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Anti-Bribery Compliance: It

Anti-Bribery Compliance: It's Not Just For Big, Multi-National Companies


SML Perspectives
(November 19, 2012)

Why You Should Be Concerned

You may suspect that only large, international companies have to comply with anti-bribery legislation. But in an age where inexpensive goods, services, and labor from around the world are readily accessible, many businesses have interests abroad, and businesses of all sizes should make themselves aware of anti-bribery laws (or risk the consequences).

The United States has been a leader in combating international bribery. The Foreign Corrupt Practice Act of 1977 (FCPA) is legislation that makes it illegal to bribe foreign officials to obtain business, a crime punishable by fines and/or imprisonment. You may be surprised that the definition of “foreign official” is broader than it sounds on its face. For example, the U.S. government’s definition of a “foreign official” may include employees of state-owned companies. In countries like China where many businesses are run by the state, it’s easy to become unclear about whether U.S. law will apply to specific relationships or interactions. Businesses in developing countries like Mexico may be partially owned by government officials, and interactions under those circumstances could also put you at risk. Before doing business in a foreign country, it is always a good practice to do due-diligence and research the country’s corruption-related history.

The Law Doesn’t Apply to Gifts, Right?

Under the FCPA, an employee or third-party acting on a company’s behalf is prohibited from giving, offering, or promising money or “anything of value,” directly or indirectly, to a foreign official with the intent of creating or maintaining business.

In the United States, it may be easier to make the distinction between a gift and a bribe because of our general understanding of American business culture. Gifts to important customers, key clients, or business partners are often given to show appreciation; not with the expectation of quid pro quo. In developing countries, the distinction can be less clear, and corporate hospitality in foreign countries, including travel and entertainment, may be interpreted as a bribe under the FCPA.

So, What Exactly Do You Mean by Bribe?

Bribery under the FCPA must include the following five elements:

  1. A payment, offer, authorization or promise to pay money or anything of value;
  2. The involvement of a foreign official (including a government official or manager of a state-owned business, international organization official, political party or party official candidate for public office), or any other person, knowing that the payment or promise will be passed on to a foreign official;
  3. A corrupt motive (which includes consciousness of wrongdoing);
  4. Having the purpose to influence any act or decision of that person; to induce that person to do or omit any action in violation of his lawful duty; to secure an improper advantage; or to induce that person to use his influence to affect an official act or decision; and
  5. Assisting in obtaining or retaining business for or with, or directing any business to, any person.

Does the FCPA Apply to My Company?

If you are reading this article, the FCPA likely applies to your company. The FCPA applies to any company that (1) has its principal place of business in the United States or its territories or Commonwealths, or (2) is organized under the laws of a U.S. state. Companies that have securities registered in the U.S. or those that are required to file reports with the Securities and Exchange Commission (SEC) are also subject to the law.

U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled activity in question.

Does the FCPA Apply to Me?

Again, if you are reading this article, the FCPA likely applies to you individually. The law applies to U.S. citizens, residents and nationals. FCPA prosecutors have sought severe sentences and fines for individual executives. It is not necessary for an individual to be directly involved in improper conduct; turning a blind eye to wrongful conduct may bring consequences as well.

Prosecutors have been known to start an investigation against a company and use information gathered to build a case against individuals, and vice versa. The FCPA may also hold an individual or company liable for bribes paid by a third-party if the principal had knowledge of the third-party’s misconduct. You should keep a careful eye on the activities of third-parties that you engage on behalf of your business, including agents, distributors, brokers, local business partners, sales licensing and other representatives, consultants, advisors, lawyers and accountants.

Enforcement on the Rise

In recent years, enforcement under FCPA has reached historic levels. In 2010, 74 FCPA cases were tried, and the Department of Justice (DOJ) imposed more than $1 billion in criminal penalties, a record high over a single year period. 2011 saw the second-highest number of enforcements since the law began: 48. Thus far, 2012 seems to tracking along last year’s numbers.

Enforcement has been conducted through the DOJ since 2006 for domestic concerns, foreign companies, and nationals; the SEC has been responsible for civil enforcement with respect to issuers of securities since 2010. These agencies also partner with the Federal Bureau of Investigation, and Immigration and Customs Departments to complete investigations. Under the Dodd-Frank financial reform law, whistleblowers can be rewarded for reporting violations which may also account for some of the increase in enforcements.

