American Bar
Association
Forum
on the Construction Industry
Recognizing and
Defending Against
Foreign Corrupt
Practices Act Violations
Don Zarin
Holland &
Knight
Peter Evenson
Tuggle Duggins
& Meschan
April 24-26, 2008
La Quinta Resort and Club –
This document is reprinted with permission from Chapters 2, 4 and 8 of Doing Business Under the Foreign Corrupt Practices Act, by Don Zarin. Published by Practising Law Institute. Copyright © 2008. All rights reserved.
©2008 American Bar Association
TABLE OF CONTENTS
Introduction: The Foreign Corrupt Practices Act
Section 1: The Foreign Payments
Provisions
§ 1:1 U.S.
Companies and
§ 1:1.1 Issuers
§ 1:1.2 Domestic Concern
§ 1:1.3 Officer, Director, Employee, Agent, or Stockholder
§ 1:1.4 Foreign Natural and Legal Persons
§ 1:2 Jurisdiction
§ 1:2.1 Instrumentality of Interstate Commerce
§ 1:2.2 Nationality Jurisdiction
§ 1:3 Corruptly
§ 1:4 Foreign Official
§ 1:4.1 Officer or Employee
§ 1:4.2 Agency or Instrumentality of Foreign Government
§ 1:4.3 Acting For or On Behalf Of
§ 1:4.4 Public International Organization
§ 1:5 Foreign Political Party or Official Thereof or Any Candidate for
Foreign Political Office
§ 1:6 Anything of Value
§ 1:7 Payments to Third Parties
§ 1:8 Knowledge Standard
§ 1:8.1 Repeal of “Reason to Know” Standard
§ 1:8.2 Current Definition of Knowledge
§ 1:9 Standard of Authorization
§ 1:10 Influencing or Inducing an Act or Decision of a Foreign Official
§ 1:11 Obtaining or Retaining Business or Directing Business to Any Person
§ 1:12 Conclusion
Section 2: Fines, Penalties and
Other Sanctions
§ 2:1 Violation of FCPA
§ 2:1.1 The Accounting Provisions
§ 2:1.2 The Bribery Provisions
§ 2:2 Ineligibility for Government Programs
§ 2:2.1
§ 2:2.2 Export Licenses for Defense Articles
§ 2:3 Tax Consequences
§ 2:3.1 Disallowance of Deductions
§ 2:3.2 Inclusion of Unlawful Payments in Taxable Income
Introduction
The Foreign Corrupt Practices Act
(FCPA or Act) is a by-product of the Watergate scandal of the 1970s. It has drawn more attention in recent years
as the likelihood that information regarding illicit payments made by a
The FCPA has two substantive
parts: (1) the accounting provisions,
which impose certain accounting and record-keeping requirements upon publically
held U.S. companies; and (2) the foreign payments provisions, which make it
illegal for any U.S. company or U.S. citizen, national, or resident to bribe a
foreign official for the purpose of obtaining or retaining business. This overview focuses on the foreign payments
provisions as these present the greatest exposure to non-publically held
construction companies working outside of the
Specifically, the FCPA prohibits:
(1)
(2)
(3) using an instrumentality of interstate commerce
(4) corruptly
(5) in furtherance of an offer, payment, or promise to pay or authorization of the payment of
(6) anything of value
(7) to any foreign official,
(8) foreign political party or official thereof or any candidate for foreign political office, or
(9) 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,
(10) for purposes of influencing any act or decision of such foreign official, inducing such official to do or omit to do some action, or induce such official to influence any act or decision of such government,
(11) in order to assist in obtaining or retaining business, or directing business to any person.
In addition, the FCPA was amended in October 1998 (hereinafter “the 1998 Amendments”) in order to conform the FCPA to the Organization for Economic Co-operation and Development (OECD) Convention. The 1998 Amendments made several important changes:
(i) they
applied the nationality basis of jurisdiction to
(ii) they
extended the application of the FCPA to foreign persons and entities, including
foreign subsidiaries of
By its terms, the FCPA applies to
On
the other hand, the legislative
history makes very clear that a
Section 1: The Foreign Payments Provisions
§
1:1 U.S. Companies and
In enacting
the FCPA, Congress intentionally limited its jurisdictional scope principally
to
Specifically, the FCPA applies to:
(a) issuers;2
(b) domestic concerns;3 or
(c) any officer, director, employee, or agent of such issuer or domestic concern, or any stockholder thereof acting on behalf of such issuer or domestic concern.
§
1:1.1 Issuers
Issuers4 that have a class of securities registered pursuant to section 12 of the Exchange Act or that are required to file reports under section 15(d) of the Exchange Act5 are subject to the FCPA. This includes several subsets of entities:
• Issuers with a class of securities registered on a national securities exchange pursuant to section 12(b) of the Exchange Act
• Issuers with a class of equity securities listed on the National Association of Securities Dealers Automated Quotation (NASDAQ) System;
• Issuers that have $10 million or more in assets on the last day of their most recent fiscal year and that have a class of equity securities held by 500 or more persons, with the exception of issuers specifically exempt under section 12 or the rules thereunder or that have received an exemption from the SEC;6
• Foreign
private issuers whose securities are registered under the Exchange Act;7
• Banks and other financial institutions that file Exchange Act reports with the Office of the Comptroller of the Currency (OCC) or other appropriate financial institution agency, also known as “section 12(i) companies”;8 and
• Issuers that offered securities to the public using the vehicle of a registration statement and prospectus pursuant to the Securities Act of 1933—but only during the one-year “duty to update” period following the offering (“section 15(d) registrants”). 9
§
1:1.2 Domestic Concern
The term “domestic concern” means:
(A) any individual who is a
citizen, national, or resident of the
and
(B) any corporation,
partnership, association, joint-stock company,
business trust, unincorporated organization,
or sole proprietorship which has
its principal place of business in the United States, or which is organized
under the laws of a State of the
United States or
a territory, possession,
or commonwealth of the United States.10
The application
of the FCPA
was originally limited
to business enterprises organized
in the United States or which have their principal place
of business there.
It did not cover foreign companies, including foreign subsidiaries of
An
interesting issue was whether a foreign corporation which is doing business in
the
§
1:1.3 Officer, Director, Employee,
Agent, or Stockholder
The application of the FCPA also
extends to the officers, directors, employees, agents, or stockholders of
In
imposing liability, the
FCPA originally distinguished
between foreign nationals who were officers, directors, or stockholders
of U.S. companies and those
who were employees
or agents of
U.S. companies. The FCPA reached foreign national officers or directors
of a U.S. company, or a foreign national stockholder acting on behalf of a U.S.
company.16 In contrast,
foreign national employees
or agents17 of a U.S.
company were subject to criminal liability18 under the FCPA only if such
persons were “otherwise
subject to the
jurisdiction of the United States.”19
The
distinction between officers
and directors, on
the one hand, and
employees and agents
on the other
hand, had its
origins in the so-called Eckhardt amendment. Originally,
the FCPA required a finding that the U.S. company violated the FCPA as a
predicate to any liability
for the actions
of the employee
or agent of
that company.20 This
requirement was repealed in the 1988 Amendments. As a result, an employee or
agent of a U.S. company can be held liable under the FCPA, even if the U.S.
company is acquitted or never charged
with an offense.21 Presumably,
this also applies
to foreign nationals
who are employees or agents of a
U.S. company.22
The 1998 amendment to the FCPA
eliminated the differing treatment for foreign national employees or agents of
a
§
1:1.4 Foreign Natural and Legal
Persons
The OECD Convention calls on each member State to establish jurisdiction over the bribery of a foreign official committed by “any person” in whole or in part in the territory of the member State.23 In contract, the scope of the FCPA had been limited principally to U.S. companies and to U.S. citizens, nationals, and residents.24 The Act generally did not apply to foreign corporations24.1 and their foreign national employees, even if such persons committed a substantial part of the illicit conduct within the territory of the United States.
To conform the FCPA to the OECD Convention, the 1998 amendments to the FCPA expanded the scope of the FCPA to cover foreign natural and legal persons, but required, as a jurisdictional nexus, that such foreign persons commit an act in furtherance of the bribery of a foreign official “while in the territory of the United States.”24.2 As a result of this amendment, the FCPA now applies to “any person” but contains differing jurisdictional standards for different categories of persons.
The Administration had originally proposed to amend the
FCPA by expanding its application to “any person” who uses an “instrumentality
of interstate commerce” in furtherance of a prohibited payment. Such a
provision would have substantially expanded the reach of the FCPA, as the
jurisdictional requirement to use an instrumentality of interstate commerce has
been very broadly construed. The impact
of the provision would have been felt principally by foreign subsidiaries of
The term “territory of the United States,” however, is given a broad interpretation to encompass all areas over which the United States asserts territorial jurisdiction.24.6 This includes not only the actual territorial boundaries of the fifty states, as well as territories, possessions, and commonwealths, but also includes airplanes flying under its flag, and persons aboard aircraft en route to the United States.24.7 Under this broad interpretation, a telephone call made by a foreign national on a U.S. airline flying over Europe could arguably be deemed to be an act within the territory of the United States. Moreover, in an indication of potentially broad enforcement intentions, a Department of Justice official, at a conference on the FCPA, suggested that the Department might consider an act physically done outside the territory of the United States (for example, email sent by foreign national from abroad) that triggers/causes an act to be done within the territory of the United States to be sufficient to meet this jurisdictional requirement.24.8 Such an interpretation would effectively bring the jurisdictional requirement close to the “instrumentality of interstate commerce” test. This approach had been rejected by the Administration in its internal deliberations.
