FCPA Anti-Bribery Provisions

The FCPA: Prohibited Conduct Under the Anti-Bribery Provisions

Introduction
 
In 1977, after more than two years of hearings, investigation and deliberation, the United States Congress enacted the Foreign Corrupt Practices Act (“FCPA”).[1] The FCPA was developed in response to revelations of widespread global corruption discovered during the Watergate investigation. Congress learned that major American corporations were using secret slush funds and falsifying corporate financial records to conceal corrupt business practices including the bribing of foreign officials.

 

In passing the FCPA, Congress hoped to raise the standards of ethical business conduct by expressly banning the practice of bribing foreign government officials. Proponents of the legislation also believed that the United States should take the lead and rally the world to combat bribery and corruption in the global marketplace. The rest of the world, however, was slow to react and for almost two decades the United States stood alone in its effort to ban corrupt payments to foreign officials. The international community has since reconsidered its position and, today, many countries across the globe have implemented anti-corruption legislation modeled after the FCPA.

 

As detailed in a prior article, the FCPA’s anti-bribery provisions have broad application. Because a violation triggers significant sanctions, organizations governed thereby must fully understand the scope of prohibited conduct and adjust their business practices to meet these standards. This article will analyze the anti-bribery provisions of the FCPA and describe the types of conduct that can trigger a violation.

 

The FCPA’s Prohibited Conduct.
 
The anti-bribery provisions of the FCPA are generally understood as banning the practice of bribing foreign government officials for the purpose of securing an improper business advantage.  While this simplified statement is accurate, it is much too narrow and leaves a misleading impression as to the scope of conduct that can trigger a violation. The FCPA’s prohibitions are not limited to back room deals where briefcases full of cash are exchanged for governmental favors. To the contrary, a broad range of scenarios can result in an FCPA violation – even those that may, at first glance, appear to be non-corrupt. Organizations must understand the varied business conduct that can increase their FCPA risk and tailor their compliance programs, employee training modules, and incentive and disciplinary policies to discourage these practices.

 

The simplified statement of the FCPA’s prohibited conduct, as stated above, includes three elements: (1) bribing; (2) foreign government officials; (3) to secure a business advantage. To demonstrate that the FCPA casts a much wider net than the statement suggests, we will analyze each of the elements and place them in context with the statutory language and enforcement standards.

 

1. Bribing. As an initial point, it is important to note that the word “bribe” or any derivation thereof does not appear anywhere in the statutory language. Instead, the statute prohibits: (1) “an offer, payment, promise to pay or [the] authorization of the payment of any money”, or (2) an “offer, gift, promise to give, or authorization of the giving of anything of value“. As is evident from the statutory language, both the prohibited act (offering, promising, making or authorizing) and the item of influence (anything of value) extend far beyond what one may envision under a customary understanding of bribery – i.e. an in-person exchange of cash. Indeed, the use of the words “offer”, “promise” and “authorize” in defining the prohibited act is significant as it underscores two important realities that may not be obvious to those unfamiliar with the FCPA. First, an actual payment or transfer of value is not required.  Merely offering or authorizing the improper payment or transfer is sufficient to trigger a violation. Second, the payment or transfer of value does not have to be accepted for a violation to occur.

 

With respect to the item of influence, an organization must recognize that the phrase anything of value is intentionally broad. This term has been interpreted to include a broad range of benefits including cash and cash equivalents, extravagant gifts, services, charitable donations, political contributions, loans, travel expenses, tickets to sporting events, entertainment outings, job offers, etc. In addition, there is no minimum threshold amount for an improper payment or gift. Instead, a transaction is evaluated on a case-by-case basis. An organization, therefore, must take careful inventory of the perks and benefits available to its personnel in transacting business and ensure there are clear and consistent guidelines as to the appropriate use of each. Moreover, it must devote sufficient resources to monitor and audit the use of these items of influence so that red flags are identified and potential transgressions are addressed early and efficiently.

 

While the prohibited act and item of influence are broadly defined and applied, there is one important limitation to the bribery element. That is, the person making or authorizing the payment or transfer of value must act with a corrupt intent. That is, the prohibited act must be intended to induce the recipient to misuse his or her official position of authority. While it is difficult to discern a person’s true intention, the corrupt intent will generally be inferred from the circumstances. A prime indicator of a corrupt intent is evidence of a quid pro quo. That is, regulators will review the timing of the prohibited act, whether the transaction was open and transparent, and whether there was any business pending before the recipient at or near the time the item of influence was offered, authorized or transferred. Other factors to be considered include the value and extravagance of the item(s) of influence, whether the transfer is consistent with a non-corrupt transaction, whether it serves a legitimate business purpose, and whether such transaction is legal under local law. A final and significant factor to be evaluated is the manner in which the transaction is recorded in the organization’s books and records – more to the point, whether it is accurate and transparent.