Identifying Red Flags

While preventing, detecting, and responding to corruption concerns should be a constant priority for your business, there are some specific red flags that should draw extra scrutiny:

  • Doing business in a country with a reputation for corruption: Transparency International publishes a Corruption Perception Index that measures perceived levels of public sector corruption in 183 countries and territories around the world. Afghanistan, Myanmar, North Korea, and Somalia topped the list as the most corrupt in 2011, but you might be surprised at some of the findings overall.
  • Know your industry: Some industries are known to have corruption issues. If your industry falls into this category, you should be especially careful.
  • Rejection of anti-corruption provisions: Avoid doing business with foreign companies that reject provisions in your commercial contracts that prohibit payments to public officials.
  • Unusual payment patterns or financial arrangements: Request for payments to multiple bank accounts or to a different party is a warning sign of possible corruption.
  • Lack of transparency in expenses and accounting records: The better the financial records, the more difficult it is to obscure corrupt dealings.
  • Recommendation by a Foreign Official: If a foreign official recommends that you do business with a particular company, you should take caution.

Key Elements of a Compliance Program

When doing business in a global economy, an anti-bribery compliance program is one measure against the immense costs associated with an anti-bribery investigation. Although the existence of a compliance program will not necessarily absolve a company from criminal liability, federal prosecutors will evaluate a company’s compliance program in determining what charges, if any, to bring against a company for potential FCPA violations. A robust compliance program can also potentially reduce a company’s criminal fine under Federal Sentencing Guidelines. A few key elements of your compliance program should include:

  • A prohibition against bribery, and the establishment of standards and guidelines for transacting business in foreign countries;
  • Policies with regard to gifts, entertainment, political contributions, etc.;
  • The due-diligence required when entering into business contracts with third-parties or business partners in other countries;
  • Guidance on how to respond to red flags;
  • A program to educate employees regarding anti-bribery issues and adherence to your compliance program; and
  • Well-defined disciplinary procedures to address violations of anti-corruption laws.

What Other Anti-Corruption Laws Do I Need to be Aware of?

Under the U.S. Travel Act, the international travel, phone call, email or wire transfer used to carry out a bribe is considered unlawful activity, rather than the bribe itself. However, unlawful activity under this act can also include bribery under state laws, some of which criminalize commercial bribery whether foreign officials are involved or not. The DOJ may use the Travel Act as an alternate or additional charge in FCPA investigations.

United Kingdom Bribery Act

The toughest anti-bribery legislation in the world is the UK Bribery Act of 2010. The UK Bribery Act is further reaching than the FCPA, and penalizes companies without compliance programs. 

  • What are bribery offences?
    • FCPA: Bribing of a foreign official.
    • UK Bribery Act: Offering, promising or giving an advantage; requesting, agreeing to receive or accepting an advantage; bribing a foreign official; failing to prevent bribe; and accepting or giving a bribe.
  • Who is being bribed?
    • FCPA: “Foreign officials”
    • UK Bribery Act: Bribery offences to any person are prohibited (whether public or private).
  • Geographical Reach
    • FCPA: US citizens, US corporations and companies with a place of business in the United States, persons acting within the United States, issuers (and their officers, directors, agents and employees).
    • UK Bribery Act: UK corporate entities (even if foreign owned), UK citizens, foreign individuals ordinarily resident in the UK, non-UK corporate entities that carry on even part of their business in the UK, and any individual or corporate entity that carries out bribery in the UK.
  • Failing to Prevent Bribery
    • FCPA: There is no specific offence for failing to prevent bribery, though willful blindness and corporate criminal liability are similar offences.
    • UK Bribery Act: Companies and their senior officers that fail to prevent bribery can be charged.
  • Facilitation Payments
    • FCPA: Permitted under some circumstances under the FCPA.
    • UK Bribery Act: Banned under the UK legislation.
  • Penalties
    • FCPA: Individuals: $250,000 per violation and up to five years imprisonment.
      Corporations: Up to $2 million per violation and a civil penalty of $10,000. The Alternative Fines Act may increase the criminal fine to twice the gain or loss resulting from the corrupt payment.
    • UK Bribery Act: Ten years of jail time for individuals.
      Unlimited fines for companies, individuals, and partnerships involved in the bribery.
  • Defenses
    • FCPA: A robust compliance program can potentially reduce a company’s criminal fine, but it does not provide a legal defense to charges of bribery.
    • UK Bribery Act: A compliance program creates a legal defense if a company can show that it had adequate procedures to promote compliance in place.

Final Remarks

FCPA and anticorruption compliance should be an ongoing process initiated before, during, and after the life of any agreement or transaction. An effective compliance program can help protect against bribery risk, and foster a culture of integrity throughout your organization. In today’s global economy, you can’t be too careful.

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Authors
Robert D. Kidwell
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