. OF JUSTICE. FCPA Criminal Information, United Staten.. Technip S.A.• No. 10-cr-439 M. Op. RELEASE 08-03 (July II. 2008) (stipends to rcimbursc minimal Mx. June 28, 2010). ECF Na 1(hereinafter UnitedStates a Teebrap). travel csperrics oflocal government-affiliated journalists attending press awl/Wear hap://www.juniee.govieriminallfraudgepaIctsesheehnip- conference in foreign country). available as lutp://www.justiec.gov/ sa/06-28-10-tcchni0 -9620information.pd(: Complaint. SEC v. Technip, triminaVfraud/fcpa/opinion/2008/0803.pdf: U.S. DEPT. OF JUSTICE. No. 10-cv-2289 Tex. June 28. 2010), ECF No. 1 1hereinaficr SEC a FCPA OP. RELEASE 07-02 (Sept. 11. 2007) (domestic travel. lodging. 7iehnipl.availa en http://www.sce.govIlitigationleomplaints12010/ and meal expenses ofsix foreign officials for six-week cducational comp-pr2010-I10.pdf: Indictment. UnitedStates a Miler.supra note program), antdable at http://wyntjusticegov/criminal/fraud/fcga/ 50; Complaint. SEC a Halliburton andKIM. supra note 90: Criminal opinion/2007/0702.pdf: U.S. DEPT. orJurric E. FCPA Op. RELEASE Information. UnitedStain a KBR, supra notc 90: Criminal Information, 07-01 (July 24. 2007) (domestic travel. lodging, and meal orpatscs UnitedStates a Manky.No.08-a-597 II Tex.Sept. 3, 2008). ECF Na ofsix foreign officials for four-day cducational and promotional tour I . antilalde al http://justiee.govierimina raud/fcpakasa/stanleya/08- ofUS. company's operations sites). available& http://www.justicc. 29-08stanktinfo.pdf. gov/crimina//fraud/fcpa/opinion/2007/0701.pdf; US.Din. OF '"See Criminal Information. Unitcd States v. AGA Medical Corp.. No. JUSTICE. FCPA Op. RELEASE 04-04 (Sept. 3. 2004) (travel. lodging. 08-er-172. ECF No. 1 (D. hlinn. June 3. 2008), antdable at http://www. and modest pa dicm expenses of five foreign officials to participatc justice.gov/triminaVfraud/fcpa/cascs/agsunedcorp/06-03-08aga-info. in nine-day study tour ofmutual insvrantc companies). available at pdf. http://www.justice.gov/crimina//fraud/fcpa/apinion/2004/0404. "Complaint. SEC v. Innospet. supra notc 79; Criminal Information, pd(: U.S. DEPT. or Jus-racE. FCPA OP. RELEASE 04-03 (June 14. UnitedStates a Insole:. supra note 79: Superseding Criminal 2004) (travel, lodging. mcal and insurance expenses (or twelve foreign Information. United &alba Naeman. supra note 50. ECF No. 15, officials and one translator on ten-day trip to three U.S. cities to mete saddle at http:Ilwww.junice.govI criminallfrand/cepa/eases/ with US. public sector officials). available at http://www.justicagov/ naamano/06.24-10naaman-supscrscd-info.pdf: Complaint—SECT. triminaVfraud/fcpilopinion/2004/0403.pdf: U.S. DEPT. OF JUSTICE. Turner. supra note 50. FCPA OP. RELEASE 04-01 ( Jan. 6.2004) (seminar =passim including "See souras cited supra note 68. receptions meals transportation and lodging cons. for onc-and-a-half 'neesources cited supm note 68. day comparative law seminar on labor and employmcnt law in foreign "Section 30A(a)(3) ofthc Exchange Act. 15 US.C.$ 78dd-1(a)(3); IS country). evadable as http:I/WWW.ilhike.gOVICrillli1121/fralld/cCp21 110 EFTA01080407 opinion/2004/0401.pdf; US. DEPT. OF JUSTICE, FCPA OP. RELEASE than as 'payments which merely move a particular matter toward an 96-01 (Nov. 25. 1996) (travel. lodging. and meal expenses ofregional eventual act or decision or which do not involve any discretionary anion: government representatives to attend training courses in United givingthe examples of"a gratuity paid to a customs official to speed the States). maiLtbk at http://www.justice.govieriminal/frauclifepar processing of a customs document" or 'payments made tosecure permits. opinion/1996/9601.pdf: US. DEPT. OF JUSTICE. FCPA OP. RELEASE licenses. or the expeditious performance of similar duties of an essentially 92-01 (Feb. 1992) (training expenses so that foreign officials could ministerial or clerical nature which must ofnecessity be performed in any dicetively perform duties related to execution and performance of joint- 44.61C H.R. REP. NO. 95-640. at 8. venture agreement. including seminar fee. airfare. lodging. meals. and "Section 30A(f)(3)(B) of the Exchange Act, IS US.C.5 78dd-1(1)(3) ground transportation). available at hap://www.justice.gotteriminaV (B): 15 US.C. 78,1d-2(h)(4)(B). 78dd-3(f )(4)(B). fraud/fcpaireview/1992/r9201.pdf. "In a 2004 decision. the Fifih Circuit emphasized this precise point. "US. DEPT. OF Jus-rxcE, FCPA OP. RELEASE 11-01 (June 30.2011): commenting on the limited nature of the facilitating payments exception: US. DEPT. OF JUSTICE, FCPA Or. RELEASE 07-02 (Sept. II. 2007): A brief review of the types ofroutinegovernmental US. DEPT. OF JUSTICE, FCPA OP. RELEASE 07-01 (July 24, 2007); actions enumerated by Congress shows how limited US. DEPT. OF JUSTICE, FCPA OP. RELEASE 04-04 (Sept. 3.2004); US. Congress wanted to make the grease exceptions. DEPT. OF JusricE. FCPA OP. RELEASE 04-03 (June 14, 2004); US. Routine governmental action. for instance. includes DEPT. OF JusTicE.,FCPA OP. RELEASE 04-01 (Jan.6, 2004). 'obtainingpermits. licenses. or ocher official "US. DEPT. OF JUSTICE, FCPA OP. RELEASE 96-01(Nov.25. 1996). documents to qualify a person to do business in "US. Dirt. OF JusrzcE. FCPA OP. RELEASE 11-01 (June 30.2011): a foreign country." and 'scheduling inspections US. 1)EPt. OF JUSTICE, FCPA OP. RELEASE 07-02 (Sept. 11. 2007): associated with contract performance or inspections US. 13E PT. OF JUSTICE, FCPA OP. RELEASE 07-01 (July 24, 2007); related to transit ofgoods across country.' US. DEPT. OF JUSTICE, FCPA OP. RELEASE 04-04 (Sept. 3.2004); U.S. Therefore. routine governmental action doe not DEPT. OF JUSTICE. FCPA OP. RELEASE 04-01 (Jan.6, 2004) . include the issuance of troy official document or 1'US. DEPT. OF JurricE. FCPA OP. RELEASE 04-01(Jan. 6. 2004). eery inspection. but only (I) documentation that " US. DEPT. op. Jess-rel. FCPA OP. RELEASE 08-03 (July 11.2008). qualifies a party to do business and (2) scheduling an "US. DEPT. OF JUSTICE, FCPA OP. RELEASE 11-01(June 30. 2011): inspection—very narrow categoric: oflargely non- US. DEPT. OF JUSTICE, FCPA OP. RELEASE 92-01 (Fob. 1992). discretionary. ministerial activities performed by "US. DEPT. OF JusTicE, FCPA OP. RELEASE 08-03 (July 11.2008). mid- or low-level foreign functionaries. United States v. Kay; 359 F.3d 738.750-51 (5th Cir. 2004) (internal U.S. DEPT. OF JUSTICE, FCPA OP. RELEASE 04-03 Cunt 14. footnote omitted) (emphasis in original). 2004); US. DEPT. OF JUSTICE, FCPA OP. RELEASE 04.01 (Jan. 6. "Non-Pros. Agreement. In re Helmerich & Payne. Mc. (July 29. 2009) 2004); US. DEPT. OF JUSTICE, FCPA OP. RELEASE 07-01 (July 24, (herettafict In re Hefinerith dr Pape), an unable at http://www.justicc 2007). govictiminal/kaudikpahases/helmakh-paync/06-29-09helmerich- "US. DEPT. OF JUSTICE, FCPA OP. RELEASE 11-01 (June 30.2011); agrecpdf: Admin. ProceedingOrdain the Matter of Helmerich & US. DEPT. OF JUSTICE. FCPA OP. RELEASE 07-02 (Sept. II. 2007); Payne. Inc.. Exchange Act Release Na 60400 (July 30. 2009) Ihercinaker US. DEPT. OF JUSTICE. FCPA OP. RELEASE 07-01 (July 24, 2007); In theMann- ofHelmeriels 6.Payne). available at http://www.see.gov/ US. DEPT. OF JUSTICE. FCPA OP. RELEASE 04-04 (Sept. 3.2004); U.S. litigation/admin/2009/34-60400.pdf. DEPT. OF JUSTICE. FCPA OP. RELEASE 0403 (June 14, 2004); US. "Criminal Information, Vctco Gray Controls Inc.. et at. No. 07- DEPT. OF JUSTICE. FCPA OP. RELEASE 0401 (1211.6, 2004). cr-4 Na. Tex.Jan. 5, 2007), ECF Nos. 1-2. acallabicar hap:// "US. DEPT. OF JUSTICE, FCPA OP. RELEASE 07-01 (July 24.2007); www.justiecgovictiminalikaudifepa/cases/vetco-controls/02-06- US. DEPT. OF JUSTICE, FCPA OP. RELEASE 08-03 (July 11, 2008). 07vetcograpinfopdc "For exampk, DO) has previously approved expenditures on behalfof "Complaint.SEC v. Noble Corp., No. 10-eva4336 . Tex. Nov. family members or for °attainment purposes under certain. limited 4, 2010). ECF No. available° http://www.sec.govilitigation/ circumstances. Saa, e.g. U.S. DEPT. OF JUSTICE. FCPA REV. P. RELEASE complaints/2010/comp21728.pdf: Non-Pros. Agreement. In rc Noble 83-02 (July 26. 1983) (declining to rake enforcement action against Corp. (Nov. 4. 2010). aradable at hop://www.justice.govicriminal/ company seeking to provide promotional tour for foreign official and fraudtkpahanct/nobk.corp/11-04.10noble.corp-npa.pdf: an also wife. where both had already planned a trip to the United States at their sonnet tirednepni note 68. own expense and company proposed to pay only for all reasonable and "WorkingGroup on Bribery, 2009 Recommendation ofthe Connedfar necessary actual domestic expensa for the extension of their travel to Farther Combating Bribery ofForeign Public °jot& in International allow the promotional tour. which would not exceed 55.000). available at Business Transactions. at 5 VI (recommending countries should http:lI www.justice.goylcriminallfraudt cpalreviewl1983le8302.pdf. periodically review their policies and approach to facilitation payments 1'Unlike the local law and bona fide expenditures defenses. the and should encourage companies to prohibit or discourage facilitation facilitatingpayments exception is not an affirmative defense to the payments 'in view of the corrosive effect of small facilitation payments. FCPA. Rather. payments of this kind fall outside the scope of the particularly on sustainable economic development and the rule oflaw"); FCPA's bribery prohibition. Prior to 1988. the 'facilitating payments" Working Group on Bribery. :AiledSlates: Phase 3. at 24 (Oct. 15. exception was incorporated into the definition of'foreign official" which 2010). armilable http://www.occd.orgidataoccd/10/49/46213841. excluded from the statute's purview officials whose duties were primarily pdf (commendingUnited Sates for steps taken in line with 2009 ministerial or clear:ALS° Foreign Corrupt Practices Act of 1977. Pub. recommendation to encourage companies to prohibit or discourage L No. 95.213. S 104(d)(2). 