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
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 1933but 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. companys 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 Steels 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 defendants 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 briberthe defendants
intention in making
the payment, rather
than the recipients 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 courts
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
FAAs 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 Cubas 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 governments 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.
governments 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 enterprises 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
tierthe entity that is owned directly by the foreign state. A second-tier
entitya company owned by the first-tier entityshould 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 persons
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 governments
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 courts 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 courts 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 officials 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 relationshipbe 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. companys 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 persons 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 problemvariously described in the pertinent authorities as conscious disregard, willful blindness or deliberate ignoranceshould be covered so that management officials could not take refuge from the Acts 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 courts 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 defendants 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 companys
refusal or failure to respond to an agents 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 ones 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 defendants
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 defendants 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 FCPAsecuring 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 testto 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 officials 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 Senates 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 FCPAs 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
Congresss 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 courts 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 Acts 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 Acts general penalty provision.207 A commentator, writing at the time of the Exchange Acts 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 defendants 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 individuals role in the activity; and the defendants 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 contractors 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
Congresss 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. 6970, 134 (1986) (testimony of John C. Keeney, Deputy Assistant Attorney General, Criminal Division, Dept of Justice; and Malcolm Baldrige, Secretary of the Dept 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, 149697 (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, Dept of Justice, at the American Bar Association Conference on the Foreign Corrupt Practices Act (Feb. 19, 1999).
24.9. See Plea Agreement,
24.10.
24.11. See notes 2324.9, supra, and accompanying text.
24.12. The prohibition of the FCPA applies to any issuer or domestic concern, and to 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. . . . 15 U.S.C. 78dd-2 (a) (2005) (emphasis added).
24.13. See discussion in sections 1:1.3 and 2.1.
24.14. Information,
24.15. Press Release, Department of Justice, Schnitzer Steel Industries Inc.s Subsidiary Pleads Guilty to Foreign Bribes and Agrees to Pay a $7.5 Million Criminal Fine (Oct. 16, 2006).
24.16. The Department of Justice/Department of Commerce Brochure issued to provide guidance on the FCPA states that a foreign company or person is now subject to the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place within the territory of the United States. Available at www.usdoj.gov/criminal/fraud/docs/dojdocb.html.
24.17.
24.18. This was the second time that Vetco Gray UK had pled guilty to violating the FCPA On July 6, 2004, Vetco Gray UK, previously named ABB Vetco Gray UK Ltd., and an affiliate company pled guilty to violating the FCPA. ABB Vetco Gray UK Ltd. was renamed Vetco Gray UK Ltd. following its acquisition by private equality entities.
25. 15 U.S.C. 78dd-1(a), 78dd-2(a).
26.
27. H.R. CONF. REP. NO. 831, supra note 1, at 12. The Senate bill originally contained the in furtherance clause. S. 305, 95th Cong., 1st Sess. (1977). The bill passed by the House required that interstate commerce be directly used to offer or make the prohibited payment. H.R. 3815, 95th Cong., 1st Sess. (1977). The Department of Justice expressed the view that the directly used language in the House bill was unduly restrictive and narrow, and recommended inclusion of the in furtherance clause contained in the Senate bill. See H.R. CONF. REP. NO. 640, 95th Cong., 1st Sess. 18 (1977) [hereinafter H.R. REP. NO. 640].
28.
29. Schmuck v.
30.
31. Schmuck, 489
32.
33. 489
33.1. See Response of the
33.2. Note that conduct that does not meet the jurisdictional requirements under the foreign payments provisions may nevertheless be subject to liability under the accounting provisions. See SEC v. Montedison, supra note 7.
33.3. While the
33.4. International Anti-Bribery and Fair Competition Act of 1998, supra note 24.2, 2(c). Foreign corporations that are issuers (i.e., that have ADRs listed on the New York Stock Exchange) would only be subject to the regular jurisdictional requirement of use of an instrumentality of inter- state commerce.
33.5. The alternative
jurisdiction applies to a
33.6. International Anti-Bribery and Fair Competition Act of 1998, supra note 24.2, 2(c).
33.7.
33.8.
33.9.
33.10. See Response
of the
34. H.R. REP. NO. 640, supra note 27, at 78; S. REP. NO. 114, supra note 11, at 1011. In United States v. Liebo, 923 F.2d 1308, 1312 (8th Cir. 1991), involving a violation of the FCPA, the court affirmed the following jury instruction of the term corruptly:
[T]he offer, promise to pay, payment or authorization of payment, must be intended to induce the recipient to misuse his official position or to influence someone else to do so. . . . [A]n act is corruptly done if done voluntarily and intentionally, and with a bad purpose of accomplishing either an unlawful end or result, or a lawful end or result by some unlawful method or means.