Under this new amendment, foreign corporations, particularly foreign subsidiaries of U.S. companies, and foreign national employees of foreign subsidiaries, may now, for the first time, be independently liable under the FCPA.24.9 This can occur even though the U.S. parent company had no knowledge of or involvement with such conduct. While the U.S. parent company may not be liable under the FCPA for the improper conduct engaged in by its foreign subsidiary, the press reports of the indictment of a U.S. company’s foreign subsidiary are unlikely to make such a fine distinction. Accordingly, this amendment constitutes a significant expansion of the FCPA.
Notwithstanding the above discussion, however, recent FCPA enforcement actions appear to constitute a significant, unwarranted expansion of subject matter jurisdiction over foreign subsidiaries of U.S. companies. In a Plea Agreement that arose from a voluntary disclosure, DPC (Tianjin) Co. Ltd., a wholly-owned Chinese subsidiary of Diagnostics Products Corporation (“Diagnostics”), pled guilty to one count of a violation of the FCPA.24.10 DPC produces and sells diagnostic medical equipment. It made payments totaling approximately $1.6 million from 1991 to 2002 to physicians and laboratory personnel employed by government-owned hospitals in the PRC to influence their decisions to purchase the company ’s products. Diagnostics had no knowledge of and did not authorize the improper conduct.
It is unclear from the pleadings whether the Chinese subsidiary committed any act in furtherance of the improper payments while in the territory of the United States, a prerequisite for criminal liability under the FCPA.24.11 Rather, the Plea Agreement charged the Chinese subsidiary with being an “agent” of Diagnostics.24.12 As an agent, the jurisdictional nexus required for liability is the use of an instrumentality of interstate commerce.24.13 The plea agreement indicates that the Chinese subsidiary caused a proposed budget to be sent from Los Angeles to China by phone, facsimile, and email, and sent an email message from China to Diagnostics in California, which attached a monthly report that included payments to laboratory personnel and doctors.
Similarly,
in a plea agreement arising from a voluntary disclosure by Schnitzer Steel
Industries, Inc., its South Korean
subsidiary, SSI
International Far East,
Ltd. (“SSI Korea”),24.14
made improper payments to managers of government-owned customers in exchange for
continued business. SSI Korea entered a guilty plea to violations of the
antibribery and books and records provisions of the FCPA, and Schnitzer Steel
entered into a deferred prosecution agreement.24.15
Paralleling the situation
in DPC, the information filed in SSI International Far East alleged that SSI
Korea acted as Schnitzer Steel’s “agent” in
In effect, the
Department of Justice
appears to be
asserting that actions outside
the United States which “cause” actions to take place within the
United States in
furtherance of a
prohibited payment constitute
acts “within the territorial jurisdiction of the U.S.”24.16
Most recently,
in another Plea
Agreement that arose
from a voluntary disclosure,
several British companies
and their U.S.
affiliate24.17 pled
guilty to a violation of the FCPA and
conspiracy to violate the FCPA, for improper payments to customs officials in
The 1998 amendments to the FCPA created a limited and
narrow basis for asserting subject matter jurisdiction over a foreign
subsidiary (that is, if it commits any act in furtherance of the bribe while in
the territory of the
§ 1:2 Jurisdiction
§
1:2.1 Instrumentality of Interstate
Commerce
An additional
jurisdictional prerequisite to liability under the FCPA is the requirement that
the U.S. company “make use of the mails
or any means of instrumentality of
interstate commerce in
furtherance of” an illicit payment.25 The term “interstate commerce” covers trade,
commerce, transportation, or
communication among the
states or between any foreign
country and any state, or between any state and any place outside the United
States. It also includes the intrastate use of
a telephone or
other interstate means
of communication or any other interstate instrumentality.26
The inclusion
of the phrase
“in furtherance of”
as part of
this jurisdictional standard was intended to make clear that for
liability to attach, the use of interstate commerce need only be in furtherance
of making a prohibited
payment.27 This clause
significantly broadened the jurisdictional scope
of the FCPA,
making it easier
to meet this requirement. Under this standard, the
use of an interstate facility need only be “incident to an essential part of
the scheme.”28
For example, in Schmuck
v. United States,29 the
defendant was charged with
mail fraud for
rolling back odometers
of used cars
and then selling the
automobiles to unknowing
retail dealers for
inflated prices due to low-mileage readings. The dealers in turn resold
the cars to their customers. To complete
the resale transaction, the dealer mailed a title-application form to the State
Department of Transportation. The Court
was called upon
to decide whether
the mailing of the
title-application form by
the automobile dealers
(who were not involved
in the fraudulent
scheme) was “in
furtherance” of the fraudulent scheme. In affirming the
conviction, the Court stated that “[i]t is sufficient for the mailing to be
‘incident to an essential part of the scheme,’ . . . or
‘a step in the plot.’”30
The Court distinguished several cases
in which the
mailing occurred after
the defendant’s scheme had
already reached fruition31 and
concluded that in
those instances, the use of the mail was not “in furtherance” of the
scheme to defraud.32 The
Court also stated that innocent or routine use of an instrumentality of
interstate commerce, as
well as use
of an instrumentality of commerce that may have
been counterproductive to the scheme, was sufficient.33
As a practical matter,
the interstate commerce nexus will generally be an easy element to meet.33.1 A telephone call or trip to the
§
1:2.2 Nationality Jurisdiction
The 1998
Amendments expanded the
jurisdictional basis for
the prosecution of U.S.
companies and
The alternative nationality principle of jurisdiction would apply to:
(1) “issuers” organized under the laws of the United
States, or a State, territory, possession
or commonwealth of
the United States or a political
subdivision thereof;33.4
(2) Any
officer, director, employee,
agent or stockholder
of such issuer that is a U.S.
citizen or national,33.5
acting on behalf of such issuer;33.6
(3) Any
corporation, partnership, association,
joint stock company,
business trust, unincorporated organization,
or self proprietorship organized under the laws of the United
States or any State,
territory, possession or
commonwealth of the United States, or any political
subdivision;33.7
(4) Any individual who is a
citizen or national33.8 of the United States.33.9
A foreign national employee of a
The application of the alternative
nationality principle of jurisdiction effectively replaces/vitiates the
“instrumentality of interstate commerce” standard for
§ 1:3 Corruptly
In order to be in violation of the FCPA, a payment must be made “corruptly.” The term “corruptly” connotes an evil motive or purpose, an attempt to wrongfully influence the recipient. In the legislative history, the “corruptly ” requirement makes clear that in order to violate the FCPA, a payment must be intended to influence the recipient to “misuse his official position” in order to wrongfully direct or obtain business.34 It encompasses a quid pro quo element: a nexus between the illicit payment and the expected conduct of the foreign official.
The FCPA thus applies to payments
made for a corrupt purpose, but it does not require that the violative action
be fully consummated, or succeed in producing
the desired outcome.35 A
willful attempt to influence a foreign official through an
offer or promise (or authorization
of the offer
or promise) of
anything of value
suffices. The prohibition against
“corrupt” payments also
applies to payments made
by third parties,
where the corporation
pays the third
party knowing that the payment will be passed on in whole or in part to
a foreign official for
a proscribed purpose.36 On
the other hand,
an employee who makes an illicit payment at the behest and direction of
his supervisor may
not be acting
corruptly under the
FCPA.37 The
payment of money
to a foreign
official in true
extortion situations, such as
to keep an
oil rig from
being dynamited, would
also not constitute a corrupt
payment.38
Congress intended
the “corruptly ” standard
under the FCPA
to conform with the “corruptly” requirement under the domestic bribery
law.39 To establish
the crime of
bribery under the
domestic bribery statute, the
money or value must be knowingly offered or given to an official with the intent
and expectation that,
in exchange for
the money, some act
of the official
would be influenced.40 The
money must be offered
or given with
more than some
generalized hope or expectation of
ultimate benefit on the
part
of the donor.41 This distinction between
a payment in
consideration for42 some
conduct by the official and a payment with “some generalized
expectation” of ultimate benefit (for
example, goodwill) can
be most clearly
under- stood in the
comparison between an
unlawful bribe and
lawful business entertainment. It is the quid pro quo aspect of the
payment that distinguishes between the
lawfulness or illegality of the expenditure.43
The focus
is upon the
subjective intent of
the briber—the defendant’s
intention in making
the payment, rather
than the recipient’s intent in carrying out official
acts. A party can be convicted of bribery despite the
fact that the
recipient had no
intention of altering
his official activities, or
even lacked the
power to do so.44 It
is neither material nor a defense to bribery that the official might lawfully and properly make the very
recommendation or take the very action that the briber wanted the official to
make without the bribe.45
Evidence of an awareness of the illegality of the transaction may also
be sufficient to prove corrupt intent.46
In the context of the
FCPA, a payment to a foreign official with the intent to influence his
decision, induce him to do or omit to do any act, or
induce him to use his
influence with a
foreign government entity, in
exchange for the payment, constitutes corrupt intent.46.1
§ 1:4 Foreign Official
The FCPA proscribes only illicit
payments made to a foreign official, foreign
political party or
official thereof, or
a candidate for
foreign political office.47 It was not intended to, and does not, address
bribes or kickbacks paid to employees of private, nongovernmental entities.48
Nor does
the FCPA proscribe
payments (for example,
discounts or donations) made
directly to a government department or agency that are not for the personal use
or benefit of a foreign official.49
The term
“foreign official” was
originally defined by
the FCPA as “any officer or employee of a foreign
government or any department, agency, or instrumentality thereof, or any person
acting in an official capacity for or
on behalf of
any such government
or department, agency, or
instrumentality.”50 The 1998 amendments to the FCPA, to conform the
FCPA to the OECD Convention, added “public international organizations” to the
definition of a foreign official.50.1
Accordingly, the term “foreign official” encompasses (1) any officer or employee of any department, agency, or instrumentality of a foreign government; or of a public international organization; and (2) any person acting in an official capacity for or on behalf of a foreign government, department, agency, or instrumentality, or for or on behalf of a public international organization.
The scope of these elements is described below.