91 Stat. 1494. 1498 (1977) (providing that facilitation payments). the term foreign official 'does not include any employee oh foreign "Facilitatingpaymcnu are illegal under the UK. Bribery Act 2010. government or any department. agency. or instrumentality thereof whose which came into force on July 1. 2011, and were also illegal under duties are essentially ministerial or clerical"). The original exception thus prior U.K. legislation. See Bribery Act 2010, e.23 (Eng.). mailable focused on the duties of the recipient. rather than the purpose ofthe http://www.kgidation.goy.uk/ukpga/2010/23/contents: see oho payment. In practice. however. it proved difficult to determine whether UK. MINISTRY OF JUSTICE. The Bribny der 2010: Guidance About a foreign official's duties were 'ministerial or clerical: S. REP. No. [00- Procedure. Whielo Relevant: Commercial Organisations Can Palinto Place 85. at 53. Responding to criticism that the statutory language 'does not to Prevent Persons Associated with Themfrom Bribing (Section 9 of dearly reflect Congressional intent and the boundaries of the prohibited lining Art 20101. at 18 (2011).avadable at http://www.justice.goy.ukt conduct: Congress revised the FCPA to define the exception in terms of guidanoe/docsibribay-act-20/0-guidance.pdf. the purpose of the payment. H. REP. No. 100-40. l' .2. at 77. In doing so. "See, e.g. Non-Pros. Agreement.In reHe/merit-6 & Pape supra note Congress reiterated that while its policy to exclude facilitating payments 163: Admin. ProceedingOrden/a the Alatter otHelmerith €5, Reyne. reflected practical considerations of enforcement. 'such payments should supra note 163. not be condoned.' letlhe enacted language reflects this narrow pit:pose. "In order to establish duress or coercion. a defendant must demonstrate "In exempting facilitating payments. Congress sought to distinguish that the defendant was under unlawful. present. immediate. and 111 EFTA01080408 impending thrcat of death or serious bodily injury: that the defendant did not negligently or recklessly create a situation where he would be forced to engage in criminal conduct (c.g.. had been making payments as part APPENDIX of an ongoing bribery scheme): that the defendant had no reasonable legal alternative to violating the law: and that that was a direct causal Endnotes relationship between the criminal action and the avoidance of the threatened loan. See Eleventh Circuit Pattern Jury Instr.. Special Instr. No. 16 (2003):seed/so Fifth Circuit Pattern Jury Instr. No. 1.36 (2001): Sixth Circuit Pattern Jury Instr. No.6.05 (2010); Seventh Circuit Pattern Jury Instr. No. 6.08 (1998): Ninth Circuit Pattern Jury hum No. 6.5 (2010); IA Kevin F. O'Malley.Jay E. Gratig, Hon. William C. Lee. Fetlenithiry Printing's'Instructions 19.02 (6th ed. 2008 & Supp. (affirming criminal successor liability for Bank Secrecy Act violations): 2012). United States v. Polirri. 500 F.2d 856.907 (9th Cir. 1974) (affirming "S. REP. NO.95-114. at II. criminal successor liability for conspiracy and Travel Act violations "' Mar 10. United States v. Shields Rubbcr Corp., 732 E Supp. 569.571-72 n it at II. Pa. 1989) (permitting criminal successor liability for customs violations): "'United States v. Kozcny. 582 F. Supp. ad 535.540 n.31 M. see also United Statesv. Mobile Materials. Inc., 776 F2d 1476, 1477 (10th 2008). Cir. 1985) (allowing criminal post-dissolution liability for antitrust. mail Kenny. 582 F. Supp. 2d at 540 (citing S. REP. No. 95-114, a 10-11). fnud, and False statement violations):. '''ld "'Complaint. SEC v. The Titan Corp.. No. 05-cv-411 (M. Mar. I. "'These payments. however. must be accurately reflected in the 2005) (discovery of FCPA violations during pre-acquisition due diligence company's books and records so that the company and its management protected potential acquiring company and led to termination of merger arc aware of the payments and can assure that the payments were properly agreement).andebte at http://www.scegov/litigation/complaints/ made under the circumstances. For example. in one instance. a Kazakh comp19107.pdf.,.... Criminal Information. United Statesv. Titan Corp. immigration prosecutor threatened to fine. jail. or deport employees No. 05-cr-314 Cal. Mar. 1. 2005) (same) (hereinafter UnitedStases of a US. company's subsidiary. Believing the threats to be genuine. the n. Titan Corp.(. available at hop://wvow.justicegov/criminal/fraud/Epa/ employees in Ka:allot:in sought guidance from senior management cases/titan-corp/03-01-05titaitinfo.pd( of the U.S. subsidiary and were authorued to make the payments. The "'For a discussion ofdeclinations. sec Chapter 7. employees then paid the government Mica.' a total of 545.000 using "'See Complaint. SEC v. El Paso Corp.. No. 07-a-899 Feb. 7. personal funds. The subsidiary reimbursed the employees. but it falsely 2007). ECF No. 1 Ihcreinaficr SEC r. ElPaso Corp.] (charging company recorded the reimbursements as "salary advances' or "visa fines: The with books and records and internal controls charge for improper parent company. which eventually discovered these payments. as well payments to Iraq under II. Oil-for-Food Programme). et...dabbed as other improperly booked cash payments made to a Kazakhstani http://www.secgovaitigation/complaints/2007/comp19991.pdf. consultant to obtain visas was charged with civil violations of the "'Complaint, SEC v. Alliance One Inc.. No. 10-cv-1319 (M. accounting provisions. Admin. Proceeding Order. In the ?slater of Aug. 6. 2010), ECF No. L end/Akar http://stowsec.gov/litigation/ NATCO Group Inc.. Exchange Act Release No.61325 (Jan. 11, 2010). complaints/2010/comp21618-allianceone.pdf; Non-Pros. Agreement. available at kup://www-secgoolitigation/admin/2010/34.61325.pdf In rc Alliance One Intl. Inc. (Aug. 6. 2010), anti/able http://vevr.v. (imposing ccascandaksist order and 565.000 civil monetary penalty). justicegovictiminal/fraud/Epahases/alliance-onc/08-06-10alliance- 'SeeJury Instructions at 21, United SLUM v. Aguilar, No. 10-cr-1031 oneopa.pdf; Criminal Information. United States v. Alliance One Intl CaL May 16, 2011), ECF No.511. AG, No. 10-a-17 al Va. Aug. 6, 2010), ECF No.3. anti/able at 1. See. e.g., Pacific Can Co. v. Hewes. 95 F.2d 42. 46 (9th Cir. 1938) http://www.justice.gov/crimina//fraud/fcpa/cascs/alliance-one/08-06. ("Where one corporation is controlled by another. the forma acts 10alliance-one-info.pdf; Criminal Information. United States v. Alliance not for itselfbut as directed by the latter. the same as an agent. and the One Tobacco Osh, LLC. No. 10a-16 (M. Va. Aug. 6, 2010). ECF principal is liable for the acts of its agent within the scope of the agent's No. 3. available at http://www.justice.gookriminaVfraud/kpa/cases/ authority."); United States v. NYNEX Corp.. 788 F. Supp. 16.18 n.3 alliance-onc/08-06-10alliance-onetobaccoinfo.pdf. 1 . 1992) (holding that "Cal corporation can of course be held criminally liable for the acts of its agents: including "the conduct ofits "'See Criminal !nictitation, United States v. Syncor Taiwan. Inc., No. 02ar-1244 (III Cal. Dec. 5.2002)- ECF No. 1. andebte et hap:// subsidiaries:). www.justice.gov/aimina//fraud/fcpa/cascs/syncottatran/12-05- 19Peale Can Co.. 95 F.2d at 46; NYNEX Corp.. 788E Supp. at IS n.3. 02syncottaiwan-info.pdf: Plea A ment. United States v. Syncor e.g.. Standard Oil Co. v. United States. 307 F.2d 120, 127 (5th Cir. Taiwan. Inc., No.02-er-I244 Cal. Dec. 9. 2002), ECF No. 14. 1962). available et http://www.justicegov/ahninal/fraud/Epa/cases/syncor- 1" Admin. Proceeding Order, In the Mauer of United Industrial Corp.. taiwan/12-03-02syncottaiwastpleaallitt-Pa Exchange Act Release No. 60005 (May 29. 2009).mnd/4o/en http:// 1" See Complaint.SEC v. Syncor Intl Corp. No. 02ase-2421 (M. www.sec.gov/litigation/admin/2009/34'60005.pdf; see also Lit. Release Dec. 10.2002), ECF No. 1, available at lutp://www-wegov/litigation/ No. 21063. SECn Wonel(May 29, 2009). arai/a/o/en hop://wwwsec. complaints/comp17887.htm: SEC v. Syncor International Corp.. SEC gov/litigation/litrdases/2009/Ir21063-htm. Lit. Rd. 17997. (Dec. 10. 2002).oraikbk m http://wwwsec.gov/ 'See. e.g.. Philip Unfitly. What You Don't Know Can Hurt You: Surernor litigation/litreleasesfir17887.htm. Liability ResultingFrom InadequateFCPA DueDiligenceinIMI '''See Complaint. SEC at York Int Corp.. supra mote 115; Criminal Tinnsartions. 1763 PLI/Cote. 631.637 (2009) (As a legal matter. when Information, UnitedStelltl it York IntlCorp.. supra note 115. one corporation acquires another. it assumes any existing liabilities of See Criminal Information, United States v. Latin Node. Inc.. No. that corporation. includingliability for unlawful payments. regardless of 09-a-20239JB FE. Mar. 23. 2009), ECF No. 1. available hop:// whether it knows of them."). Whether or not successor liability applies to www.justice.gov/crimina//fraud/fepa/cases/litton-applicd/03-23- a particular corporate transaction depends on the facts involved and state. 091.ninnodainfo.pdf: cLandia Intl Ina, Annual Report (Form 10-K), federal, and. potentially. foreign law. at 20 (Apr. 2. 2009), anti/able aThetp://www.sccgor/Archives/cdgar/ "'See. e.g., Carolyn Lindsey. Mon Then You &opinedfir: Suarnor data/1352819/000119312509070961/d IOLlum. Liability Under the U.S. Foreign Corrupt Prentice, An. 35 OH to ■ "'See Criminal Information. United States v. Salvoeh. No. 10-a-20893 L REV. 959.966 (2009) ("Allowing a company to escape its debts and Fla. Dee. 17, 2010). ECF No.3. available at http://www.justice. liabilities by merging with another entity is considered to lead to an gov/crimina//fraud/fcpa/cascs/safroch/12-17-10salvoch-info.pdf; unjust noun."). Criminal Information, United States v. Vasquez. No. 10-a-20894 '"See, e.g.. Melrose Distillers. Inc. v. United States. 