35. H.R. REP. NO. 640, supra note 27, at 8; S. REP. NO. 114, supra note 11, at 10. See also Department of Justice Press Release (Mar. 24, 2006),
wherein a
36. S. REP. NO. 114, supra note 11, at 11.
37. See Liebo, 923 F.2d at 1314.
38. S. REP. NO. 114, supra note 11, at 1011.
39. H.R. REP. No. 640, supra note 27, at 8 (the word corruptly connotes
an evil motive or purpose such
as
that
required
under
18
U.S.C.
201(b) which prohibits domestic bribery).
See generally Gary M. Elden & Mark S. Sablemann,
Negligence Is Not Corruptive: The Scienter Requirement of the Foreign
Corrupt Practices Act, 49 GEO. WASH. L. REV.
819,
82628
(1981) (an instructive review of cases
interpreting
the
corruptly
standard).
Numerous
other statutes also contain a corruptly requirement. One law review
article
states
that
there
are
sixty-four
federal
statutory provisions which contain the word corruptly or a variant thereof.
40.
41. Brewster, 506 F.2d at 8082.
42. Because of
the ambiguity of
the corruptly standard,
criminal law reformers had proposed
to replace this requirement in the domestic bribery statute with
as consideration for,
to emphasize the
importance of the quid
pro quo aspect
of bribery. See OBERMAIER & MORVILLO, WHITE
COLLAR CRIME: BUSINESS & REGULATORY OFFENSES 3.03[1] (citing S. REP. NO. 553,
96th Cong., 2d Sess. 398 (1979)); W. VA.
CODE ANN. 61-5A-3 (1966 & Supp. 1994) (
43. See Brewster, 506 F.2d at 71, 72.
44.
45.
46. See
46.1. While the criminal conviction of a company requires proof that the defendant acted corruptly, the criminal conviction of an individual under the FCPA requires proof that the defendant acted not only corruptly but also willfully. To obtain a criminal penalty against an individual, 15 U.S.C. 78 dd-1 provides:
Any officer, director, employee, or agent of an issuer, or stockholder acting on behalf of such issues, who willfully violates subsection (a) or (g) of Section 78dd-f of the title shall be fined not more than $100,000 or imprisoned not more than 5 years, or both.
In U.S. v. Kozeny, Bourke and Pinkerston (S.D.N.Y. June 21, 2007), the court held that willfulness meant that the government must prove that the defendant acted with knowledge that his conduct was unlawful, and not that the defendant in fact knew that his conduct violated the FCPA. The willfulness standard is also the subject of an appeal in United States v. David Kay & Douglas Murphy, Nos. 05-20604 and 05-20606 (S.D. Texas 2007), where the question is whether the willful standard for a criminal conviction of an individual requires specific intent (that is, that the defendant acted with knowledge that his conduct was unlawful) or only general intent (that is, an intent to influence a foreign official to misuse his official position).
47. 15 U.S.C. 78dd-1(a), 78dd-2(a). In contrast to the FCPA, the OECD Convention does not extend to political parties or political candidates.
48. Commercial bribery
may, however, be a violation
of the Travel
Act, supra, note 15. See Perrin
v.
49. In a Department of Justice Opinion Procedure Release, the Department of Justice expressed its intention not to bring enforcement proceedings against a company that sought to contribute $25,000 directly to a local customs agency in an African nation. The company intended the contribution to be used to establish a program that would provide financial incentives to local customs officials in order to improve enforcement of anti-counterfeiting laws. Noting that the contribution went directly to the agency (and not to individual officials), that the company lacked control over the distribution of funds, and the existence of certain procedural safeguards, the DOJ implicitly concluded that the program would not contravene the FCPA. See Foreign Corrupt Practices Act Review, Opinion Procedure Rel. No. 06-01 (Oct. 16, 2006).
50. 15 U.S.C. 78dd-2(h)(2). Prior to the 1988 amendments to the FCPA, the term foreign official did not include employees of a foreign government whose duties were essentially ministerial or clerical. 91 Stat. 1498 (1977). This exclusion provided the basis for permitting so-called facilitating payments, and was replaced in the 1988 amendments by an explicit exception for facilitating payments. 15 U.S.C. 78dd-1(b), 78dd-2(b).