§
1:4.1 Officer or Employee
Neither the FCPA nor its legislative history contains any guidance on the scope of the terms “officer” or “employee.” There are no cases under the FCPA that further define these terms. Nor is it clear whether the scope of these terms should be determined with reference to foreign local law.51 The domestic bribery statute52 and the Federal Tort Claims Act (FTCA),53 and the cases decided thereunder, offer the most instructive guidance in delineating the scope of these terms under the FCPA.
Based upon these statutes and cases, an “officer ” of a foreign government would include individuals appointed by the head of state or by heads of executive departments and individuals who hold positions authorized by statute. An “employee” of a foreign government would include individuals whose day-to-day performance is supervised by the governmental authority.
Under the
domestic bribery statute,
the term “public
official” is defined to mean
inter alia “an officer or employee or person acting for or on behalf of the
United States . . . in any official function.”54 This language
is similar to the FCPA
definition of “foreign
official.” In interpreting the
meaning of “officer”
under this statute,
the court in United States v. Bordonaro55 held that the term includes members of draft
boards whose positions are authorized by federal statute and who are appointed
by the President. In Felder v. United States,56 the circuit court
ruled that “officers” include “persons acting under appointments
‘embracing the idea
of tenure, duration,
emolument, and duties.’” Based on this definition, the court
went on to hold that the Attorney General and the United States Attorney would
be considered “officers” of the
The
scope and meaning
of the term
“employee” of the
United States often arises in cases under the FTCA.59 In such cases, the court is frequently
asked to discern
whether an alleged
tortfeasor is an employee of the United States, rather than
an independent contractor. The U.S. Supreme Court addressed this question in
In Resendez v.
the extent
of control which
the master may
exercise over the details of the work; whether or not the
one employed is engaged in a
distinct occupation or
business; the nature
of the occupation, with reference
to whether the
work is usually
done under the direction
of the employer
or by a
specialist without supervision; the skill
required in the
particular occupation; whether
the employer or
the workman supplies
the tools, equipment,
and the place of work for the
person doing the work; the length of time for which the
person is employed;
the method of
payment, that is, whether by time or by the job; whether or
not the parties believe they are creating the relation of master and servant,
etc.63
The control
test has been applied in numerous other cases.
For example, in Kirchmann v.
United States,64
which involved a suit
alleging groundwater contamination
caused during construction
of a missile site,
the Eighth Circuit
held that employees
of General Dynamics who had
contracted with the Air Force to build the missile facility were
not government employees
for purposes of
the FTCA. The basis
for the court’s
decision was that
the Air Force
did not exercise day-to-day
control over their physical performance
in the disposal of hazardous
waste at the missile site.65
The Fourth
Circuit came to a similar
conclusion in Berkman
v. United States.66 The case involved the issue of whether a
maintenance contractor at an airport, owned and operated by the Federal
Aviation Administration (FAA), should
be considered an
“employee” of the United
States. The court
held that, even
though, under the
FAA’s contract with the
maintenance contractor, the
FAA had the
right to inspect the maintenance
contractor ’s performance and to ensure that the services
provided were in
compliance with the
terms of the contract,
the maintenance contractor
could not be
considered an employee because
there was no evidence that
the FAA took
control over the actual performance of the contractor ’s services at the
airport on a day-to-day basis.67
§
1:4.2 Agency or Instrumentality of
Foreign Government
The breadth and scope of the term “agency or instrumentality” of a government are not delineated in the FCPA or in its legislative history. There have been no court decisions pertaining to its meaning in the FCPA. Any guidance on the application of this phrase must be based upon the interpretation of other statutes and court cases.
The Foreign Sovereign Immunities Act of 1976,68 which sets forth the principles for determining whether a foreign state is entitled to immunity from the jurisdiction of U.S. courts, defines an “agency or instrumentality of a foreign state” as any entity that “is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof.”69 Under this standard, if an entity is an organ of a foreign state (or political subdivision), or if a majority of the entity ’s shares or other ownership interest is owned by a foreign state (or political subdivision), then the entity is considered an agency or instrumentality of the foreign state.
In First
National City Bank v. Banco Para El Comercio Exterior de Cuba,70 the
Supreme Court considered
whether Cuba’s exclusive agent in
foreign trade, established
as a separate
juridical entity, was a
government “instrumentality
” under
the Foreign Sovereign
Immunities Act. The Cuban government had supplied all the capital, owned
all the stock, and designated all members of the governing board. In holding that
the agent was a
government instrumentality, the Court stated
that the typical
government instrumentality is
created by an enabling statute that specifies its powers
and duties and is managed by a board selected by the government.71
It
is therefore likely that an entity that is entirely owned by a foreign
state would come
within the definition
of a government
agency or instrumentality under
the FCPA. The same is true when the entity is created by an enabling statute
that specifies its powers and duties and is managed by a board selected by the
foreign government. Similarly, when a company is established under the private
commercial code of a foreign state, the
company would likely
be deemed a
government agency or
instrumentality, for purposes of the FCPA,
if a majority
of the ownership interest is owned
by the foreign state.72 Thus, a state trading corporation,72.1 a mining enterprise, a transport organization
such as a shipping line73 or an airline,74 or a steel
company could come within the definition of an agency or instrumentality.75
The reach
of the term
“agency or instrumentality ” of
a foreign government, however,
remains unclear. While it would appear unlikely that a foreign company
established under the commercial code of its country, and
in which the
foreign government is
only a minority shareholder, would
be deemed an
agency or instrumentality of the
foreign government, an
FCPA Opinion Procedure
Release76 and informal
comments by a
Justice Department official77 suggest a more expansive view. According to this
view, an employee who works for a quasi-governmental body or for a state-owned
entity involved in a process of privatization
that has not
yet been completed
would be considered a foreign
official under the FCPA.77.1
More recently, a Justice Department official78 stated that one should look beyond the government’s voting rights or ownership of shares in a state-owned commercial enterprise, to such factors as whether the employee of the entity has a governmental role, or maintains the rights and privileges of a government position. He further commented that the FCPA looks at individuals capable of exerting influence.
The U.S.
government’s response to the OECD ’s review of the FCPA provides further
insight regarding the factors that the Department of Justice considers
in determining which
state-owned enterprises are “instrumentalities”: The
foreign states own
characterizations of the enterprise and its employees, that is,
whether it prohibits or prosecutes bribery of the enterprise’s employees as
public corruption, the purpose of
the enterprise, and
the degree of
control exercised over
the enterprise by the foreign
government.78.1
These comments
suggest that a
combination of state
ownership of the enterprise,
and the governmental
responsibility, privilege or influence
of the employee
may be considered
by the Justice
Department in determining when an individual is a foreign official under
the FCPA. As a practical matter, however, these comments shed little light in
resolving this issue. In actuality, the Justice Department does not have
a position on
this issue, although
it has rejected
the assertion that one
should look to
local law in
determining whether a
foreign individual is a foreign official under the FCPA.78.2
Other
domestic statutes and court cases have applied different standards in
determining the scope of the term “agency or instrumentality.” The
courts have applied
a narrow standard
under the FTCA, requiring that
the Federal government
exercise control over
the detailed physical performance
and day-to-day operations
of the entity.78.3 A different, more liberal test has been
applied to determine when an entity is a federal instrumentality for purposes
of protection from state or local taxation: whether the entity performs an
important governmental function.78.4 In
one case involving
a determination of whether a Trust Fund constituted a public
instrumentality subject to Federal government procurement guidelines, the court
looked to such factors as the purposes for which the Trust was established, the
public or private character
of the entity
creating the Trust,
the degree of governmental control
exercised over its
administration, and the method of funding.78.5
A more
conservative approach would
apply the concept
of “con- trolled-in-fact” to
determine when a state-owned enterprise is govern- mental. This standard is
contained in such extraterritorial regulations as the
(i) the foreign government entity owns or controls, directly or indirectly, more than 50% of the voting rights;
(ii) the foreign government owns or controls 25% or more of the voting securities, and no other entity or person owns or controls an equal or larger percentage;
(iii) a majority of members of the board are also members of the governing body of the government department;
(iv) the foreign government has the authority to appoint the majority of the members of the board; or
(v) the foreign government has the authority to appoint the Chief Operating Officer.
Although the Justice Department may
assert an even more expansive view of the scope of an “agency or
instrumentality,” it would be very
difficult to sustain
a conviction under
the FCPA if
foreign government ownership or
control of the
state-owned enterprise falls below the above standard.78.7
Another area of
uncertainty concerns the possible reach of the FCPA to a
second-tier entity (that
is, a subsidiary
of the state-owned
enterprise), and further tiers (subsidiary of the subsidiary). Arguably,
a state- owned enterprise is governmental only with regard to the first
tier—the entity that is owned directly by the foreign state. A second-tier
entity—a company owned by the first-tier entity—should fall outside the scope
of the term agency or instrumentality.78.8
§ 1:4.3 Acting For or On Behalf Of
The FCPA and its legislative history provide no guidance on the meaning of the term “acting for or on behalf of.” It is therefore necessary once again to look to the domestic bribery statute and the FTCA, and cases thereunder, for some guidance on the meaning and scope of this term.
These statutes and cases suggest that the term “acting in an official capacity for or on behalf of,” under the FCPA, would likely include individuals whose activities are controlled by the foreign government or who occupy a position of public trust and have official governmental responsibilities.
For example, in Thompson v. Dilger,79 a federal
court in Virginia held
that “a person
does not act
on behalf of
a federal agency
in an official capacity
where . .
. there is
no governmental authority
to supervise the person’s
daily activities.” At
issue in Thompson
was whether a weapons
inventor who was
working on developing
an armor-piercing rifle
“with unofficial government
encouragement, but without a
government contract or official funding”
fell within the purview of the FTCA as a “person acting
on behalf of a federal agency in an official capacity.” The court, applying the
control test adopted in Logue80 and
The
level of control over the alleged tortfeasor ’s activities was also
determinative in Guccione v. United States.82 The question at issue
in that case was
whether a former
con man turned
FBI informant and operative could be considered an
“employee” of the United States for purposes
of the FTCA.