359 US. 271.274 Fla. Dee. 17, 2010). ECF No. 3. availableat http://www.justicegov/ (1959) (affirming criminal successor liability for antitnot violations): criminaVfraud/fcpakases/vasquajp/12-17-10vasquez-juan-infggslf: United States v. Alamo Bank of TCAIS. 880 F.241828, 830 (5th Cir. 1989) Indictment. United States v. Granados. et No. 10-er-2088I. 112 EFTA01080409 Fla. Dee 14, 2010), ECF No.3. amiable at hnp://www.justicegov/ not capital. unless the indictment is found or the information is instituted criminal/fraud/fcpakases/granadoujorge/12-21-10granados-indicapdf. within five years next afier such offense shall have been committed? "'See Deferred Pros. Agreement. Lbeitnatata v. Snampressetti. supra "See Grunwald v. United States. 353 US. 391.396-97 (1957) note 60. ECF No.3. emulsible at http://www.justiccgov/erimind/fraud/ (holding government must prove conspiracy still existed and at least fcpa/cases/snamprogetti/07-07-10snamprogettidpa.pdf. one overt act was committed within the statute oflimitations): Fiswick 'Compare Criminal Information. UnifettStafts Smonprogerii.supnt v. United States. 329 U.S. 211.216 (1946) Mc statute oflimitations. note 60. wish Deferred Pros. Agreement, UnitedStates v. Snamprogetti. unless suspended. runs from the last overt act during the existence of supra note 60. ECF No.3. the conspiracy. The overt acts averred and proved may thus mark the See Press Rekase, General Electric Co., General FJectric Agrees to duration. as well as the scope. of the conspiracy?) (citation omitted): see Acquire InVision (Mar. 15. 2004), mailable at generally Julie N. Sundt Federal Criminal Compinuy.48 Au. Cans. L. usa/company/investor/downloads/sharpcyc_press_re case. : Press REv. 663.676 (Spring 2011). Release, U.S. Dept. ofJustice. InVision Tech. Inc. Enters into Agreement "18 US.C. $ 3292. with the United States (Dec.6. 2004).am/tad/eat http://vnvw.justice. '28 US.C. $ 2462. gov/opa/pr/2004/December/04_am_780.htm: Company News; C.F.. ' HS. REP. No.95-114. at 3 (noting that. in the past. "corporate bribery Gas &Mien, a Alder affirm!,Detectors.. TIMES. Dee 7, 2004. at has been concealed Ly the falsification of corporate books and records: C4. that the accounting provisions -remove () this avenue ofcovcrup: and "'Non-Pros. Agreement. In re InVision (Dec. 3. 2004).cm/1a/den that Itjaken together. the accounting requirements and criminal [anti- http://www.justice.govicriminal/fraud/fepa/cases/invisiorttech/12-03- bribery) prohibitions ...should effectivelydeter corporate bribery of 04invisiontech-agrecpdf: Non-Pros. Agreement. In re General Elec. Co.. foreign government officials"). (Dec. 3. 2004). mailable as http://vnvw.justice.gov/eriminaViraud/fcpa/ "'S. Rin No.95-114, at 7. cases/invision-tech/12-0344invisiontech-agree-ge.pdf: Complaint. SEC "'Section 13(b)(2)(A) ofthe Exchange Act. /5 USC. § 78m( b)(2)(A). v. GE InVision. f/k/a InVision Technologies. Inc. No. 05-ev-660. "'Section 13(b)(2)(B) of the Exchange Act. 15 U.S.C. 78m(b)(2)(B). GL Feb.14.2005), ECF No. I. available at http://usvwsecgov/ "The accounting provisions contain a narrow exemption related to litigation/complaints/comp19078.pdf. national security and the protection ofclassified information. Under ' n SLY U.S. DErr. OrJUSTICE. FCPA OP. RELEASE D8.02 (June 13. this-national security" provision. -no duty or liability (under Section 2008)-cm/tab/eat http://www.justice.gov/eriminaViraud/fcpa/ 13(6)(2) of the Exchange Act) shall be imposed upon any person acting opinion/2008/0802.pdf; see also Press Release. US. Dept. ofJustice. in cooperation with the head of any federal department or agony Pfizer- Corp. Agrees to Pay $15 Million Penalty to Resolve Foreign responsible for such matters if such act in cooperation with such head of Bribery Investigation (Aug.?. 2012) ("In the I8 months following its a department or agency was done upon the specific. written directive of acquisition of Wycth. Pfizer Inc. in consultation with the department. the head ofsuch department or agency pursuant to Presidential authority conducted a due diligence and investigative review of the Wyeth business to issue such directives? Section 13(6)(3) of the Exchange Act. 15 U.S.C. operations and integrated Pfrace Inc.'s internal controls system into 78m(b)(3). As Congress made clear. however. the exception is narrowly the former Wyeth business entities. The department considered these tailored and intended to prevent the disclosure of classified information. extensive efforts and the SEC resolution in its determination not to H.R. Rte. 94-831, at II. azwiLibiect http://www.junice.gov/erimind/ pursue a criminal resolution for the pre-acquisition improper conduct of fraudifcpdhistory/1977/corruptipt-94-831.pdf. Wycth subsidiaries:). available at http://www.justice.gov/opa/pr/2012/ 'Section 13(6)(2)(A) ofthc Exchange Act. I5 LLS.0 4 78m(b)(2)(A). Augun/12-erm-980.html. 'H.R. REP. No. 94-831, at /O. U.S.C. 42. 'In enactingthe FCPA in 1977. Congress explicitly noted that 'Min 'Section 13(b)(7) ofthe Exchange Act. 15 U.S.C. $ 78m(b)(7). coneepts of aiding and abating and joint participation would apply to a 'H.R. REP. No. 100-576.st 917 (1988), muddle aihrtp://wwwnutite. violation under this bill in the same manner in which those concepts have gookrinsinal/fisrutliftpdhinory/1988/traelotet-l00418.ptlf Congress always applied in Loth SEC civil actions and in implied private actions rejected the addition ofproposed cost-benefit language to the definition brought under the securities laws generally? H.R. REP. No. 95-640. at 8. "in response to concerns that such a statutory provision might be abused Penkatan held that a conspirator may be found guilty oh substantive and weaken the accounting provisions at a time of increasing concern offense committed by a co-conspirator in furtherance of the conspiracy about audit failures and financial Gaud and resultant recommendations if the co-conspirator's acts were reasonably foreseeable. See Pinkerton v. by =pats for stronger accounting practices and audit standards:II United States. 328 US. 640.647-48 (1944 See, erg., Complaint. SEC v. Biomes Inc.. No. 12-es-454 Mar. 'Sec United States v. MacAllister. 160 E3d 1304.1307 (11th Cir. 26, 2012). ECF No. I (hereinafter SEC ra. Biomes). available at ttp:// 1998): United States v. Winter, 509 F2d 975, 982 (5th Cir. 1975). www.sec.govAirigation/complaints/2012/comp22306.pdf: Criminal "'See Criminal Information. UnitedStates v. Marredeni. supra note Information, United States v. Biomet. Inc., No. 12-er-80 (=. Mar. 132; Criminal Information. Onto?Stases v.JGC Carp.. supra note 60; 26, 2012) [hereinafter Unite,:1Stela a Siomed.aradadle at http://www. Criminal Information. UnitedStara st Snamprogetts. wpm note 60; see justice.gov/eriminaVfraud/fepa/eases/bianet/2012-03-26.bwmet- .olio Criminal Information. Unity/Stela v. Tee.dnip.supm note 132. infometion.pdf; Complaint, SEC v. Smith & Nephew Inc. No. 12-ev- "'Section 20(e) of the Exchange Act. -Prosecution ofPersons Who 187 (MI. Feb66. 2012). ECF No. I, trailed& http://wvensecgov/ Aid and Abet Violations: explicitly provides that. for purposes of a litigation/complaints/2012/comp22252.pdf: Criminal Information. civil action seeking injunctive relief or a civil penalty. "any person that United States v. Smith & Nephew plc. No. 12-er-30 (=. Feb. 6. knowingly or recklessly provides substantial assistance to another person 2012), ECF No. I. aswiLtble at http://www.junice.govicriminal/fraud/ in violation of a provision ofthis chapter. or of any ndc or regulation fepa/cases/smith-nephew/2012-02-06-s-n-information.pdf: Complaint. issued under this chapter. shall be deemed to be in violation of such SEC v.folmsent erJohnson. supra note 131: C:runinal Information, provision to the same extent as the person to whom such assistance is UnitedStates st Ochry. supra note 131: Complaint. SEC v. Haswell provided? Section 20(e) of the Exchange Act. 15 US.C. 78t(c). Technologies Inc. No. 11-nr-258 Jan. 31. 2011). ECF No. 1 '" Under Section 21C(a) of the Exchange Act. the SEC may impose a [hereinafter SECn Maxwell Teton ugh" , anal/able http://WWW.COC. cease-and-desist order through the SEC's administrative proceedings gov/litigation/compLtints/2011/comp2183Ipdf: Criminal Information, upon any person who is violating. has violated, or is about to violate any United States v. Maxwell Technologies Inc., No. 11-ct-329 Cal. provision ofthe Exchange Act or any rule or regulation thereunder, and Jan. 31, 2011), ECF No. 1. anti/able hetp://vex-w.justiee.govIesiminal/ upon any other person that is. was, or would be a cause of the violation. fraud/fepa/cases/maxwell/01-31-11maxwell-tech-info.pdf: Complaint. due to an act or omission the person knew or should have known would SEC v. Transocean. Inc. No. 10-cv-1891 (=. Nov. 4. 2010).ECF contribute to such violation. Section 21C(a) of the Exchange Act.15 No. I, mailable at http://www.sec.gov/litigation/eomplaints/2010/ U.S.C. 4 78u-3(a). comp21725.pdf; Criminal Information. United States v. Teansoccus 'See Complaint.SEC v. Panalpina, Inc.. mine note 68. Inc, No. 10-er-768 a Tex. Nov. 4. 2010), ECF No. lawailable at '18 U.S.0 3282(a) provides: "Except as otherwise expressly provided http://wvnujimice.gov/criminal/fraud/fepa/cases/transoccan-inc/11- by law. no person shall be prosecuted. tried, or punished for anyoffense. 04-10transocean-info.pdf. 113 EFTA01080410 Rir. No.95-114, at 7. "Section 13(b)(2)(B) of the Exchange Act. 15 U.S.C. 478m(b)(2)(B). 'Section 13(6)(7) ofthe Exchange Act. 15 US.C. 78m(b)(7). 'See Complaint, SEC. S'innens AG. supra note 48; Criminal Information. Unita/Stara a Siemens AG. supra note 48. Endnotes 'Complaint. SEC v. Siemens AG. supra note 48: Criminal Information. United States a Siemens AG.supm note 48; Press Release. U.S. Dept. ofJustice. Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay S450 Million in Combined Criminal Fines (Dec. 15. 2008).am/fableet http.//www. justice.gov/opa/pr/2008/December/08—ecru-1105Jurnl. r See, e.g.. Complaint. SEC v. Bizunea supra note 221 (bribes paid to Statoil. ASA. No. 06-cr-960 O.ct 112006) (same). available at government healthcare providers in which phony invoices were used http://www.justice.gov/crimMd/kpa/caus/statoil-asa-inc/10-13- to justify payments and bribes were falsely recorded as "consulting 09statoil-information.pdf. fees or "commissions" in company's books and records); Criminal 'Although private companies are not covered by the books and records Information. [boiled SUR" r. Biomet.supra note 221 (same): SEC r. and internal controls provisions of the FCPA and do not fall within Alcatel-bieent. supra note 48 (bribes paid to foreign officials to secure SEC's jurisdiction. such companies generally are required by federal and telecommunicatioru contracts where company lacked proper internal state tax laws and stave corporation laws to maintain accurate Looks and controls and permitted books and records to falsified): [bated Slam a records sufficient to properly calculate taxes owed. Further. most large Aleatel-bieen4 /1.. supra note 48 (same). private companies maintain their books and records to facilitate the 'Complaint. SECT. Dander AG.supra note 48; Criminal Information. preparation of financial statements in conformity with GAAP to comply United States a Daimler AG. supra note 48. with financial institutions' lending requirements. 'M. w See SECa RAE Sp. Inc., supra note 92: In re RAE Sp. Inc.'rpm note i 101d. 92. "M. ' 11 SLY Section 13(6)(6) ofdu Exchange Ave. 15 US.C.§78m(b) (6), tu which provides that where an issuer "holds 50 per annum or less of the tale voting power with respect to a domestic or foreign firm." the issuer must "Sea e.g., Complaint. SEC it Tyre Intl, supra note 9; Complaint. SEC v. 'proceed in good faith to use its influence. to the extent reasonable under WillbroL No. 08ov-1494 tTex. May 14, 2008), ECF No. I. available the issuer'scircumstances. to cause such domestic or foreign firm to devise at hap://wwwsce.govilitigationleomplaints12008/comp20.571.pd( and maintain a system ofinternal accounting controls consistent with "See, e.g., Complaint. SEC r. Siemens AGaupnr note 48; Complaint. [Section 13(6)(2)1' SEC v. York Ind Corp..supra note 115; Complaint, SEC v. Textron. supra 3" See 15 US.C.f 78m(b)(6). Congress added the language in sub- note 115; Criminal Information. United States v. Control Componcnu. section 78m(b)(6) to the FCPA in 1988. recognizing that 'it is Inc.. No. 09-a-1621g Cal. July 22. 2009). ECF No. 1 [hereinafter unrealistic to expect a minority owner to am a disproportionate degree United States a Cent ComponenIsl. available athnp://www.justice. ofinfluence over the accountingpractices of a subsidiary:' H.R. REP. gov/aiminal/fraud/kpa/cases/control-inc/07-22-09cci-info.pdf; No. 100.576. at 917. The Conference Report noted that. with respect Criminal Information. United Stalest SS1 Intl Far East. Ltd.. No. 06-a- to minority owners. "the amount ofinfluence which an issuer may 398. ECF No. 1 (D. Or. Oct. 10. 2006) [hereinafter Osaka!States a IS/ exercise necessarily varies from ease to case. While the relative: degree of analalde at http://www.justitogov/crimind/fraudgepa/cases/ ownership is obviously one factor. other factors may also be important in ssi-ind/10-10-0.5ssi-information.pdf. determining whether an issuer has demonstrated good-faith efforts to use "See, e.g., Complaint. SEC a E Paso Corp., are note I87: Complaint. its influence Id.: see dm S. REP. No. 100-85. at 50. SEC v. hymn note 79; Complaint, SEC v. Chevron Corp.. 07- 'Section 20(e) of the Exchange Act. titled "Prosecution of Persons cv-102991 Nov. 14, 2007).ECF No. 1.arailableat hap://vnrw. Who Aid and Abet Violations: explicitly provides that for purposes of sec.gov/litigation/complaints/2007/comp20363.pdf. a civil action seeking injunctive reliefor a civil penalty. 'any person that "Plea Agreement. :Aired States a Stadassupni note 8: Plea Agreement. knowingly or recklessly provides substantial assistance to another person United Stairs n Sapsizian. supra note 8. in violation oh provision of this tide. or of any rule or regulation issued "See Complaint. SEC. Afaxuall liebnologres.supm note 221. under this tide. shall be deemed to be in violation ofsuch provision to "See Complaint, SEC II/dam Group. supm note 9. the same extent as the person to whom such assistance is provided: See 15 US.C.f 7201, dug. Section 20(e) of the Exchange Act. 15 US.C. 78t(e). " I Exchange Act Rule 131-15.17 C.F.R. 240.13a-15: Exchange Act See Complaint at I 1-12, SECa Elkin. supnx note 50. ECF I. Rule I5d-15. 17 C.F.R. § 240.15d-I5: Item 308 of Regulation S-K. 17 "'SEC a EIkin. supra note 50. ECF 69 (final judgments). C.F.R.5 229.308; Item IS. Form 20-F. asurilabk at http://wwwsec.gov/ 2" See, ag. Complaint. SEC v. Nature'sSunshine Products. Inc., et al. No. about/forms/form20-f.pdf; General Instruction (B). Form 40-F (for 09ov-672 (D. Utah.July 31, 2009). ECF No. 2. available at hap://www. foreign private issuers). arailable http://www.sec.gov/about/forms/ sec.govAitigation/litreleases/2009/Ir21162.htm. form40-1.pdf. "'See Admin. Proceeding Order In re Watts Water Technologies. 'See US. SEC. AND EXCHANGE COMM.. COMMISSION GUIDANCE Inc. and Leeson Chang. Exchange Act Release No.65555 (SEC REGARDING MANAGEMENT'S REPORT ON INTERNAL CONTROL Oct. 13. 2011). aswilabk et http://wwwsec.gov/litigation/ OVER FINANCIAL REPORTING UNDER SECTION 13(A) OR 15(n) OF admin/2011/34-65555.pdf. THE SECURITIES EXCHANGE ACT OF 1934. Release No. 33-8810 (June 'id. at 2, 4.6-7. 27, 2007).andaHe http://vemvsec.govindes/interp/2007/33-8810. 'Exchange Act Rule 1362-1.17 C.F.R. § 240.1362-1. Pdf- K7 15 U.S.C.5 78m(b)(5). "fet 'Section 3(a)(9) ofthe Exchange Act. 15 U.S.C. § 78e(a)(9). 'Foreign Corrupt Practices Act of 1977. Pub. L. No.95-213, 102,91 'Exchange Act Rule 1362-217 C.F.R. 5 240.1362-2 Sta. 1494 (1977). 'Complaint, SEC v. Jennings. No. 11ov-1444 I 24. '''See supra note 48: SEC a Trek nip. supra note 132. (French company); 2011).ECF No. Landed& et http://wwwsec.gov/litigation/ United Stares a Teeinsipaupra note 132. (same); see afso Admin. complaints/2011/comp21822.pdt Proceeding Order. In re Diagco pk. Exchange Act Release No.64978 Complaint. id.. ECF No. I; Find Judgment. id. ECF No. 3. (SEC July 27, 2011) (UK company).antilatie et http://veivwsec.gov/ 'Serious Fraud Office. Innospec Ltd: Former CEO admits bribery to litigation/admin/2011/34-64978.pdf; Admin. Proceeding Order. In falsify product tests (July 30. 2012). muddle as http://www.sfo.gov. re Statoil. ASA, Exchange Act Release No. 54599 (SEC May 29.2009) uk/presuroom/latest-press-rekases/press-relcata-2012/innospeoltd— (Norwegian company), evadable at http://www.sergovilitigation/ fonner-ceo-admits-bribtry-to-falsify-product-tesmaspx. admin/2006/34-54599.pdf; Criminal Information. United States v. "15 U.S.C.5 78m(b)(4)-(5). Congress adopted this language in 1988 in 114 EFTA01080411 order to make clear that. consistent with enforcement policy at the time. • e.g., Judgments. UnitedStates v. Eupsonai. supra note 44. ECF criminal penalties would not lac imposed 'for inadvertent or insignificant Nos. 182. 816. 824 (judgments against foreign official defendants). errors in book. and records. or inadvertent violations of accounting 'Criminal Information. United Siena v. SSILttl.. supra note 235 controls: Sec S. REP. No. 100-85. at 49: H.R. REP. No. 100-576. at (alleging violations of IS U.S.C. 54 1343. 1346): Plea Agreement. United 916 ('The Conferees intend to codify current Securities and Exchange .Gates a 5$1!VIZ supra note 235. (Oct. 10. 2006).am/1a/ow http:// Commission (SEC) enforcement policy that penalties not be imposed for vrnw.justiecgov/criminal/fraud/(cpa/cases/control-ine/07-24-09cei- insignificant or technical infractions or inadvertent conduct."). plea -agrec.pdf. U.S.C. 78ff(a). • Es-lm Bank. Form of Ex otter's Certificate EBD-M- 6 n. u4See UnitedStates a Alcatel-Lucent, SA..new note 48; see also tithed 2007), emit:bleat States a Alcatel--Lucent Theme. sup: note 56. "'See 18 U.S.C. 41 . 'See Deferred Prosecution Agreement. !AiledStates a Aleatel-Lueent, "22 C.F.R. 44 130.2.130.9. S.A.. supra note 48. ECF No. 10.mM/44e at http://www.justicagov/ 'For example, in UnitedStates n. 13.4E.Sytemsplc. BAE pleadedguilty criminal/fraud/fepahases/akatelmtal/02-22-11alcatel-dpaelf. to conspiring to defraud the United States by impairing and impeding its "&e Plea Agreement. (kited Stain V. Siemens AC. supra note 48. ECF lawful functions. to making false statements about its FCPA compliance No. 14.4mile/drat http://www.justicagov/criminal/fraud/fcpa/cases/ program. and to violating the AECA and ITAR. BAE paid a 5400 siemens/12-15-08siememakt-pka.pdf. million fine and agreed to an independent corporate monitor to ensure 'See Minute Entry ofGuilty Plea. UnreelSidite a Peterson. supra note compliance with applicable anti-corruption and export control laws. 8. ECF 13: see also Preis Release. US. Dept. ofJustice Former Morgan Criminal Information and Plea Agreement. United States v. BAE. Sr. Stanley Managing Director Pleads Guilty for Role in Evading Internal plc. No. 10.er-35(=. Mu. I. 2010). ECF Nos.l. 8.ant/ladle at Controls Required by FCPA (Apr. 23. 2012). dada/de hetp://v.ww. http:ilwww.jusucc.pwicriminallfraudIfepaleaseslbac-systcm102-01- justicegov/opa/pr/2012/April/12-errn-534.html. 10bacsystems-info.pdf and hap://www.justicegov/criminal/fraudacpa/ "'See Criminal Information. United States v. Baker Hughes Svcs. casm/bac-system/03-01-10baesystems-pleaagreepdf. In an action based Intl. No. 07-cr-I29( .Tex. Apr. 11. 