 

2. Foreign Government Official. The second element of the analysis focuses on the recipient of the item of influence. The anti-bribery provisions of the FCPA only prohibit corrupt payments or transfers to foreign government officials. Corrupt transactions between private commercial entities, while unethical and potentially illegal under other laws, do not violate the FCPA. The focus on foreign government officials is not to suggest that the FCPA applies only to transactions involving elected officials or high level government employees. That is, the statutory prohibition is drafted broadly and precludes corrupt payments to “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.” The statute further prohibits corrupt payments to “any foreign political party or official thereof” and “any candidate for foreign political office”. In short, the statutory language makes no distinction between low-ranking government employees, high-level officials, or candidates that aspire to hold public office.

 

Not only does the public official requirement include low and high ranking government officials, political organizations and candidates for public office, it also extends to officers and employees of any department, agency, or instrumentality of government. Courts have interpreted the term instrumentality of government to include state-owned and state-controlled entities. This is significant because many governments “operate through state-owned and state-controlled entities, particularly in such areas as aerospace and defense manufacturing, banking and finance, healthcare and life sciences, energy and extractive industries, telecommunications and transportation.”[2] The analysis of whether an entity qualifies as a state-owner or state-controlled entity is fact specific and considers a number of factors including: the purpose of the entity’s activities, the foreign state’s ownership interest or degree of control over the entity, and the level of financial support provided by the foreign state, among others.[3] U.S. companies, therefore, must analyze these and other factors to determine whether a given transaction could potentially trigger FCPA concerns.

 

As a final point, the FCPA prohibitions are not limited to direct interactions with foreign government officials. The statute also prohibits corrupt payments to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office. . .”   In other words, an organization cannot escape liability under the FCPA by engaging a third-party to carry out a corrupt scheme for its benefit. To be liable for the corrupt conduct of a third party, an organization must have knowledge of the wrongdoing. This knowledge standard, however, does not require actual knowledge. By statute, an organization is liable for the corrupt conduct of its third-party agents if it is “aware of a high probability of the existence of such circumstance”. An organization, therefore, cannot ignore red flags, stick its head-in-the-sand and pretend there is nothing to see. To the contrary, an organization must develop a vigorous due diligence program for vetting its third-party agents, vendors, and suppliers. In addition, it must actively monitor the conduct of these third-party entities and be diligent in identifying and addressing suspicious conduct.

 

3. To Secure a Business Advantage. The last element of an FCPA violation is demonstrating that the corrupt payment was intended to secure a business advantage or, per the language of the statute, “in order to assist . . . in obtaining or retaining business for or with, or directing business to any person.”  This standard is broadly interpreted. For example, the Fifth Circuit Court of Appeals stated “the congressional target was bribery paid to engender assistance in improving the business opportunities of the payor or his beneficiary, irrespective of whether that assistance be direct or indirect, and irrespective of whether it be related to administering the law, awarding extending or renewing a contract, or executing or preserving an agreement.”[4] Examples of business advantages secured by corrupt conduct include: winning a contract, influencing the procurement process, circumventing the rules for imported products, gaining access to non-public bid information, avoiding taxes and penalties, influencing judicial proceedings or enforcement actions, and obtaining favorable regulatory treatment or selective enforcement of laws, regulations or contract provisions.[5] Significantly, there is no requirement that that bribe be successful in achieving its purpose. A violation exists even where corrupt payment or authorization of a corrupt payment does not result in the desired benefit, or any benefit, to the person or organization making the payment. It is the purpose and intention of the prohibited act that matters.

 

Affirmative Defenses and Exception to an FCPA Violation
 
The anti-bribery provisions of the FCPA include two affirmative defenses and one narrow exception.[6] Because these provisions allow the accused to avoid liability under the Act, the accused has the burden of demonstrating that these provisions apply. The following is a brief summary of each:

 

1. Local Law Defense. The local law defense requires the accused to demonstrate that the prohibited act “was lawful under the written laws and regulations” of the foreign jurisdiction. The requirement that the law be in writing is significant as it precludes an argument that the conduct is a customary local business practice or otherwise tolerated by the host country.   Organizations, therefore, must be careful in relying and/or invoking this defense as its burden is to show that the conduct is expressly permitted under local law. The fact that the corrupt conduct is not prosecuted or penalized is insufficient to invoke the defense. In practice, the local law defense is of limited benefit as few, if any, countries have laws or regulations expressly permitting corrupt business practices.