The court of
appeals held that
although the informant was “not
technically a federal ‘employee,’” he was acting on the government’s
behalf as an
undercover operative because
he rendered his services while
under the control and supervision of the FBI and its special agents.83
The
leading decision addressing the meaning of the term “acting for or on
behalf” in the
domestic bribery statute
is Dixson v.
United States.84 In
Dixson, the Supreme Court ruled that whether an individual acted for or on
behalf of the United States does not depend upon the
existence of a
“direct contractual bond”
with the government, but rather turns on whether the
person occupies a position of public trust with official federal
responsibilities.85 The Court then went on to hold that
the defendants, who were
responsible for administering federal community development grants, were “public officials,” given their operational
roles in administering a social service program
administered by Congress
and the fact
that they were
charged with abiding by federal
regulations.86
In an earlier case, United States v. Griffin,87
a federal court held that defendants,
who were empowered
to conduct a
competitive bidding system in
connection with the solicitation and awarding of bids for a federal program,
were “acting for
or on behalf
of the United
States.” The court was
persuaded by testimony
that the low
bidder among those from which the
defendants solicited bids, although not guaranteed to be awarded the contract,
in fact was awarded the job 95% of the time. In the court’s view, the
“defendants were placed in a position of responsibility and were enabled to
exercise discretion to act for and on behalf of [the government]. . . .”88
In
§ 1:4.4 Public International Organization
The
OECD Convention included officials of a “public international
organization” within the
definition of a
foreign public official.90.1 Accordingly, to
conform the FCPA to the
OECD Convention, the 1998
Amendments expanded the
definition of a
foreign official to include any official or employee of a
public international organization, or any person
acting on behalf
of a public
inter national organization.90.2
The “public international organizations” covered by the FCPA are those organizations
designated by Executive
Order pursuant to the
International Organizations Immunities Act, 22 U.S.C. § 288 (1998), or any
other international organization designated by the President by Executive
Order.90.3 This includes such
organizations as the Organization
of American States,
the European Space
Agency, and the
Hong Kong Economic and Trade Offices, and the World Bank.90.4
§
1:5 Foreign Political Party or Official
Thereof or Any Candidate for
Foreign Political Office
The Act proscribes illicit payments not only to foreign officials, but also to a foreign political party, an official of a foreign political party, or a candidate for foreign political office.91 The inclusion of this class of individuals in the FCPA is a recognition that such persons may be influential in the award of government business.
The FCPA recognizes that “corrupt” payments are not intended to include legitimate and lawful campaign contributions made in the course of legitimate lobbying and other normal representations to foreign government officials.92 Generally, political contributions are not tied to the support of any particular transaction and are therefore not intended as a quid pro quo. However, reliance on the absence of corrupt intent does not provide an adequate comfort level in defending oneself under the FCPA.
In some instances, campaign contributions may be lawful under the written laws of a foreign country.93 Such a situation may constitute a rare instance in which the affirmative defense (for payments that are lawful under the written laws of a foreign country) may be applicable.94 However, in many countries, such payments may not be impermissible, although not expressly permitted under the written laws of that country.95 It is preferable for U.S. companies to avoid making any campaign contributions that are not expressly permitted under the written laws of the foreign country.
A more
difficult practical issue arises where the foreign agent of the
To minimize
this possibility, the U.S. company
may want to prohibit
the foreign agent
from making any
campaign contribution. If this is
not practical, then the
• that any campaign contribution will, at all times, be in compliance with local law;
• that no campaign contributions shall be made in exchange for any specific benefits related to any transaction; and
• that the foreign sales agent will keep accurate books and records of all campaign contributions and such contributions shall be subject to audit by the U.S. company or its designee.
§ 1:6 Anything of Value
The
FCPA prohibits payments and gifts or the giving of “anything of value” to
influence the receiving foreign official.96 The phrase “any- thing of value” is not
defined in the FCPA or in its legislative history. The term is, however,
contained in many other U.S. criminal statutes, and it has been
broadly construed to
encompass both tangible
and intangible benefits that an official subjectively believes to be of
value.97
In United States v.
Williams,98 the Court of
Appeals for the Second Circuit
considered the meaning
of the phrase
“anything of value” contained in the domestic bribery
statute99 and the unlawful gratuity statute.100 In
that case, a
U.S. Senator received
shares of stock
in several corporations in
return for his
help in obtaining
government contracts. Although the
stock had no
commercial value, the senator
expected that the
shares would have
commercial value when
he received them. The
court affirmed the
lower court’s jury
instruction that construed the
statute to focus
on the value
the defendant subjectively
attached to the items received.101 The court further stated that
“[t]he phrase ‘anything of value’ in bribery and related statutes has
consistently been given
a broad meaning
. . . to
carry out the congressional purpose of punishing misuse
of public office.”102
Similarly, in United States v. Gorman,103 the Court of Appeals for the Sixth Circuit held that loans and promises of future employment to public officials constituted a “thing of value” under the unlawful gratuity statute.104 The court stated that in order to put the underlying policy of the statute into effect, the term “thing of value” should be broadly construed. The focus therefore was placed on the value that the official subjectively attaches to the gift.105
The phrase “thing of value” has been
construed broadly to also include intangible items, such as information,106
sex,107 the testimony of a witness,108 and assistance in
arranging for the merger of two unions.109
The Model Penal Code uses
terms such as “benefit” and “pecuniary benefit”
in its bribery provisions.110
The term “benefit” is defined as “gain or advantage, or anything
regarded by the beneficiary as gain or advantage, including
benefit to any
other person or
entity in whose welfare
he is interested.
. . .”111 According
to the Model
Penal Code commentary, the
purpose of defining the term so broadly is “to reach every kind of offer to
influence official or political action by extraneous incentives.”112 Under this standard, the giving of a benefit,
not to the beneficiary himself (that is, the official), but rather to a third
person or entity whose well-being
the beneficiary is
interested in, would
constitute a benefit. For example, an offer to admit the child of an
official to college in
exchange for favorable
action by the
official would constitute a
“benefit” under this standard.113
It is unclear, however,
whether the term “anything of value” under the FCPA extends to payments given
to a third party in whose welfare the official is interested. While the
The FCPA instead appears
to focus on whether there is any intent or expectation that the official will
personally benefit from the thing of value.
In a Department of Justice Review Procedure,116 a
The Court
of Appeals for
the Eighth Circuit,
however, in United States v. Liebo,118
suggested the possibility of a more expansive view. In that case, the defendant
was convicted of providing airplane tickets for
the honeymoon of
an official in
the Niger Embassy
in order to influence
another official who
was the relative
and friend of the
embassy official. The
indictment made clear
that the recipient
(the Embassy employee) was
himself a foreign
official.119
Nevertheless, the court commented that the relationship between the two
relatives/ friends was such
that a jury
could infer that
the gift provided
to the Embassy official was
intended to buy the influential official’s help in getting the contract award.120
Some Department
of Justice Review
Procedure Releases further indicate that U.S. enforcement
authorities consider payments to other persons
in whose well-being
an official is
interested (for example, relatives) constitute the giving of
something of value to an official. In one
case,121 the Department of
Justice declined to
take any enforcement
action with respect
to a fund
for the American
education and support of
the adopted children
of a foreign
official who was
elderly and semi-invalid and
whose duties were
only ceremonial and did not involve substantive
decision-making responsibilities. This release implicitly suggests that
something of value given to the children of an official may constitute value
given to the official.122
In SEC v. Schering-Plough,122.1
the SEC
initiated an enforcement action against
Schering-Plough for the
violation of the
books and records and internal
control provisions of the FCPA arising from the conduct of
its subsidiary. The Polish office of the subsidiary made a
series of donations to a charitable organization in
§
1:7 Payments to Third Parties
Foreign
sales agents were responsible for many of the questionable foreign payments
disclosed during the 1970s.123 As a result, the FCPA included a
provision delineating the circumstances under which a
The
Specifically, the FCPA proscribes payments made 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. . . .”128 While “any person” would include the agent (that is, foreign sales representative) of a U.S. company, the third-party payment provision applies to any entity or individual, in the United States or abroad. Thus, a marketing consultant, distributor, joint venture partner, foreign subsidiary, contractor, or subcontractor would be included within the scope of this provision.
The
third-party payment provision
continues to create
great un- certainty and
confusion regarding potential
liability under the FCPA.129 A frequent
concern is the extent to
which a U.S. company may
be liable under
the FCPA for
the improper conduct
of its sales agent or consultant, or other third
party. Frequently, a U.S. company not directly involved in an illicit payment
discovers that a third party with which it has a commercial relationship—be it
a sales representative,
distributor, contractor/subcontractor, or
joint venture partner— has made an illicit payment with
regard to a contract award involving the
sale of the
U.S. company’s goods
or services. Moreover, it is infrequent that the U.S.
company would know
for certain that
the third party in
fact made a
prohibited payment. More
frequently, suspicions or concerns
are raised when
allegations or inconclusive information comes to its
attention.130 The allegations of wrongdoing are generally
vehemently denied by
the third party.