2007).ECF No. 1.arailadle at on the same underlying (acts a the criminal guilty plea. BAE entered http://www.justice.gov/criminaVfraud/fepa/cases/baker-hughs/04-1I- a civil settlement with the Directorate of Defense Trade Controls for 07bakerhughesinffinfo.pdf. violations of AECA and ITAR. including over 2500 ITAR violations See United States it Panalpina, Inc, supra note 68. that included a failure to report the payment of fees or commissions ' 7' Id. associated with defense transactions and failure to maintain records n See FASB Statement of Financial Accounting Concepts No. 2. involving ITAR-controlled transactions. BAE paid $79 million in 63-80. penalties. and the State Department imposed a "policy of denial" (or "PCAOB Auditing Standard No. 12 and PCAOB AU Section 325. export licenses on three BAE subsidiaries involved in the wrongful r e See Section 10A of the Exchange Act. 15US.C. 478j-1. conduct. Consent Agreement between BAE. Sys. plc and Defense Trade "18 U.S.C. 1952 Controls at 17-20. Bureau of Political-Military Affairs. U.S. Dept. of State "Sir, United States v. Nexus Teehnologia. lions note 53: Criminal (May 16. 2011). available at http://www.pmddtastatcgov/compliance/ Information. United States v. Robert Richard King. Cal- No. 01-er-190 consent_agreements/pdf/BAES_CA.pdf: Proposed Charging Letter. In M Mo. June 27. 2001). available at http://www.justiec.gov/crintinal/ i /fepa/casesficingactal/05-03-02king-robat-indicapdf; Superseding Indictment. United Slam n Mead. wpm note 44: Criminal Information. re Investigation of BAE Systems plc Regarding Violations of the Arms Export Control Act and the International Traffic in Arms Regulations. US. Dept. of State (May 2011). available., http://www.pmddiestate. United States v. Saybolt North America Inc. et al. No. 98-er-10266 gov/compliance/consent_agreements/pdf/BAES_PCL.pdf. Mass. Aug. 18.1998). avaiLsIde at http://sursqustice.govieriminal/ '26 US.C.4 M(c)(1):screise Pka Agreement. United States a Smith. baud/fepa/eases/saybolt/08.10-98saybolt-in(o.pdf No. 07-er-69 =. Cal. Sept. 3. 2009). ECF No. 89..rati/aHe http:// "'See Second SupersedingIndictment. United States v. Kasen); No. 05- www.jurneagov/criminal/fraud/fcpahases/smithl/09.03-09smithl-plea- er-518 I May 26. 2009). ECF No. 203. andaide at http://uww. agrcapdf: Criminal Information. United States a Than Corp.. sups note justicegov/crimina/thaud/fcpa/cases/korenyv/05-26-09bourkand- 185. su ersedindict.pdf: Judgment. United States v. Bourke. No. 05-cr-518 °'See USAM 4 9-27.000. Nov. 12. 2009). ECF No. 253.am/ix/deaf http://www.justicc. "See USAM 4 9-27.420 (setting forth considerations to be weighed gov crimituVfraud/fcpilcasci/kozenyv/1I -12-09bourke-judgment.pdf. when determining whether it would be appropriate to enter into plea 'Plea Agreement. UnitedStares it Control On:pones:Is. supra note agreement). 235, ECF No.7: see also Order. United States a Canon. supra note 119. '"See USAM 4 9-28.000 et seq. ECF No. 440 (denyingmotion to dismiss counts alleging Travel Act See USAM 4 9-28.710 (discussing attorney-client and work product violations). eyelids/eat http://www.justicagov/criminal/fraud/fcpa/ protections). cases/canons/20 / I -09-20-canon-minutes-denying-motion to-dismiss. See http:/ www-sce.gov/divisions/enforeektdoreemcntmanuaLpdi pdc USAM4 9-28.300-A; irn the USAM 4 9-28.7002 (explaining .,See, e.g.. Criminal Information. UnitedStates a Esquenazi. supra note benefits ofcooperation for both government and corporation). 44; Criminal Information. thudStares a Crren.supnz note 44: Criminal n•See USAM 4 9-28.900 (discussing restitution and remediation). The Information. United States v. General Flee. Co.. No. 92-cr-87 Ohio commentary further provides that prosecutors should consider and weigh July 22. 1992). omelets/eat http://www.justicagov/crintinal/fraud/fcpa/ whether the corporation appropriately disciplined wrongdoers and a cucs/genaa/-ckctric/1992-07-22-general-dcctric-information.pdf. corporation's efforts to reform. including its quick recognition of the 'Foreign officials may "not lac charged with violating the FCPA iudf. flaws in the program and its efforts to improve the program. Id. since the ]FCPA] does not criminalize the receipt of a bribe a foreign "See USAM 45; 9-27.230. 9-27.420. official: United States v. Blondek. 741 FSupp. 116. 117 (M Tex. 'U.S. SENTENCING GUIDELINES $8B2.1(6)(7)(2011). 1990)..United States v. Castle. 925 F.2d 831 (5th Cir. 1991) ('We "15.5 80-5(f)(2) (2011). hold that foreign officials may not be prosecuted under 18 U.S.C.4 'U.S. SEC. AND EXCHANGE COMM.. REPORT OF INVESTIGATION 371 (or conspiringto violate the FCPA:). Foreign officials. however. PURSUANT TO SECTION 21(A) OF THE SECURITIES EXCHANGE ACT can be charged with violating the FCPA when the foreign official mu OF 1934 AND COMMISSION STATEMENT ON THE RELATIONSHIP as an intermediary of a bribe riff. See, tg.. Information. United OF COOPERATION TO AGENCY ENFORCEMENT DECISIONS, SEC States v. Baru. No. 02-er-475 Nov. 26. 2002) (World Bank Rd. Nos. 34-44969 and AAER-1470 (Oct. 23. 2001)]hereinafter employee charged with wire fraud and FCPA violations for facilitating SeaboardReport] avastae at http://uww.seagov/litigation/ bribe payments to another World Bank official and Kenyan government invatreport/34-44969.htm. official).astaffabie at hup://vnvw.justicegov/criminal/(raudffepa/cases/ 'US. SEC. AND EXCHANGE COMM.. POLICY STATEMENT basu/ 1I-26-02basu-infixpdf: Information. United States v. Sengupta. No. CONCERNING COOPERATION BY INDIVIDUALS IN ITS 02-cr-40 Jan. 30. 2002). available at http://www.justice.gov/ INVESTIGATIONS AND RELATED ENFORCEMENTS ACTIONS. 17 criminal/I au cpahases/sengupta/01-30-02senguptainio.pdf. C.F.R.4 202.12 (Jan. 10. 2010).andialtir http://wrnv.sec.gov/rules/ 115 EFTA01080412 policy/2010/34-61340.pdf. "''See US. SENTENCING GUIDELINES at 5 882.1(4(2). U.S. SENTENCING GUIDELINES §8B2.1(k). llc.cergerterally DEBBIE TROKLUS,ETAL., COMPLIANCE 101: How TO BUILD AND MAINTAIN AN EFFECTIVE COMPLIANCE AND ETHICS Endnotes PROGRAM, SOCIETY OF CORP. COMPLIANCE AND ETHICS (2008) 3-9 Iltereinafier COMPLIANCE I0I (listing Dawns to implement compliance program. includingprotecting company's reputation, creating trust between management and employees. preventing false statements to customers. crating efficiencies and streamlining processes. detecting employee and contractor fraud and abuse. ensuringhigh- quality products and services. and providing 'early wanting" system of Executive with FCPA Violations and Investment Adviser Fraud. No. inappropriate actions): TRANSPARENCY INT.L. BUSINESS PRINCIPLES 20/2-78 (Apr. 24. 2012) (indicating corporate employer was not charged FOR COUNTERING BRIBERY: SMALL AND MEDIUM ENTERPRISE in the matter and had "cooperated with the SEC's inquiry and conducted (SME) EDITION 5 (2008) (citing bawfits of anti-bribery program a thorough internal investigation to determine the scope of the improper like protecting reputation. creating record of integrity enhances payments and other misconduct involved"). etwitibiewi http://wwwsec opportunities to acquire government business, protecting company govhiews/press/2012/2012-78.htm. assets otherwise squandered on bribes): MARK PIETH. HARMONISING 'See USA's/ 9-28.800.B. ANTI-CORRUPTION COMPLIANCE: THE OECD GOOD PRACTICE "'See, mg, kin CHAMBER OF COMMERCE.ICC RULES ON GUIDANCE 45.46 (2011) (kercinafier HARMONISING ANTI- COMBATING CORRUPTION (20I I) Ikercitufier ICC RULES ON CORRUPTION COMPLIANCE) (citingneed for compliance program COMBATING CORRUPTIONI. available at lutp://www.icewbo. to prevent and detect in-house risks. such as workplace security or orpfuploadedFdes/ICC/policy/businas_in_society/Statements/ conflicts ofinterest. and external risks. like anti-trust violations. embargo ICC_Ruks_on_Combating_Corruption_2011edition.pdf; circumvention. environmental hazards. and money laundering). TRANSPARENCY INT.L, BUSINESS PRINCIPLES FOR COUNTERING 3'0Debarment authorities. such as the Department of Defense or BRIBERY (2d ed. 2009) [hereinafter BUSINESS PRINCIPLES FOR the General ScrOces Administration. may also consider a company's COUNTERING BRIBERY), anti/able ar http://www.transparency. compliance program when deciding whether to debar or suspend org/global_priorities/private_sector/business_principlesh UNITED a contractor. Specifically. the relevant regulations provide that the KINGDOM MINISTRY OF JUSTICE. THE BRIBERY ACT OF 2010. debarment authority should consider "IwThether the contractor had GUIDANCE ABOUT PROCEDURES WHICH RELEVANT COMMERCIAL effective standards ofconduct and internal control systems in place at ORGANISATIONS CAN PUT INTO PLACE TO PREVENT PERSONS the time ofthe activity which constitutes cause for debarment or had ASSOCIATED WITH THEM FROM BRIBING (20I0).antriable http:// adopted such procedures prior to any Government investigation of the www.justiecgov.ukhlownloads/kgislation/btibery-act-2010-guidance. activity cited as a cause for debarment: and "IwThether the contractor pdf: WORLD BANK GROUP, INTEGRITY COMPLIANCE GUIDELINES has instituted or agreed to institute new or revised review and control (2011) (hereinafter INTEGRITY COMPLIANCE GUIDELINES). procedures and ethics training programs.' 48 C.F.R. 9.406-1(a). available-at futp://sitercources.worldbank.org/INTDOII/Resources/ "*Seaboard Reports:apt note 298; U.S. SEC. AND EXCHANGE Integrity_Coimpliance_Guidelines.pdf: ASIA-PACIFIC ECONOMIC COMM.. REPORT OF INVESTIGATION PURSUANT TO SECTION 21(A) COOPERATION. APEC ANTI-CORRUPTION CODE OF CONDUCT OF THE SECURITIES EXCHANGE ACT OF 1934 AND COMMISSION FOR BUSINESS (2007) )hereinafter APEC ANTI-CORRUPTION CODE). STATEMENT ON THE RELATIONSHIP OF COOPERATION TO AGENCY anaiteUtat http://www.apccorg/Groups/SONI-Smering-Committcc- ENFORCEMENT DECISIONS, SEC Rel. No. 44969 (Oct. 23. 