 

2. Business Related Expense Defense.   The business related expense defense permits companies to pay for reasonable and bona fide business expenses incurred by a foreign official where those expenses are directly related to “the promotion, demonstration, or explanation of products or services [or] the execution or performance of a contract with a foreign government or agency . . . .”   This affirmative defense recognizes that it is a business necessity for companies to promote their products or services or demonstrate the performance of existing contracts. To that end, expenditures which may otherwise violate the FCPA will not give rise to prosecution if they meet this standard. In developing policies and procedures for authorizing these types of payments, an organization must include sufficient controls to ensure that each approved expense serves a legitimate business purpose.

 

3. Facilitating Payment Exception. The FCPA also includes one narrow exception for facilitating payments (also known as “grease payments”) – payments which are intended “to expedite or to secure the performance of a routine governmental action”. This exception applies only where the payment expedites a governmental action that is routine and non-discretionary. Examples of governmental actions that qualify under this exception included “processing visas, providing police protection or mail service, and supplying utilities like phone service, power, and water.”[7] The exception does not apply, however, where the governmental act is discretionary (i.e. awarding a contract) or results in the misuse of an official’s office.

 

While it may be tempting to incorporate the facilitating payment exception as part of your anti-bribery and corruption compliance program, there are two prime reasons for eliminating the use of these payments. First, the facilitating payment exception is narrowly interpreted and applied. As such, it is extremely difficult to develop procedures and/or training programs that adequately explain the nuances of the exception and provide clarity for when such payments are (or are not) appropriate. Moreover, it places an organization’s employees in the difficult positon of having to make a judgment call, often in the heat of the moment, on a complex legal issue. A clear bright-line prohibition of these payments eliminates this concern and is much easier to implement. Second, anti-corruption legislation in other countries (including the U.K. Bribery Act) do not include an exception for facilitating payments. This adds an additional layer of complexity to the analysis as the payment, while permissible under the FCPA, may nonetheless violate another anti-bribery standard. Under such circumstance, it is best to adhere to the strictest standard, which in this case would dictate a universal prohibition on facilitating payments.

 

Conclusion
 
The anti-bribery provisions of the FCPA ban the practice of bribing foreign government officials for the purpose of gaining an unfair business advantage. While the prohibition appears straight forward, in practice the statute’s application is far more complex and varied. An organization engaged in international business, therefore, must carefully asses its exposure under the FCPA and adjust its existing business practices to ensure they comply with the standards therein. To that end, an organization must implement a comprehensive anti-bribery and corruption compliance program that features policies and procedures that are consistent across all impacted business units and address the complexities and nuances of the FCPA. Moreover, the program must include controls and safeguards that monitor high risk transactions and flag potential violations. A robust compliance program can significantly reduce an organization’s FCPA risk by defining the boundaries of permissible business conduct, discouraging behavior that can put the organization at risk, and identifying improper conduct before it snowballs into a full blown violation.

 


 

[1] To review the complete text of the Foreign Corrupt Practice act click here.

 

[2] A Resource Guide the U.S. Foreign Corrupt Practices Act. 2012, p. 20. The Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission jointly published the referenced Resource Guide. For a complete copy of the guide please click here.

 

[3] A Resource Guide the U.S. Foreign Corrupt Practices Act. 2012, p. 20.

 

[4] United States v. Kay, 359 F.3d 738 (5th Cir. 2004). For a copy of the Kay decision please click here.

 

[5] A Resource Guide the U.S. Foreign Corrupt Practices Act. 2012, p. 22.

 

[6] The difference between an exception and an affirmative defense is subtle, but important. An exception is a carve out from the standard of liability established by statute. As such, when an exception applies, the conduct does not trigger a violation because – by definition – it does not meet the standard of liability. An affirmative defense, on the other hand, is invoked to defeat or mitigate the legal consequences of the violation. Effectively the defendant acknowledges that he or she violated that statute, but argues that the affirmative defense relieves him or her from any penalty.

 

[7] A Resource Guide the U.S. Foreign Corrupt Practices Act. 2012, p. 25.

 

*This article is intended to be a source of general information. It is not intended to provide legal advice. For specific counsel or advice, please consult with an experienced professional.

 

**For any questions or comments, please contact Three Twelve Group by phone at 404.872.5615 or by email at info@thethreetwelvegroup.com.

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