The third party may also have important contacts and
ties with government officials, thereby
making it difficult
and commercially damaging
to disengage from the
relationship. It is in this kind of commercial setting that the potential
liability of a
In addition
to the third-party
payment provision discussed
above, the FCPA also
prohibits a U.S.
company from “authorizing”
a prohibited payment.132 Thus, for example, if a U.S. company [knows
of and]133 authorizes its controlled foreign subsidiary or foreign
agent to make a bribe, liability would attach to the U.S. company.134
The FCPA also would apply
in cases where
a U.S. company
“authorizes” its controlled foreign
subsidiary to make
an illicit payment
indirectly through an intermediary, such
as an agent
of the foreign subsidiary.134.1
In sum, under the FCPA, a U.S. company may be subject to potential liability with regard to improper payments made by a third party, when:
(1) the U.S. company pays anything of value to a third party (for example, agent, distributor, consultant) knowing that all or a portion of such value is or will be offered, given or promised, directly or indirectly, to a foreign official in connection with the sale of the U.S. company ’s product or service; or
(2) the
§ 1:8 Knowledge
Standard
§
1:8.1 Repeal of “Reason to
Know” Standard
Prior to the 1988 Amendments, a U.S.
company could be liable for a
payment made to an intermediary
party, while knowing
or having reason to
know that the
payment would be
given to a
foreign official.136 The
1988 Amendments deleted
the “reason to
know ” standard relating to
payments to third
parties. The “reason to know”
standard created significant uncertainties for
In clarifying the bribery standard through the deletion of “reason to know,” Congress in effect eliminated only the possibility that simple negligence could be a basis for criminal liability. At the same time, Congress made it clear that the knowledge standard extended beyond actual knowledge, to cover a conscious disregard, willful blindness, or deliberate ignorance of circumstances that should alert one to the likelihood of an FCPA violation.138 In practical terms, the distinction may not be very significant.
§
1:8.2 Current Definition of
Knowledge
The FCPA, as amended, makes it very clear that the knowledge standard does not require proof of actual knowledge.
Under the FCPA:
(2) (A) A person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if –
(i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or
(ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.
(B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.139
The legislative history explains that this standard is intended to encompass concepts of “conscious disregard” or “deliberate ignorance” of circumstances:
The Conferees intend that the requisite “state of mind” for this category of offense include a “conscious purpose to avoid learning the truth.” Thus, the “knowing” standard adopted covers both prohibited actions that are taken with “actual knowledge” of intended results, as well as other actions that, while falling short of what the law terms “positive knowledge,” nevertheless evidence a conscious disregard or deliberate ignorance of known circum- stances that should reasonably alert one to the high probability of violations of the Act.
. . . [T]he Conferees also agreed that the so-called “head-in-the- sand” problem—variously described in the pertinent authorities as “conscious disregard,” “willful blindness” or “deliberate ignorance”—should be covered so that management officials could not take refuge from the Act’s prohibitions by their unwarranted obliviousness to any action (or inaction), language or other “signaling device” that should reasonably alert them of the “high probability” of an FCPA violation.
. . . As such, it covers any
instance where “any reasonable person would have realized” the existence of the
circumstances or result and the defendant has “consciously chose[n] not to ask
about what he had ‘reason to believe’ he would discover.”140
The FCPA thus imputes knowledge where factual information possessed by a U.S. company indicates a “high probability ” that conduct prohibited by the statute may result.141 Moreover, if a company consciously disregards or deliberately ignores circumstances that should reasonably have alerted it to a high probability of a violation, the standard will be satisfied.141.1 This standard appears to apply both to past conduct (that is, a high probability that a bribe has already been made) and to future conduct (that is, a high probability of a future illicit payment).
Congress intended
that the “knowing”
standard contained in the
FCPA be consistent with the knowledge standard for criminal liability as developed
by existing case
law. There is
ample precedent for imputing
criminal liability under
the knowledge standard
to those who act in conscious
disregard or deliberate ignorance of the incriminating facts.142
In United States v.
Jewell,143 the Ninth Circuit
Court of Appeals held
that the term
“knowingly ” as used
in criminal statutes
is not limited to
positive knowledge, but
includes the state
of mind of one
who does not possess positive knowledge only because he consciously avoided it.144
[T]he rule
is that if
a party has his
suspicion aroused but
then deliberately omits to make further enquiries, because he wishes to
remain in ignorance, he is deemed to have knowledge. . . . The rule that willful
blindness is equivalent to knowledge is essential, and is found throughout the
criminal law.145
In United States v. Jacobs,146 the defendant, charged with dealing in stolen U.S. Treasury Bills, responded that he did not know the bills were stolen. The court of appeals affirmed the lower court’s charge to the jury with respect to guilty knowledge:
[K]nowledge is established if the defendant was aware of a high probability that the bills were stolen, unless the defendant actually believed that the bills were not stolen.
Knowledge that the goods have been stolen may be inferred from circumstances that would convince a man of ordinary intelligence that this is the fact. The element of knowledge may be satisfied by proof that a defendant deliberately closed his eyes to what other- wise could have been obvious to him.
Thus, if you find that a
defendant acted with reckless disregard of whether the
bills were stolen
and with a
conscious purpose to avoid
learning the truth
the requirement of
knowledge would be satisfied,
unless the defendant
actually believed they
were not stolen.147
Similarly, in United States v. Manriquez Arbizo,148 the Tenth Circuit Court of Appeals upheld a conviction for possession of marijuana despite the defendant’s claim that he lacked the requisite knowledge. The court approved the following jury instruction as an appropriate interpretation of “knowing”:
The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed his eyes to what would otherwise have been obvious to him.
A finding
beyond a reasonable
doubt of a
conscious purpose to avoid enlightenment would permit an
inference of knowledge.149
The requirement of only an awareness of a high probability of prohibited conduct, combined with the imputation of knowledge to one who consciously disregards or deliberately ignores information, creates a standard of knowledge considerably looser than actual knowledge. In effect, one can be deemed to have knowledge that a payment to a third party will result in an illicit payment if one consciously disregarded or deliberately ignored information that indicated a high probability that the third party would make an illicit payment. Such a standard is akin to a “recklessness” standard.150 Indeed, one Department of Justice official stated that the Department applies a standard of “reckless disregard” or “willful blindness” to the knowledge requirement.151 The SEC recently took a similar position in SEC v. El Paso Corporation,151.1 claiming that the company was “reckless in not knowing” of illicit payments.
It would
appear, therefore, that
there is little
practical difference between the
current “knowledge” standard
and the prior
“reason to know” standard. The
1988 Amendments in effect only eliminated the negligence standard as a basis
for liability.152
Accordingly, the necessity under the “reason to know” standard to inquire about and to follow up on information that comes to the attention of a U.S. company and that indicates possible wrongdoing remains unchanged.153
When suspicious information (that is, red flags)154 comes to the attention of a U.S. company regarding the activities of its foreign sales agent/distributor or other third party, the knowledge standard under the FCPA requires that it undertake a due diligence inquiry into the suspicious activity. Otherwise, it could be deemed to have consciously disregarded or deliberately ignored information that would have alerted it to the likelihood of a violation. The failure to inquire, if significant, could result in the imputation to the U.S. company of knowledge regarding the illicit conduct.
§ 1:9 Standard of Authorization
The FCPA
not only prohibits
the payment, offer,
or promise of payment to a foreign official, but also
proscribes the “authorization” of an illicit payment to be made by another.155 Thus, if a U.S. company “authorizes” its
sales representative, consultant, or controlled foreign subsidiary to
make an illicit
payment, the U.S.
company will be in violation of the FCPA.156
The standard for authorization is not defined in the FCPA. However, legislative history makes it clear that authorization can be either explicit or implicit.157 To “authorize” conduct, in the context of the FCPA, appears to mean to manifest assent or direction, either explicitly or implicitly, to carry out the conduct.
An early
Senate bill for
the 1988 Amendments158 contained
a provision making it
unlawful for a
U.S. company to
“direct or authorize, expressly or by a course of conduct” a third party to bribe a foreign official.159
This provision was intended to replace the “reason to know”
standard for payments
to third parties.
The Senate Committee
Report indicated that
the term “course
of conduct” used
in conjunction with the term “authorize” referred to situations in which
“a company, through its words or course of conduct, has intended that a corrupt
payment be made.”160 The Committee Report suggested that a company’s
refusal or failure to respond to an agent’s suggestion or request to make a
bribe, or a company ’s continuing employment of an agent known
to have made
corrupt payments in
the previous two years, would violate the Act.161
The
provision for authorization by course of conduct was not retained in the final
bill as it emerged from the Conference Committee. Nevertheless, the Conference
Committee Report does suggest that such a standard is part of the
“head-in-the-sand” analysis in determining whether a person had the requisite
knowledge.162
Despite the
congressional decision to
strike “authorization by course
of conduct” from
the third-party payment
provision, it is nevertheless the
case that implicit
authorization can be
manifested through one’s course
of conduct. A person authorizes an illicit payment by a
course of conduct, if his actions convey his intent that an illicit payment be
made.163
It is not always easy to ascertain what constitutes implicit authorization in the complicated commercial setting of international transactions. In interpreting whether or not authorization was granted, courts generally consider all of the surrounding circumstances, such as the relationship of the parties, the business in which they are engaged, the subject matter of the authorization, and the legality or illegality of the issue.
In view of the circumstantial nature of implicit authorization, it is particularly important, when a U.S. company becomes aware of possible illicit payments made by its agent or other third party, to establish a clear record that the U.S. company did not and does not authorize such conduct. Since people ordinarily express some dissent or objection to acts done on their behalf that they did not authorize and do not approve, it is important to repudiate and, where appropriate, disassociate from such conduct.
Whether mere passive acquiescence, by itself, could constitute authorization depends upon the nature of the relationship between the U.S. company and its agent or the third party and upon the surrounding circumstances.164 Acquiescence, combined with some further manifestation of assent, would likely constitute authorization. Indeed, conscious acquiescence in a series of unauthorized acts may be interpreted as a manifestation of authorization to engage in similar acts in the future.165 Moreover, while mere acquiescence to an illicit activity may not be sufficient to evidence an intent and agreement to engage in the illicit conduct,166 this acquiescence when combined with other overt acts could provide the basis for allegations of conspiracy to violate the FCPA.167
In Pattis
v. United States,168 for example,
the defendant sold materials and appliances to parties
knowing that the materials would be used
to make illegal
liquor. The Ninth
Circuit Court of
Appeals held that, by
making it possible
for the parties
to carry out
the unlawful objective of
the conspiracy, the
defendant became a co-
conspirator.169 In Deacon v.