2001). on-Economic-and-TechnicatCooperation/Task-Groups/,-/media/ sawdablear http:lIwnsec.govIlitigationtinvestreportI34-44969.hon. Files/Groups/ACT/07_act_codebrochureaffix; INT.:- CHAMBER OF ""'USAM 49-28.300. When evaluatingthe pervasiveness of wrongdoing COMMERCE. TRANSPARENCY INT.L, UNITED NATIONS GLOBAL within the corporation. prosecutors arc advised that while it may be COMPACT, and WORLD ECONOMIC FORUM. RESISTING EXTORTION appropriate to charge a corporation for minor misconduct where the AND SOLICITATION IN INTERNATIONAL TRANSACTIONS: A wrongdoing was pervasive. "it may not be appropriate to impose liability COMPANY TOOL FOR EMPLOYEE TRAINING (20I 0, attaitablear upon a corporation.partuutimA one with a roluul complianceprugram in http://wv3.weforum.org/doc:/WEF_PACI_RESIST_Report_2011. place. under a strict nvondott superior theory for the single isolated act pdf: ken CHAMBER OF COMMERCE. ET AL., CLEAN BUSINESS of a rogue employee:Id 9-28.500.A (emphasis added). Prosecutors IS GOOD BUSINESS, evadable ar http://www3.weforum.org/does/ should alsoconsider a company's compliance program when examining WEF_PACI_BusineaCaseFightingCorruption_2011.pdf: WORLD any remedial actions taken. includingdfort to implement an effective ECONOMIC FORUM, PARTNERING AGAINST CORRUPTION - compliance program or to improve an existing one. As the commentary PRINCIPLES FOR COUNTERING BRIBERY (2009) )hereinafter explains. "although the inadequacy of a corporate compliance program is PARTNERING AGAINST CORRUPTION). available ar http://www3. a factor to consider when deciding whether to charge a corporation. that weforum.org/docs/WEF_PACI_Principlcs_200').pdf: WORKING corporation's quick recognition of the flaws in the program and its dims GROUP ON BRIBERY, OECD. GOOD PRACTICE GUIDANCE ON to improve the program are also factors to consider as to appropriate INTERNAL CONTROLS. ETHICS. AND COMPLIANCE 2010.)hereinafter disposition of a case: Id. 49-28.900.B. Finally. the Principles of Federal OECD GOOD PRACTICE GUIDANSandadleat http://www.occd. Prosecution ofBusincw Organizations provides that prosecutors should org/dataoecd/5/51/44884389.pdf; GLOBAL COMPACT. THE TEN consider the existence and effectiveness ofthe corporation's pre-existing PRINCIPLES)hereinafter THE TEN PRINCIPLES) available al Imp:// compliance program in determining /tow to treat a corporate target. Id. www.unglobalcompactorg/abounheGC/TheTenPrinciples/index.html. $ 9-28.800. 'This is also reflected in the .Tenteneing Guidelines. which recognize 1O/See USAM 9-28.800.8: sera/so US. SENTENCING GUIDELINES § that no single. formulaic set of requirements should be imposed. but 8B2.1(a) (2011) ("The failure to prevent or detect the instant offense instead focuses on a number of factors like applicable industry practice dots not necessarily mean that the program is not generallyeffective in or the standards called for by any applicabk governmental regulation. preventing and detectingcriminal conduct:). the size of the organization. and whether the organization has engaged 'reSee Press Release. U.S. Dept. ofJustice, Forma Morgan Stanley in similar misconduct in the past. See U.S. SENTENCING GUIDELINES $ hlanagjngDirector PleadsGuilty for Role in Evading Internal Controls 8BII Se app. note 2 (2011). Required by FCPA (Apr. 25. 2012) (declining to bring criminal ease "'This was underscored by then-SEC Commissioner Cynthia Glassman against corporate employer that 'had constructed and maintained a in 2003 in a speech on the SEC's implementation of the Sarbanes-Oxley system ofinternal controls. which provided reasonable assurances that its Act:"Illhe ultimate elfectivawss ofthe new corporate governance rules employees were not bribing government officials"). available at http:// will be determined by the 'tone at the top.' Adopting a code of ethics wvow.justicegov/opa/pr/2012/ApriVI 2-am-534.html: Prat Release. means little if the company's chief executive officer or its directors make US. Sec. and Exchange Comm.. SEC Charges Forma Morgan Stanley clear. by conduct or otherwise that the code's provisions do not apply 116 EFTA01080413 to them.... Corporate officers and directors hold the ultimate power DEPT. OFJUSTICE. FCPA OP. RELEASE 0842 (June 13, 2008), and responsibility for restoring public trust by conducting thenuelvet amailable at http://juStiee-gOV/Cliininal/FraUd/F914/OpiniOn/2008/0802. in a manner that is worthy of the trust that is placed in them: Cynthia pa. Glassman. SEC Impkmentation ofSatbalwoadey: The New Corporate k" Complaint. SEC p. Rae Sys., Inc.. mpra note 92: Non-Pros. Agreement, Goveriunce. Remarks at National Economist, Club (April 7. 2003), In reRae Sy. Inc.. supra note 92. aratlablc at littp://www.sec.gov/news/spceeh/spch040703caghtm. "U.S. DEPT. OF COMMERCE. BUSINESS ETHICS: A MANUAL FOR sac Indeed. research has found that "[c]thical culture is the single biggest MANAGING A RESPONSIBLE BUSINESS ENTERPRISE IN EMERGING factor determining the amount of misconduct that will take place in a MARKET ECONOMIES (2004).arailabte ar http://vevewata.doe.gov/ business." ETHICS RESOURCE CENTER. 2009 NATIONAL BUSINESS goodgovernancendobeThem_manual.pdf. ETHICS SURVEY: ETHICS IN THE RECESSION (2009). at 41. Metric; "'115. DEPT. OF STATE, FIGHTING GLOBAL CORRUPTION: BUSINESS ofethical culture include ethical leadership (tone at the top). sopenisor RISK MANAGEMENT (2d ed. 2001).available at http://www.oge.doe reinforcement of ethical behavior (middle management reinforcement). gov/pdfs/Fighting_Global_Corruption.pdf: and peer commitment (supporting one another in doing the right "'See HARMONISING ANTI-CORRUPTION COMPLIANCE. supra note thing). ETHICS RESOURCE CENTER. 2011 NATIONAL BUSINESS 302, at 46 ("Anti-corruption compliance is becomingmore and more ETHICS SURVEY: WORKPLACE ETHICS IN TRANSITION (2012) at 19. harmonised worldwide:). Strong ethical cultures and strong ethics and compliance programs arc OECD GOOD PRACTICE GUIDANCE. supra notc 309. related as data show that a well-implcmented program helps lead to a IPAPEC ANTI-CORRUPTION CODE. supra notc 309. strongethical culture. Id. at 34. 'Understanding the nature of any gap "'ICC RULES ON COMBATING CORRUPTION, nom note 309. between the desired culture and the actual culture is a critical first step in IPBUSINESS PRINCIPLES FOR COUNTERING BRIBERY. supra note 309. determining the nature of any ethics-based risks inside the organisation: III THE TEN PRINCIPLES.Smgra note 309. David Gabler, The Role ofOdium at I.J. in SOCIETY OF CORPORATE IPINTEGRITY COMPLIANCE GUIDELINES. supra note 309. COMPLIANCE AND ETHICS. THE COMPLETE COMPLIANCE AND P4 PARTNERING AGAINST CORRUPTION. supra notc 309. ETHICS MANUAL (2011). To create an ethical culture, attention must be ml 15 US.C.4478,1d-2(g)(1)(478dd-3(c)(1)(A). 78ff(c)(1)(A). paid to norms at all levelsof an organization. includingthe 'tone at the ml 15 US.C.4478dd-2(g)(2)(478dd-3(e)(2)(A), 78ffic)(2)(A). top: mood in the middle: and-buss at the bottom: Id. 1.9-1.10. so 15 US.C.§78ff(a). mkt, e.g., U.S. SENTENCING GUIDELINES §882.1(2)(8)-(C) (2011). •'15 US.C.§78ff(a). 'I, ". ms18 US.C. 3571(d); see Southern Union a United Sena, 1325. Ct. 2344.2350-51 & n.4 (2012). ' Is". US.C.45,78,1d-2(g)(3).78,1d-3(c)(3). 78ff(c)(3). 11'Sec e.g. ETHICS AND COMPLIANCE OFFICER ASSOCIATION m' The US. Sentencing Guideline, are promulgated by the US. FOUNDATION, THE ETHICS AND COMPLIANCE HANDBOOK: A Sentencing Commission: PRACTICAL GUIDE FROM LEADING ORGANIZATIONS (2008) at 13-28 The United States Sentencing Commission (hereinafter THE ETHICS AND COMPLIANCE HANDBOOK]. ("Commission) is an independent agency in the "'See U.S. SENTENCING GUIDELINES § 882.1(6)(4) (2011). judicial branch composed of seven voting and two "'S&U.S.SENTENcrxe GUIDELINES § 882.1(6)(6) (2011) ("The non-voting ev-offirio members. Its principal purpose organization's compliance and ethics program shall be promoted is to aciblish sentencing policies and practices (or and enforced consistently throughout the organization through (A) the federal criminal justice system that will assure the appropriate incentives to perform in accordance with the compliance and ends of justice by promulgating detailed guidelines ethics program; and (B) appropriate disciplinary measures for engaging prescribing the appropriate sentences for offenders in criminal conduct and for failing to take reasonable steps to prevent or convicted of federal crimes. The Guidelines and detect criminal conduct:). policy statements promulgated by the Commission See. e.g..JOSEPH E. MURPHY, SOCIETY OF CORP. COMPLIANCE AND arc issued pursuant to Section 994(a) ofTide 28. ETHICS. USING INCENTIVES IN YOUR COMPLIANCE AND ETHICS United States Code. PROGRAM (2011) at I; THE ETHICS AND COMPLIANCE HANDBOOK. U.S. SENTENCING GUIDELINES §1A1.1 (2011). copra note 317, at 111-23. Mild. at ch. 3-5. "Stephen M. Cutler, Director, Division of Enforcement. SEC, Tone at m9/at. 2C1.1. the Top: Gettingh Right. Second Annual General Counsel Roundtable mflat. 2C1.1(b). (Dec. 3, 2004).am/144e at http://www.sce.govinews/specch/ siId. 3BI.I. spch120304smchtm. "''Id. at ch. 4, § 5A. ''Sec, e.g., ICC RULES ON COMBATING CORRUPTION. event note 309. s. 2B1.1(6)(10)(B).2B1.1(b)(18)(A). at 8. m"!J.§ 8CI4 (a). 'flee. e.g. US. SENTENCING GUIDELINES 48811(6)(5)(C): SSIci.