50.1. International Anti-Bribery and Fair Competition Act of 1998, supra note 24.2, 2(b).
51. Cf. SEC v. Ashland Oil, Inc., 2 FOREIGN CORRUPT PRAC. ACT. REP. (Bus. Laws, Inc.) 696.95, involving an SEC civil injunctive action for a payment to an Omani official, in violation of the bribery provisions of the FCPA. In that case, the SEC referred to an Omani Decree for reference in defining a government official in its Complaint for Permanent Injunction (para. 10). But cf. Department of Justice Opinion Procedure Release No. 94-1 (May 13, 1994), reprinted at Appendix B (Department of Justice rejects any consideration of local law in determining whether the general director of a state-owned enterprise is a foreign official under the FCPA).
52. 18
U.S.C. 201(a)(1).
53. 28
U.S.C. 2671 et seq. The FTCA is a vehicle pursuant to which private
plaintiffs may sue the
54. 18 U.S.C. 201(a)(1); see also Jay M. Zitter, Annotation, Who is Public Official Within Meaning of Federal Statute Punishing Bribery of Public Official, 161 A.L.R. Fed. 491 (2000).
55.
56. Felder v.
57.
58.
59. Employee of the government under the
FTCA includes . . . employees of any federal agency, member of the military .
. . forces of the
60.
61. Logue v.
62. Resendez v.
63.
64. Kirchmann v.
65.
66. Berkman v.
67.
68. 28 U.S.C. 160211 (1988 & Supp. IV 1992).
69. 28 U.S.C. 1603(b)(2). The full definition is as follows:
An agency or instrumentality of a foreign state means any entity
(1) which is a separate legal person, corporate or otherwise, and
(2) which 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, and
(3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created under the laws of any third country.
70. First Natl City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S.611 (1983).
71.
72. However, often a narrower
standard of government agency or instrumentality has been applied
domestically. See, e.g.,
72.1. See Schnitzer
Steel Indus., Inc.,
supra notes 24.14
and 24.15 (improper payments to employees of government-owned
entities in China and South Korea);
United States v.
Baker Hughes Servs.
Intl, Inc., No.
H-07-129 (S.D.
73. See, e.g., OConnell Mach.
Co. v. M.V. Americana, 734 F.2d 115 (2d Cir.), cert. denied, 469
74. Ofikuru v. Nigerian Airlines Ltd., 670 F. Supp. 89 (S.D.N.Y. 1987).
75. H.R. REP. NO. 1487, 94th
Cong., 2d Sess. 1516 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 661314. See
76. Department of Justice Opinion Procedure Release No. 94-1 (May 13, 1994), reprinted at Appendix B.
77. Statement of Peter B. Clark, Deputy Chief of the Fraud Section, Criminal Division, Department of Justice, in an address before the Foreign Trade Council (Apr. 21, 1994) [hereinafter Clark comments].
77.1. Cf. Cargill Intl S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir.1993) ([A]fter the first shares are distributed [under privatization], nearly half the shares will remain with the Russian State Property Fund for a period of three years. We consider an entity at such an early stage of privatization to be sovereign under the F[oreign] S[overeign] I[mmunities] A[ct].). The SEC seems to have partly relied on a similar rationale in a complaint filed against former executives of ITXC Corp., an international telecommunications carrier. The complaint alleges that Steven Ott and Michael Young violated the FCPA by inter alia bribing officials of Sonatel, a Senegalese telecommunications company partly owned by the Senegalese government. Complaint, SEC v. Ott, No. 06-4195 (D.N.J. 2006). However, at the time of the alleged bribery, the Senegalese government no longer owned a majority stake in Sonatel, having sold off 61% of the company in 1997 as part of a privatization plan. See Intl Monetary Fund, Senegal: Enhanced Structural Adjustment Facility Policy Framework Paper, 1998-2000 at 3-4 (Feb. 27, 1998), available at www.imf.org/external/NP/ PFP/Senegal/seneg.pdf.
78. Statement of Peter Clark, American Bar Association Conference on the Foreign Corrupt Practices Act (Feb. 21, 1997).
78.1. Response of the
78.2. See Department of Justice Opinion Procedure Rel. No. 94-01, supra note 51 (argument that individual employee of state-owned enterprise not regarded as government employee or public official under local law rejected by Department of Justice). But cf. SEC v. Ashland Oil, Inc., Complaint for Permanent Injunction, No. 86-1904 (D.D.C. July 8, 1986), reprinted in 2 FOREIGN CORRUPT PRAC. ACT REP. (Bus. Laws, Inc.) 696.95 (SEC looked to local law to determine if individual was foreign official).
78.3. See
78.4. Lewis, 680 F.2d at 1242 (Federal Reserve Bank was federal instrumentality for purposes of determining liability for state and local taxation, but not instrumentality under the Federal Tort Claims Act).