United States,170
the defendant, even after he learned that the facilities he
had provided were being used in a conspiracy to sell and transfer lottery
tickets in interstate commerce, continued to permit the use of the facilities.
The First Circuit Court of Appeals,
in affirming the
conviction, rejected the
defendant’s argument that
it was illogical
to hold that
he became a
conspirator by reason of his
failure to withdraw from a conspiracy in which he was never a participant.171
The court found that the defendant’s
failure to disavow his connection with the conspirators within a reasonable
time after becoming aware
of the conspiracy
and his permitting
the conspirators to continue to
use the facilities warranted the inference that he elected to associate himself
with the criminal enterprise. The court expressed the
view that the
defendant was under
a “duty,” after learning the
facts, to take
some definite, decisive,
and positive step to withdraw from the venture.172
In
light of the foregoing, it is important that a
[I]f the jury find[s] that [the defendant] went into this enterprise believing that it was a legal one, . . . and did not know any [illegal] enterprise was to be engaged in . . . until he was informed . . . that [an illegal enterprise] was going on, you should find the defendant not guilty as charged, if you find that at the time that he first became acquainted with or had knowledge that the illegal acts were being done that he repudiated them instantly.
. .
. [W]hen one seeks to
disassociate himself from an illegal enterprise, his
disassociation must be
full, decisive and complete. . . .173
§ 1:10 Influencing or Inducing an Act or Decision of a Foreign Official
The scope of the FCPA is limited to a prohibition of an offer, promise, authorization or payment for purposes of:
• influencing any act or decision of a foreign official in his official capacity, or
• inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official,174 or
• inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality.175
Thus, the Act applies to payments designed to influence an act or decision of a foreign official (including a decision not to act) or to induce such an official to use his influence to affect a governmental act or decision.176 Payments to influence the enactment or promulgation of legislation or of regulations177 or to induce an official to misuse his official position178 also come within the scope of this prohibition.
The 1988 Amendments added to the scope of prohibited payments the purpose of “influencing any act or decision of such foreign official in his official capacity, or inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official. . . .”179 This language was intended to make the FCPA conform to the standard found in the domestic bribery statute.180 Accordingly, even if a particular official is not an important decision maker, the FCPA would apply to payments made to induce the official to use his influence with other decision makers.
Finally, the 1998 Amendments added an additional improper purpose to the FCPA—“securing any improper advantage.”180.1 This phrase was added to conform the FCPA to the OECD Convention. But, whereas the OECD Convention included this phrase to expand the scope of the business purpose test—to obtain or retain business “or other improper advantage” in the conduct of international business— the 1998 Amendments inserted this phrase in the quid pro quo section.
The
rationale for this approach to the amendment cannot be found in the legislative
history of the 1998 Amendments. Rather, one needs to look to the negotiations
in the OECD Convention, and the draft of the Administration proposal to discern
some rationale. The U.S. negotiators to
the OECD Convention
sought to add
the phrase “or other improper advantage” to the phrase
“obtain or retain business,” due
to concern that the other OECD member countries might interpret “obtain
or retain business”
too narrowly, to apply to
only the award of a contract. The
However,
since the FCPA had been enforced by the Department of Justice in a manner that
included the carrying out of existing business, the Department
of Justice was
concerned that adding
this phrase to the term “obtain or retain business” might
somehow suggest that the authority to prosecute illicit payments made to carry
out an existing business activity had not previously existed. Accordingly, in
one of the more unusual legislative drafting efforts, the Administration
inserted the phrase “or other improper advantage” in the purpose section of the
FCPA, under the
assumption that this
would not have
any practical effect on the FCPA.180.3
It appeared
at first that the courts did not agree with this assumption. In United States
v. Kay,180.4 the Federal District Court dismissed an indictment
alleging violations of the FCPA by officers of American Rice, Inc. for bribes
paid to Haitian officials to reduce Customs’ duties and sales taxes owed by the
company. The court held that the scope of the
FCPA was limited
to payments made
to “obtain or retain”
business, and that the conduct at
issue did not fall within this scope. In support of its interpretation, the
court explicitly noted that Congress declined to amend the “obtain or retain
business” language in the 1998 amendments to the FCPA.180.5 However,
this case was subsequently reversed on appeal.180.6
§ 1:11 Obtaining or Retaining Business or Directing Business to Any
Person
The FCPA
applies only to
payments intended to
influence an official’s acts
or decisions “in
order to assist
. . . in
obtaining or retaining business for or
with, or directing business to, any person.”181
This so-called “business
purpose” test is meant to limit the scope of the prohibition by requiring that
the illicit payment be made with the purpose
of directing business
to any person,
maintaining an established business relationship, or
diverting a business opportunity from any person.182 It also ostensibly includes corrupt payments
related to the “carrying out of existing business”:183
The Conferees wish to make clear that the reference to corrupt
payments for “retaining
business” . . . is not limited to the renewal of contracts
or other business,
but also includes
a prohibition against corrupt
payments related to the execution or performance of contracts
or the carrying
out of existing
business, such as
a payment to
a foreign official
for the purpose
of obtaining more favorable tax treatment.184
The 1988 Conference Report
refers to the United Brands case as an example
of prohibited conduct.185 That
case involved bribes
paid by United Brands to the
President of Honduras in order to obtain a lower export tax on bananas and an
extension of favorable commercial terms on
its Honduran properties.186 The
Conference Report distinguishes these activities from lobbying
or conducting other normal representations with government officials.187
Under this standard, payments made to an official with the purpose of inducing the official to take an action that assists the U.S. company in carrying out its existing business would violate the FCPA, even though the payments were not related to the underlying transaction.188 For instance, payments to officials to reduce or eliminate customs duties, to change the classification of a product, or to circumvent a quota or licensing system would violate the FCPA.
This more expansive understanding of “retaining business” was recently upheld in United States v. Kay.189 The Fifth Circuit reversed the dismissal of an indictment alleging that officers of American Rice, Inc. violated the FCPA by paying bribes to Haitian officials to reduce the customs duties and sales taxes owed by the company. The court held that Congress “intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business,” and that the payment of bribes to foreign tax officials fell within this coverage.190 The court ruled that the government must show that the bribery was intended to produce an effect (that is, tax savings) that would “assist” in obtaining a retaining business.
In
rendering its decision,
the court found
significant the fact
that the Senate’s legislative
proposal, from which
the final statutory language for
the FCPA was
drawn, prohibited the
use of “payments that assist
in obtaining or
retaining ‘business,’ not
just ‘government contracts.’”191 The
court noted that
Congress had the
option of choosing the
narrower language, which
appeared in an
SEC Report, but had elected not
to do so. Also, the fact that the 1988 Amendments identified only limited
exceptions to the FCPA’s coverage suggested that Congress otherwise intended
the Act to have broad application.192 The court
also deferred to the 1988
House Conference Report,193 finding that its language “reflect[ed] the concerns that initially
motivated Congress to enact the FCPA.”194 Finally, the court found
that the 1998 insertion of “other improper advantage” into the purpose section
of the
Act, rather than
after the “obtaining
or retaining business” language, confirmed
Congress’s notion that
the business nexus
requirement was already meant to apply broadly, and that the addition of
further language would
be redundant.195 The
Kay court’s refusal
to narrow the scope
of the FCPA
is one of
the most significant
interpretations of the Act to date.196
§
1:12 Conclusion
In
conclusion, the elements of the foreign payments section of the FCPA contain
some limiting aspects: in its
application primarily to
In
an effort to
address some of
the practical commercial
realities faced by U.S.
companies doing business
abroad, the Act contains an exception
for facilitating payments;
and it permits, as an affirmative defense, payments
such as travel
and lodging expenses
for foreign officials, and
payments that are
lawful in a
foreign country.
Section 2: Fines, Penalties and Other Sanctions
§ 2:1 Violation of FCPA
§
2:1.1 The Accounting
Provisions
The civil
remedies and penalties
for a violation
of the accounting provisions by issuers are those
available to the SEC under the general enforcement authority
for a violation
of the federal
securities laws.197 This includes
authority to seek
injunctive relief, cease
and desist orders, and
the imposition of
civil fines.198 The
SEC also has
the authority to institute
administrative proceedings and
to fashion remedies in administrative proceedings,
including the authority to issue cease
and desist orders,
to impose civil
penalties, and to order an accounting or disgorgement.199
While all of these remedies apply to the accounting provisions, as a practical matter, an enforcement action that involves the accounting provisions will generally accompany allegations of other substantive securities violations. It is therefore impractical to assess the possible remedy for a violation of the accounting provisions in isolation from the overall conduct involved. The SEC has, in recent settlements of enforcement actions, required the disgorgement of profits plus the payment of prejudgment interest.199.1
A violation of the accounting provisions may be subject to criminal sanctions under the general criminal penalty provision of the Ex- change Act.200 Under this provision, a violation would be subject to a maximum fine of $5 million and/or imprisonment of not more than twenty years201 for individuals, and a maximum fine of $25 million for organizations.
The Exchange Act’s general criminal
penalty provision202 states in relevant part:
Any person who willfully
violates any provision of this chapter . . ., or any rule or regulation
thereunder the violation of which is made unlawful or the observance of which
is required under the terms of this chapter, or any person
who willfully and
knowingly makes, or causes to be
made, any statement in any application, report, or document required
to be filed
under this chapter
or any rule or
regulation thereunder or
any undertaking contained
in a registration statement . .
., which statement was false or misleading
with respect to any material
fact, shall upon
conviction be fined not
more than $5,000,000,
or imprisoned not
more than 20 years,
or both, .