§ 8C2.5. COMPLIANCE 101. sup( note 302. at 30-33. AIt§ 8O-5(f), 8C2.5(g). Corporate Board Nlember/FTI Consulting 2009 Legal Study. Runkle ss'DOJ has exercised this civil authority in limited circumstances in Up. Roark and Genend CounselMay Este a Rutty Ride in 2009. at 5 the last thirty years. See, e.g., United Sates & SEC v. KPMG Siddharta ('lmeratingly. while 67% ofgeneral counsel say their company is subject Siddharn & HananO. sal.. No. 01-a-3105 AR Tcx. 2001) (entry to compliance under the FCPA. 64% of those say there is room for ofinjunction barring company from future F violations based on improvement in their FCPA training and compliance programs:). allegations that company paid bribes to Indonesian tax official in order "See U.S. SENTENCING GUIDELINES § 81,32.1(6)(5)(B) to reduce the company's to assessment): United States v. Metcalf& organuation shall take reasonable steps... to evaluate periodically the Eddy. Inc.. No. 99-cv-12566 (D. Mass. 1999) (entry ofinjunction barring ricer:means of the organization's compliance and ethics program?). company from future FCPA violations and requiring maintenance of ".See. e.g.. COMPLIANCE 101.a car note 302. at 60.61: THE ETHICS compliance program based on allegations that it paid excessive: marketing AND COMPLIANCE HANDBOOK. slept note 317. at 155.60; BUSINESS and promotional expenses such as airfare. travel expenses. and per PRINCIPLES FOR COUNTERING BRIBERY, supra note 309. at 14. diem to an Egyptian official and his family); United States v. American Iv See. e. Michael M. Mannar and David S. Black. Compliance lima Totalisator Co. Inc. No. 93-cv-161 (D. NU 1993) (entry ofinjunction PerfirmingDiligence on the Toga) atria and Compharue barring company from future FCPA violations based on allegations that Rerun at 5.71-5.81, in SOCIETY OF CORPORATE COMPLIANCE it paid money to its Greek agent with knowledge that all or some of AND ETHICS. THE COMPLETE COMPLIANCE AND ETHICS MANUAL the money paid would be offered given. or promised to Greek foreign (2011). officials in connection with sale of company's system and spare pans): "Complaint, SEC v. Syncor International Corp.. supra note 190; United States v. Ea* Bus Manufacturing. Inc.. No. 91-cv-171 (M. Tex. Criminal Information. United States v. Syncor Taiwan. Inc.. supra note 1991) (entry of injunction barring company from future FCPA vi adorn 189. based on allegations that employees of the company participated in 117 EFTA01080414 bribery scheme to pay forceps officials ofSaskatchewan'sstate-owned transportation company 550.000 CAD in connection with sale of buses); United States v. Carves. cial.,No.79-ev-1768 S Fla. 1979) (entry APPENDIX ofinjunction barring company from future FC violations based on allegations that Carver and Holley. officers and shareholders of Holcar Endnotes Oil Corp.. paid $1.5 million to Qatar forceps official to secure an oil drilling concession agreement): United States v. Kenny. a d No. 79-ev. 2038 1979) (in conjunction with criminal proceeding. entry of injunction wring company from future FCPA violations for providing illegal financial assistance to political party tosecure renewal ofstamp distribution agreement). MS IS USG. 44 78dd-2(g)(I)(B), 78dd-3(e)(1)(B), 78ff(c)(1)(8); see also AND ANTICORRUPTION PROGRESS REPORT 2009-2010 7. 14 17 G.F.R. 4 201.1004 (providing adjustments for inflation). ("As the premier financial development institution in Africa. the "IS US.C. 45:78dd-2(8)(2)(B). 78dd-3(e)(2)(B), 78ff(c)(2)(8); see also AIDS is determined to root out misconduct. fraud and corruption 17 C.F.R. 4 201.1004 (providing adjustments for inflation). within its own ranks as well as in the implementation of the projects "15 US.C.45:78dd-2(g)(3).78,1d-3(c)(3). 78ff(c)(3); Mt alio 17 C.F.R. it finances. In order to do so. the Bank created an anti-corruption and 201.1004 (providing adjustments for inflation). fraud investigation division in November 2005 as its sole investigative I'm Section 21(B)(b) ofthe Erchange Act. IS USC. 5 78u(e1)(3):see also body. The unit became operational inJune 2006 and commenced 17 C.F.R. 4 201.1004 (providing adjustments for inflation). investigations in January 2007.... Investigations conducted by the '61-SeeSecurities Enforcement Remedies and Penny Stock Reform Act 1ACD (Integrity and Anti-Corruption Department) arc not criminal of 1390. Pub. L No. 101429.104 Stilt. 931 0 202. 301. 401. and 402 proceedings; they are administrative in nature. Sanctions range from (codified in scattered sections ofTide IS ofthe United States Codc). personnel disciplinary actions. such as separation. to loan cancellation "48 G.F.R. 449.406-2, 9.407-7- and debarment for contractors. which can be temporary or permanent."). "48 G.F.R.4 9.40204. available at http://www.afdlaorg/fileadmin/uploads/afdb/Documcnts/ '"See 48 C.F.R. 45 9.406-I.9.407-1(6)(2). Section 9.406-1 sets forth thc Publicationsuntegrity%20-and%20Anti-Corniption.pdf: The World following non-exhaustive list offacto's: Bank Group. Proeurement: Sanction, Committee ('The World Bank's (I) Whether the contractor had dfcctivc standards debarment process was first formulated in July. 1996. and the Sanctions of conduct and internal control systems in place at Committee was established in November 1998 to review allegations and the time ofthe activity which constitutes cause for recommend sanctions to the President. Written procedures were issued debarment or had adopted such procedures prior to in August 2001 and are posted on the Bank's %oldie, along with the anyGovernment investigation of the activity cited as sanction actions:Jan...gable at hurlhweb.worldbank.oreWB.SITE/ a cause for debarment. EXTERNAL/PROJECTS/PROCURENIENT/0„contentMDK:50D0 (2) Whether the contractor brought the activity 2288,-pagePK:84271—piPK:84287—theSitePK:84266.00.htmL cited at a cause for debarment to the attention of the "'See African Development Bank Group. Asian Development Bank. appropriate Govcrnmcnt agency in a timely manner. European Bank for Reconstruction and Dcvelopmcnt. Inter-American (3) Whcthcr the contractor hat fully investigated Development Bank Group and World Bank Group. Agreement the CirCUTTIMACCY surroundingdie cause for for MutualEnforeement ofDebarment &fluff)! (Apr. 9. 2010). debarment and. if so. made the result ofthe mailaLleat http://sitercsourca.worldbankorg/NEWS/Resources/ investigation available to the &batting official. AgrcementForMutualEnforeementorDebasmentDecisionstdf. (4) Whcthcr the contractor cooperated fully with "Id.: see also The World Bank Group, Cross-Delumnent Atone/ Stem Up Government agencies dining the investigation and Fight Against Corruption (Apr. 9, 2010) (—With today's cross-debarman any court or administrative action. agreement among development banks, a clear message on anticorruption (5) Whether the contractor has paid or has weed is being deliveial: Steal and cheat from one get punished by all: said to pay all criminal, civil, and administrative liability World Bank Group President Robert B. Zoellick."). erailebie az http:// for the improper activity. including any investigative weltworldbank.org/WBSITE/EXTERNAL/NEWS/0„contentkIDK:2 or administrative costs incurred Ly thc Government. 2535805.-pagcPK:64257043tiiPK:437376—ffieSitePK:4607.00.hunl. and has made or agreed to make full restitution. "22 C.F.R. 55 126.7(x)(3)44).120.27(4(6). (6) Whether the contractor has taken approp 'Authority under the AECA is delegated to the DDTC. See 22 C.F.R. disciplinary action against the individuals 5 120.1(a). responsible (or thc activity which constitutes cause "22 US.0 5 2778(g)(I)(A)(vi).(g)(3)(B). for debarment. C.F.R. 4127.7(c). (7) Whether the contractor has implemented or 'Seenone note 286. agreed to implement remedial measures. including "See Gary G. Grindkr, Acting Dep. AteyGai.. US. Dept. of any identified by the Government. Justice, Mem. to the Heads ofDepartment Components and United (8) Whcthcr the contractor has instituted or agreed States Attorneys on Additional Guidance on the Use ofMonitors in to institute new or revised review and control Defined Prosecution Agreements and Non-Prosecution (May 25. procedures and ethics training programs. 2010). eswilable at http://www.junice.govidaghlag-mcmo-guidance- (9) Whether the contractor has had adequate monitors.pdf; Lanny A. Breuer. Assist. Any Gen.. Dept ofJustice. time to eliminate the circumstances within the Mem. to All Criminal Division Personnel on Selection ofMonica% in contractor's organization that led to thc Ouse for Criminal Division Matteis (June 24. 2009). available http.//www. debarment. jatice.govicriminalifraud/fipaidoes/response3-supp-apps-3.pdf: see (10) Whether the contractor manageman alto Craig S. Mor(ord. Acting Dep. Atey Gen.. US. Dept. ofJustice. recognizes and understands the seriousness of the Mem. to the Heads ofDepartment Components and United States misconduct giving rise to the cause for debarment Attorneys on Selection and Use of Monitors in Deferred Prosecution and has implemented programs to prevent Agreements and Non-Prosecution Agreements with Corporations recurrence. (Mar. 7. 2008). avaiLtIde at hetp: Iwww.justiee.gmtIdaglmor(ord. "48 C.F.R.f 9.406-1(a). useofmonitorsmcmo.03072008.Of. 36'Exce. Order No. 12.549.51 Fed. Fteg.6,370 (Feb. 18.1986): F.xec. "Historically. DOJ had. on occasion. agreed to DPAs with companies Order No.12,689, 54 Fed. Reg. 34131 (Aug. 18.1989). that were not filed with the court. That is no longer the practice ofDOJ. Its48 C.F.R. § 9A07-2(b). "USANI § 9-27.230. "USANI 49-28.1300 (2008). liz USAIM 9-27.230.B. "See, eg, AFRICAN DEVELOPMENT BANK GROUP. INTEGRITY "DO) has recently declined matters where some or all of the following 118 EFTA01080415 circumstances wee present: (I) a corporation voluntarily and fully at the earlier reportingdate . thus preserving their 'place in line" foe disclosed the potential misconduct: (2) corporate principles voluntarily a possible whistleblower award from the SEC; and (3) provide that a engaged in interviews with DOJ and provided truthful and complete whisdcblowcr's voluntary participation in an entity's internal compliance information about their conduct: (3) a parent company conducted and reportingsystems is a factor that can increase the amount of an extensive prc-acquisition duc diligence ofpotentially liable subsidiaries award and that a whisticblower's interference with internal compliance and engaged in significant re:mediation efforts post-acquisition; (4) a and reporting system is a factor that can decrease the amount of an award. company provided information about its extensive compliance Ste Exchange Act Ruk 2IF. 17 C.F.R. $ 240.21F. procedures. and internal controls: (5) a company agreed to a civil ".Ste Exchange Act Ruk 21F-7(b). 