. .; but
no person shall
be subject to imprisonment under this
section for the
violation of any rule
or regulation if he
proves that he
had no knowledge
of such rule or regulation.203
Notwithstanding section 78ff(a), the 1988 Amendments provided for criminal liability for a violation of the accounting provisions where a person “knowingly circumvent[s] or knowingly fail[s] to implement a system of internal accounting controls or knowingly falsif[ies] any book, record, or account. . . .”204
The
legislative history to
the 1988 Amendments
regarding the addition of the “knowingly”
requirement specifies that
“[i]t is not intended
that the use
of the term
‘knowingly ’ . .
. affect the
general requirement that criminal
violations of the
1934 Act be
‘willful.’”205 While
this statement is
less than clear,
it indicates that
Congress intended the standard
for a criminal
violation of section
13(b)(2) to therefore encompass
both “willful” and “knowing” conduct.206
Whether the addition of the “knowingly ” requirement makes any significant substantive change is less than clear. The addition of “knowingly ” to the second clause of section 78ff(a) suggests some distinction between the meaning of the terms “willful” and “knowing,” at least in the context of the Exchange Act’s general penalty provision.207 A commentator, writing at the time of the Exchange Act’s enactment, suggested that the addition of “knowingly ” in the second clause of section 78ff(a) requires a finding that the alleged violator had knowledge of the precise illegality of the act in question, as opposed to a mere general awareness that he was doing a wrongful act (which would be required for “willful” conduct).208 Under this definition, “knowingly ” would require a finding that the defendant had actual knowledge of the false or misleading character of the statement made by him.209
Nevertheless, “willfully ” has been interpreted to include some element of knowledge. For example, in United States v. Peltz,210 the court held that the mental state that must be proved to establish a “willful” violation is:
a realization on
the defendant’s part that he was doing a wrongful act . . . that the act be wrongful under the
securities laws and that the knowingly wrongful act involve[d] a significant
risk of effecting the violation that has occurred.211
Therefore, while it can be argued
that “knowingly” requires a greater level
of awareness on
the part of
the defendant of
the wrongfulness or illegality
of his conduct,
the case law
is far from
clear on this issue.212
§
2:1.2 The Bribery Provisions
The
bribery section of the FCPA is a criminal statute.213 The bribery section provides maximum
penalties and sanctions per each violation of
the Act by
individuals and corporations
or other legal
entities. Violation by a U.S. entity
carries a maximum
fine of $2 million
per violation.214
However, where the
offense results in
pecuniary gain or loss,
the provisions of
18 U.S.C. § 3571(d) provide an alternative statutory
maximum fine: the greater of twice the gross gain or twice the gross loss. Violations by individuals carry a maximum
fine of $250,000 or up to twice the amount of the gross gain or loss that any
person derived from the offense,215 or imprisonment of not more than
five years, or both.216
Within the limitations of the statutory maximum,217 the determination of the amount of the fine is now governed by the Federal Sentencing Guidelines.218 These Guidelines took effect with regard to individuals on November 1, 1987, and apply to all offenses committed by individuals on or after that date.219 On November 1, 1991, the United States Organizational Sentencing Guidelines became effective,220 and apply to offenses committed by corporations and other organizations221 on or after that date.
One effect of the application of the Guidelines is generally to raise the fines and sentences imposed for white collar crimes, including violations of the FCPA. The manner of ascertaining the penalty is also more closely aligned to the amount of the money involved in the bribe or the gain resulting from the bribe. The Sentencing Guidelines require the individual or the corporation to make restitution or take other action to remedy the harm that has occurred and to prevent future injury from the violators. In addition to restitution, the Sentencing Guidelines require that a mandatory fine be imposed upon a corporation222 and individual.223
For individuals, the sanctions are determined by a variety of factors including the base offense level;224 the characteristics of the offense, including the value of the bribe or the benefit to be conferred; the individual’s role in the activity; and the defendant’s criminal history.225 For corporations, the sentencing factors include the base offense level; the greater of the value of the unlawful payment, the benefit to be received, or the consequential damages resulting therefrom;226 prior misconduct;227 the existence of an effective compliance program to prevent violations;228 the voluntary disclosure of the offense by the organization; the extent of cooperation in an investigation; and the acceptance of responsibility for the conduct.229
In addition to criminal penalties, the Act also authorizes civil fines. For violations by an issuer, the SEC may bring a civil action to impose a civil penalty against a corporation, or any officers, directors, employees, agents or stockholders acting on behalf of the issuer in an amount up to $10,000.230 The SEC can also bring a civil action to enjoin any act or practice of an issuer (or an officer, director, employee, agent, or stockholder acting on its behalf) that is or may be violative of the FCPA.231 For violations by other domestic corporations, or any officer, director, employee, agent or stockholder acting on its behalf, the Department of Justice is authorized to institute a civil action for fines up to $10,000.232 In addition, the Department of Justice has civil injunctive and subpoena power with respect to domestic concerns.233
Fines imposed upon individuals, for either criminal or civil penalties, may not be paid by the corporation.234
Recent FCPA
enforcement actions have
seen the imposition
of substantial criminal and
civil penalties.234.1 At
the same time,
the Department of Justice has entered into Deferred Prosecution and
Non-Prosecution Agreements with corporate defendants in several enforcement
actions.234.2
§
2:2 Ineligibility for Government
Programs
In
addition to the
possibility of criminal
and civil sanctions
and fines, a violation
of the bribery
provisions of the
FCPA by a U.S.
company can have
serious ramifications with
regard to its
eligibility for certain U.S. government programs.
The adverse impact
on eligibility can
have a far
greater commercial and
financial effect upon a
company than the
fines and penalties
assessed for a
violation of the FCPA.
An indictment alone can lead to the suspension of export licensing
privileges for defense articles or services, or the suspension of the right to
participate in
We summarize some of these collateral areas below.
§
2:2.1
The
Federal Acquisition Regulations
(FAR),235 which
comprise the regulatory framework
for U.S. government procurement, provides for the suspension
or debarment of
a contractor or
subcontractor from
continuing to do
business with the
U.S. government if it engages
in certain improper conduct.
One of the grounds for suspension or debarment is the commission of
bribery.236
A party can be suspended upon adequate evidence of the commission of a bribe. An indictment under the FCPA has provided the basis for such a suspension.237 Suspension is intended as a temporary exclusion from government contracting pending completion of an investigation or legal proceeding.238 A party can be debarred upon the criminal conviction of or civil judgment for the commission of bribery.
A decision to suspend or debar a company is discretionary and essentially concerns an assessment of the contractor ’s character and integrity. Remedial measures taken by the company and other mitigating factors will also be taken into account in making such a determination.239
It is also theoretically possible
that a foreign company that engages in bribery abroad, even though it may not
be subject to the FCPA, may be subject to suspension or debarment under the
FAR. Since the decision to suspend a
party is essentially a statement of the contractor’s character/integrity,
illicit payments made by a foreign company to foreign officials abroad could provide
a basis for a suspension decision against the foreign company. This could be
the case whether or not the bribe would be a crime under
The
author is unaware,
however, of any
suspension of a
foreign company for bribery
abroad. As a practical matter,
such action is unlikely absent a violation of some
In
addition to the
possible suspension or
debarment from U.S. government procurement under the FAR,
other government agencies also have specific provisions that provide for
suspension or debarment, or other sanctions,
for a violation
of the FCPA.
For example, the conviction for a violation
of the FCPA
that is related
to a project supported by
the Overseas Private
Investment Corporation (OPIC) may
result in the denial of an insurance payment and the suspension from eligibility
for OPIC services.240 Moreover,
the indictment or conviction for bribery or any offense that
indicates a lack of business integrity
can result in the suspension
or debarment of a party
for federal financial and
nonfinancial assistance and
benefits.241 The
suspension or debarment
by one agency
generally has government- wide effect.242 A
person debarred or
suspended by any
federal agency may therefore
be excluded from
federal financial and
nonfinancial assistance and benefits by other federal agencies.243
§
2:2.2 Export Licenses for Defense
Articles
The Arms Export Control Act (AECA)244 authorizes the President to control the import and export of defense articles and defense services. Under the AECA, if an applicant for a license to export is subject to an indictment for a violation of the FCPA, the President may disapprove the application.245 If the applicant has been convicted of a violation, a license to export a defense article or defense service may not be issued, except as may be determined on a case-by-case basis.246
The International Traffic in Arms Regulations (ITAR)247 implement the AECA. The authority under the statute has been delegated to the State Department, Office of Defense Trade Controls.248 The defense articles and services subject to the ITAR are set forth in the U.S. Munitions List.249
The ITAR250 provide for the suspension, revocation, amendment or denial of an export license whenever an applicant is the subject of an indictment for a violation of the FCPA, or has been convicted of a violation of the FCPA.251
The practice of the Department of State has generally been to automatically disapprove an export license application of any company indicted under the FCPA.252 In such instances, an export license application will be approved, on a case-by-case basis, only if there is an overriding foreign policy or national security reason to do so.
In some instances, the suspension may apply only to the offending division or subsidiary.253 In other instances, the suspension may be applied to the parent entity as well as the subsidiary that violated the FCPA.
While the export privileges of the company may be reinstated, this generally requires an extensive interagency review regarding the circumstances surrounding the indictment or conviction and a finding that appropriate steps have been taken to mitigate the enforcement concerns.254
It can, therefore, take a considerable period of time, even in the best of circumstances, to regain export licensing privileges in the event of an indictment or conviction of the FCPA. For companies that require export licenses for some or all of their business operations, the adverse commercial ramification from a loss of export licensing privileges can be far more substantial than the penalties and fines imposed under the FCPA.255
§
2:3 Tax Consequences256
Congress was sensitive to the fact that the prohibition in the FCPA on the bribery of foreign officials would be weakened if an illicit payment could be taken as a deductible business expense or U.S. taxes otherwise could be reduced through the payment of a bribe. To address these concerns, Congress included in the Internal Revenue Code (Code) provisions to (1) deny deductions for payments to officials or employees of a foreign government if such payments are unlawful under the FCPA, and (2) require that payments made by certain foreign subsidiaries of U.S. companies be treated as taxable income to the U.S. company where such payments, if made by a U.S. corporation, would have been unlawful under the FCPA. Summarized below are the applicable tax provisions and some practical issues that may arise under them.
§ 2:3.1 Disallowance
of Deductions
Code section 162257 generally provides that ordinary and necessary expenses incurred in operating a business are tax deductible. However, section 162(c) eliminates the deduction for a payment to a foreign government official or employee that is unlawful under the FCPA. Significantly, section 162(c) and the regulations thereunder also provide that the Internal Revenue Service (IRS) bears the burden of proving with clear and convincing evidence that a payment is unlawful under the FCPA. While this departs from the normal rule in tax cases that places the burden of proof on the taxpayer, the IRS nonetheless often requests information directly from a taxpayer that it believes may have claimed a deduction in contravention of section 162(c) or failed to include Subpart F income as described below.257.1
§
2:3.2 Inclusion of Unlawful Payments
in Taxable Income
Under the “Subpart F” rules of Code
sections 951 through 964,258
a
As one means of effectuating fully
Congress’s intent in enacting the FCPA, section 952(a)(4) provides that Subpart
F income includes any payment by a CFC that would be unlawful under the FCPA if
the CFC were a
While the tax law clearly provides
that payments unlawful under the FCPA (or that would be unlawful under the FCPA
if the payor were a U.S. entity) will either be disallowed as a deduction or result
in an income inclusion (in the latter case where the payor is a CFC), the
practicalities of dealing with these tax law rules rarely are as clear. This
stems from the
fact that, in
many situations, potential
violations of the FCPA are discovered
by a taxpayer only after its tax return is filed for the year in which the
payment was made. Moreover, regardless of when a potential violation is
discovered, whether a payment is in fact “unlawful” may be subject to differing
views. How should the
Assuming that the taxpayer believed in good faith that its return was correct when filed, the later discovery of information regarding a possible FCPA violation generally should not subject the taxpayer to charges of criminal fraud or to civil fraud penalties, even if the taxpayer does not amend the return to disclose information discovered after the filing. However, the taxpayer may still be subject to regular civil penalties. These penalties generally are imposed at the rate of 20% of the underpaid tax where a taxpayer is found to have been negligent, to have disregarded the tax rules and regulations in computing its tax liability, or, in the case of a substantial understatement of tax,260 does not have substantial authority for its treatment of the item on its original return.
The regular civil penalties may be eliminated if the taxpayer is able to demonstrate that there were reasonable grounds for the position taken on the return filed originally and that the taxpayer acted in good faith in taking that position. The success of this defense likely will depend upon what the taxpayer knew or should have known about potential FCPA violations at the time its return was filed. Thus, it would be important for the taxpayer to be able to demonstrate the facts known (or not known) at the time its tax return was filed.
This Overview is reprinted with permission from Chapters 4 and 8 of Doing Business Under the Foreign Corrupt Practices Act, by Don Zarin. Published by Practising Law Institute. Copyright© 2008. All rights reserved.
ENDNOTES:
1. H.R. CONF. REP. NO. 831, at 14 (1977) [hereinafter “H.R. CONF. REP. NO. 831”]. But see discussion of issuers infra section 1:1.1.
1.1. Note that the
2. An issuer is defined as “any person who issues or proposes to issue any security.” Section 3(a)(8) of the Exchange Act, 15 U.S.C. § 78c(a)(8) (2005).
3. 15 U.S.C. § 78dd-2 (2005).
4.
5. 15 U.S.C. § 78m(b)(2) (2002). See 15 U.S.C. §§ 78l (2005); 78o(d) (2005)
6. 15 U.S.C. § 78l(g) (2005); 17 C.F.R. § 240.12g-1 (2005). A foreign corporation can become subject to the registration requirements of the Exchange Act without actively intending to sell or trade its securities in the United States or to U.S. residents, if such securities are widely held in the United States. Pursuant to § 12(g) of the Exchange Act and Rules 12g-1 and 12g3-2(a) thereunder, a foreign private issuer that has $10 million or more in assets at the end of its most recent fiscal year is required to register any class of equity securities if any such class is held of record by 500 or more persons worldwide, including 300 or more in the United States. 15 U.S.C. § 78l(g) (2005); 17 C.F.R. § 240.12g-1; 240.12g3-2(a) (2005). A foreign issuer can avoid this registration requirement by applying for an exemption with the SEC under Rule 12g3-2(b) of the Exchange Act, 17 C.F.R. § 240.12g3-2(b) (2005).
7. Foreign
stocks may be sold in the
8. 15 U.S.C. § 78l(i) (2005).
9. 15 U.S.C.
§ 78o(d) (2005).
However, if an
issuer, in any
fiscal year subsequent to
the year in
which it registered
its securities, has
300 or more recordholders of a
class of publicly held securities during any fiscal year, such issuer is
subject to the reporting requirements of § 15(d) of the Exchange Act as to that
fiscal year.
10. 15 U.S.C. § 78dd-2(h)(1).
11. See S. REP. NO. 114, 95th
Cong., 1st Sess. 11 (1977) [hereinafter “S. REP. NO. 114”]. See also Dooley v.
United Techs. Corp., 803 F. Supp. 428, 439 (D.D.C. 1992). However, the
legislative history makes clear that any
12. H.R. CONF. REP. NO. 831, supra note 1, at 14.
13. The phrase “organized under the laws of a State” appears to refer to the state in which a company is incorporated. A foreign corporation that filed a certificate to do business in a particular state or that maintains a branch office would not be considered a corporation organized under the laws of that state for purposes of the Act.
14. In certain instances, it
may be possible for a
15. The employees of the
branch office who are
15.1. See discussion in section 2.1, infra
16. 15 U.S.C. § 78dd-1(a) (2005); H.R. CONF. REP. NO. 831, supra note 1, at4.
17. During hearings for the 1988 amendments to the FCPA, the Department of Justice and other witnesses emphasized the importance of including foreign national agents among the list of individuals subject to the antibribery provisions of the FCPA, as a warning to foreign agents and an effective investigative tool. See Business Accounting and Foreign Trade Simplification Act: Hearings on S. 430 before the Subcomm. on International Finance and Monetary Policy and the Subcomm. on Securities of the Senate Comm. on Banking, Housing, & Urban Affairs, 99th Cong., 2d Sess. 69–70, 134 (1986) (testimony of John C. Keeney, Deputy Assistant Attorney General, Criminal Division, Dep’t of Justice; and Malcolm Baldrige, Secretary of the Dep’t of Commerce).
18. Foreign national employees or agents were, however, subject to civil liability. 15 U.S.C. § 78dd-2(g)(2).
19. 15 U.S.C. §§ 78ff(c)(1)(B), 78dd-2(g)(2)(B). See also H.R. CONF. REP. NO. 831, supra note 1, at 14.
The phrase “otherwise
subject to the jurisdiction of the
Despite the application of the
FCPA to
foreign
national
employees
or
agents, the court in United
States v. Bodmar, 342 F. Supp. 2d 196 (S.D.N.Y. 2004), involving a Swiss lawyer representing U.S. companies involved
in alleged bribery
of
foreign
officials,
dismissed
the
charge
of
conspiracy
to
violate the FCPA.
The
court
held
that,
prior
to
the
1998
Amendments,
FCPA criminal penalties
did
not
apply
to
non-resident
foreign
nationals
who acted as agents of a U.S. company. In Dooley v. United Techs., Inc., 803
F. Supp. 428, 439 (D.D.C. 1992), the court held that the Act does not
apply to foreign corporations acting as agents of a
20. Pub. L. No. 95-213, 91
Stat. 1494, 1496–97 (1977). See
21. See, e.g., Dooley v. United Techs., Inc., 803 F. Supp. 428 (D.D.C. 1992).
22.
22.1. See SEC v. Cantor, No. 03-CV-2488, 78 (S.D.N.Y. 2003) (noting that anti-bribery provisions of FCPA apply to any employee of company).
22.2. See Indictment, United States v. Sapsizian, 1:06-CR-20797-PAS (S.D. Fla. 2006) (indicting a French citizen employed by Alcatel, a French telecommunications company whose ADRs were listed on the New York Stock Exchange (jurisdiction based on use of any means of instrumentality of interstate commerce in furtherance of an illicit payment); see also Press Release, Department of Justice, Former Alcatel Executive Pleads Guilty to Participating in Payment of $2.5 Million in Bribes to Senior Costa Rican Officials to Obtain a Mobile Telephone Contract (June 7, 2007). See also discussion supra at note 7.
23. OECD Convention, art. 4, 1.
24. See discussion in section 1:1, supra.
24.1. Foreign corporations may be “issuers” (e.g., ADRs listed on the New York Stock Exchange), and therefore subject to the FCPA.
24.2. International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 105-366, § 4, 112 Stat. 3302, 3306 (1998).
24.3. The Administration bill was passed by Congress, almost verbatim, with only minimal discussion in Congress.
24.4. The above discussion is based upon the personal knowledge of the author.
24.5. H. REP. NO. 105-802 to
accompany H.R. 4353, International Anti-Bribery and Fair Competition Act of
1998, 21 (Oct. 8, 1998). A foreign company will
be liable for
acts taken on
their behalf by
their officers, directors, employees, agents,
or stockholders in
the territory of
the United States, regardless of
the nationality of
such persons.
24.6.
24.7.
24.8. Comments made by Peter Clark, Deputy Chief, Fraud Division, Dep’t of Justice, at the American Bar Association Conference on the Foreign Corrupt Practices Act (Feb. 19, 1999).
24.9. See Plea Agreement,