17 C.F.R.$ 240.21F-7(b). resolution with the Securities and Exchange Commission while also "For example. SEC staffwill not disclose a whistleblower's identity in demonstrating that criminal dcdination was appropriate: (6) only a single response to requests under the Freedom ofInformation Act. However, employe was involved in the improper payments: and (7) the improper that arc limit+ on SEC's ability toshield a whistleblower's identity, payments involved minimal funds compared to overall business revenues. and in certain circumstances SEC must disclose it to outside entities. ".&e CriminaHnformation. tinned.States Sc Peterson. supra note 8. For example. in an administrative or court proceeding. SEC may be Press Release, US. Dept. ofJusticc. Former Morgan Stanley Managing required to produce documents or other information that would Director Pleads Guilty for Role in Evading Internal Controls Required reveal the whistkbloweri identity. In addition. as part ofongoing by FCPA (Apr. 25, 2012), available as http://www.justicegov/opa/ SEC investigatory responsibilities. SEC staffmay use information pr/2012/Apti1/12-erm-534.html ("Aker considering all the available provided by a whisdeblower during the course of the investigation. In facts and circumstances. including that Morgan Stanley constructed and appropriate circumstances. SEC may also provide information. subject maintained a system ofinternal controls. which provided reasonable to confidentiality requirements. to other govanmental or regulatory assurances that its employee were not bribing government officials. the entities. Exchange Act Rulc 2IF-7(a). 17 C.F.R. 240.21F-7(a). Department ofJustice declined to bring any enforcement action against "'Although SEC does not have an opinion procedure release process. Morgan Stanley related to Peterson's conduct. The company voluntarily it has declared its decision to follow the guidance announced through disclosed this matter and has cooperated throughout the department's DOJ's FCPA Opinion Rckase Procedure. US. Sec. and Exchange investigation:); see also Press Rekasc. U.S. Sec. and Exchange Comm.. Comm.. SEC Release No. 34-17099 (Aug. 29. 1980). maiLible at http:// SEC Charges Forma Morgan Stanley Executive with FCPA Violations wwwsce.get/nom/digest/1980/dig082980.pdf. SEC Release No. 34- and Investment Adviser Fraud (Apr. 25. 2012). atuilsblom http://www. 17099 sated that. to encourage issuers to take advantage of the DOJ1 sec.govInews/press/2012/2012-78.htm ("Morgan Stanky. which is not FCPA Review Procedure. a+ a matter ofprosecutorial discretion. SEC charged in the mama. cooperated with the SEC's inquiry and conducted would 'not take enforcement action alkging violations ofSection 30A a thorough internal investigation to detaminc the scope of the improper in any case where an issuer has sought and obtained an FCPA Review payments and other misconduct involved:). letter from the Department. prior to May 31. 1981. mating that the "SEC Rules of Practice. 17 C.F.R. $ 201.102(c). Department will not take enforcement action under Section 30A with "Deferred Pros. Agreement. In the Matter of Tenaris.S.A. (May 17, respect to the transaction involved: Id. Thc release funher noted that it 2011).ant/ladle& http://vnrwsce.govinews/press/2011/2011-112-dpa. would revisit this policy once the DO) had evaluated the results of the pdf; see also Press Release. US. Sec. and Exchange Comm..Tenaris to Pay FCPA Review Procedure aka its first year of operation. A second release $5.4 Million in SEC's First-Ever Deferred Prosecution Agreement (May stated that the SEC would continue to adhere to the policy announced 17. 2011).am/tit:kat kup://marocc-gov/news/press/2011/2011-112. in Release No. 34-17099. US. Sec. and Exchange Comm.. SEC Release htm. No. 34-18255 (Nov. 13. 1981). evadable at http://www•.sec.gov/news/ "See Non-Pits. Agreement. In re Thetis. S.A. (May 17, 2011).andaHr digest/1981/dig111381.pdc. at http://www.justice.gothriminaVfraudIfcpakaserhenths-sa/2011- "Both DOJ's opinion procedure releases (from 1993 to present) and 03-14-tenatis.pdf. review procedure releases (from 1980-1992) are available at http://www. "Sec U.S. SEC. AND EXCHANGE COMM- ENFORCEMENT MANUAL justice.govicriminaVfraud/kpa/opinion. 6.2-3. (March 9. 2012). smaittbk of http://www•sec-gov/divisions/ 1'Me full regulations relating to DOJ's opinion procedure arc available enforce/atforcementmanual.pdf. at http://www.justice.govicriminaVfraud/fcpa/docs/kperptpdf. "Seed 6.24. 4°128C.F.R.$ 80.1. "Steid.4 26. X0!28 C.F.R.$ 80.3. "18 1514A(e). X0'28 C.F.R.$ 80.12 ("Neither the submission of a request for m 18 U.S.C. $ 1513(e). FCPA Opinion. its pendency. nor the issuance of an FCPA Opinion. "15 U.S.C. 478u-6(a)(3). Thc new provision defines 'original shall in any way alter the responsibility ofan issuer to comply with the information to mean information that: accounting requirements of 15 U.S.C. 78m(b)(2) and (3):). (A) is derived from the independent knowledge °°'28 C.F.R.$ 80.4. or analysis of a whisdeblowee (B) is not known 10528 C.F.R.$ 80.5. to the Commission from any other source. unless "28 C.F.R.$ 80.6. the whistleblower is the original source of the 0"•28 C.F.R.$ 80.14(1). This non-disclosure policy applies regardless of information: and (C) is not exclusively derived from whether DO) responds to the request or the party withdraws the request an allegation made in a judicial or administrative before receiving a rapt:rec. Id. hearing. in agovernmental report. hosing. audit. i0t28 C.F.R.$ 80.6. or investigation. or from the news media. unless the X9"28 C.F.R.$ 80.2. whistkblower is a source ofthe information. "In connection with any request for an FCPA opinion, DOJ may "15 U.S.C. $ 78u-6: see also Dodd-Frank Wall Street Reform and conduct whatever independent investigation it believes appropriate. 28 Corcoran. Protection Act. Pub. L No.111-203. $ 922.124 Stat 1376. C.F.R.$ 80.7. 1841-49(2010). " 28 C.F.R.$ 80.15. Once a request is withdrawn. it has no effect ”' For detailed information about the program. includingeligibility However. DOJ meet; the right to retain a copy ofany FCPA requirements and certain limitations that apply. sec Section 922 of the opinion request. documents. and information submitted during the Dodd-Frank Wall Street Reform and Consumer Protection Act. available opinion release procedure for any governmental purpose. subject to the at http:/Iwwwscc.govhboutlofficeslowbIdodd-frank-scc-922.01. restrictions on disclosures in 28 C.F.R. $ 80.14. and the final rules on eligibility. Exchange Act Rule 2IF-8. 17 C.F.R. $ a1128 C.F.R.$ 80.8. 240.21F-8. "28 C.F.R.$ 80.7. "Such additional information. if furnished orally. "For exampk. the rules: (1) make a whisticblowcr eligible for an award must be confirmed in writingpromptly. The same person who signed if the whistleblower reports original information internally. and the the initial request must sign the written. supplemental information and company informs the SEC about the violations: (2) give whistleblowers must again certify it to be a true. correct and complete disclosure of the 120 days to report information to the SEC afier first reporting requested information: Id. internally and still be treated as if he or she had reported to the SEC 514 28 C.F.R.$ 80.9 ("No oral clearance. release or ocher statement 119 EFTA01080416 purporting to limit the enforcement discretion of the Department of Justice may be given. Thc requesting issuer or domestic cancan may rely only upon a written FCPA opinion letter signed Ly the Attorney General or his &Alyce). '28 C.F.R.4 80.8. FCPA opinions do not bind or obligate any agency Endnotes other than DOJ. They also do not affect the requesting party's obligations to any other agency or under any statutory or regulatory provision other than those specifically cited in the particular FCPA opinion. 28 C.F.R. 80.11. lithe conduct for which an FCPA opinion is requested is subject to approval by any other agency. such FCPA opinion may not Lc taken to indicate ElOrs views on any legal or factual issues before that other agency. 28 C.F.R. § 80.13. '28 C.F.R.4 80.10. DOJ can rebut this presumption Ly a preponderance of the evidence. A court detamining whether the presumption has been rebutted weighs all relevant factors. including whether the submittal information was accurate and complete and the activity was within the scope of conduct specified in the request.Id As of September 2012. DOJ has never pursued an enforcement action against a party for conduct that formed the basis of an FCPA opinion sating that the prospective conduct would violate DOJ s present enforcement policy. 'I'M a general matter. DOJ normally anonymizes much of the information in its publicly released opinions and includes the gcnaal nature and circumstances of the proposed conduct. DOJ does not release the identity of any foreign sales agents or other types ofidentifying information. 28 C.F.R. § 80.14(b). However. DOJ may rcicuc the identity of the requesting party, the foreign country in which the proposed conduct is to take place. and any actions DOJ took in response to the FCPA opinion request.It If a party believes that an opinion contains proprietary information. it may request that DOJ remove or anonymiac those portions of the opinion before it is publicly released. 28 C.F.R.§ 80.14(e). '28 C.F.R. § 80.16. 120 EFTA01080417 FCPA Unit FCPA Unit Fraud Section, Criminal Division Enforcement Division U.S. Department of Justice U.S. Securities & Exchange Commission 1400 New York Avenue, M. 100 F Street, NE Washington, DC 20005 Washington, DC 20549 http://www.justice.govicriminaUfraudficps/ http://www.sec.govispotlight/fcpa.shtml EFTA01080418