78.5. Motor Coach Indus., Inc. v. Dole, 725 F.2d 958 (4th Cir. 1984); Fed. Reserve Bank v. Metrocentre Improve Dist., 657 F.2d 183 (8th Cir. 1981), aff d, 455 U.S. 992 (1982).
78.6. See 15 C.F.R. pt. 760 (1996).
78.7. In contrast to the FCPA, the OECD Convention would only apply to state-owned commercial enterprises in which a government exercises, directly or indirectly, a dominant influence (i.e., holds the majority of the capital, controls the majority of voting shares, or appoints a majority of the administrative or managerial body or supervisory board). In addition, the entity will not be considered a public enterprise if it operates on a commercial basis without preferential subsidies or other privileges. Commentaries on the Convention on Combating Bribery of Officials in International Business Transactions, art. 1 available at <//www.oecd.org> [hereinafter Commentaries on OECD Convention]. Unfortunately, the Administration did not adopt this more explicit, narrower standard in the 1998 Amendments.
78.8. The U.S. Supreme Court, in Dole Food Co. v. Patrickson, 538 U.S. 468, 474-77 (2003), held that a foreign state must itself own a majority of a corporations shares if the corporation is to be deemed an instrumentality of the state under the Foreign Sovereign Immunities Act. The Court found that instrumentality status turned on formal corporate ownership of shares.
79. Thompson v. Dilger, 696 F. Supp. 1071, 1074 (E.D. Va. 1988).
80. Logue v.
81.
82. Guccione v.
83.
84. Dixson v.
85.
86.
87.
88.
89.
90.
90.1. OECD Convention, art. 1, 4a.
90.2. International Anti-Bribery and Fair Competition Act of 1998, supra note 24.2, 2(b).
90.3.
90.4. See In the Matter of the Titan Corporation Litig. Rel. No. 19107 (March 1, 2005) (Titan paid an employee of the World Bank, a foreign official under the FCPA, to assist in obtaining local investors for a project).
91. 15 U.S.C.
78dd-1(a)(2), 78dd-2(a)(2).
In contrast to
the FCPA, the OECD
Convention does not
apply to political
parties. See George J. Wallance, Major Victory for
92. H.R. CONF. REP. NO. 576, 100th Cong., 2d Sess. (1988) 91819, reprinted in 1988 U.S.C.C.A.N. 1547, 195152 [hereinafter H.R. CONF. REP. NO. 576].
93. See 15 U.S.C. 78dd-1(c)(1) and 78dd-2(c)(1).
94. [Reserved]
95. For example, in
96. 15 U.S.C. 78dd-2(a).
97. See
98.
99. 18 U.S.C. 201(c).
100.
101. Williams, 705 F.2d at 623.
102.
103.
104.
105.
106.
107. See McDonald
v.
108.
109. United States v. Schwartz, 785 F.2d 673, 68081 (9th Cir.), cert. denied, 499 U.S. 890 (1986) (holding that thing of value includes the intangible of providing assistance in arranging a merger when interpreting 18 U.S.C. 1954 which prohibited offering anything of value with intent to influence actions of union benefit plan trustees.)
110. MODEL PENAL CODE 240.0 (Proposed Official Draft 1962). The Model Penal Code was approved by the American Law Institute by resolution dated May 24, 1962. Many of its provisions have been followed, in varying degrees, by numerous states. See Model Penal Code and Commentaries, American Law Institute (1980) [hereinafter Model Penal Code Commentary ].
111.
112. Model Penal Code Commentary, supra note 110, at 240.1 commentary at 24.
113.
114. 18 U.S.C. 201.
115.
115.1. The OECD Convention clearly proscribes payments made to a foreign official, for that official or for a third party. OECD Convention, art. I, 1.
116. FCPA Review Procedure Release No. 83-01 (May 12, 1983).
117.
118.
119. The indictment is
reprinted in 2 FOREIGN CORRUPT PRAC. ACT
REP. (Bus. Laws, Inc.) 697.97.
120. Liebo, 923 F.2d
at 1311. See also SEC v. BellSouth, supra chapter 3, note 145.10 and
accompanying text. In that case, the SEC initiated an action against BellSouth
for a violation of the accounting provisions of the FCPA in part
for the alleged
improper payments made
by its Nicaraguan subsidiary to the wife of a
Nicaraguan legislator. The legislator chaired a key legislative
committee responsible for
the repeal of
a law restricting foreign ownership
of telecommunications companies.
The payments to the
wife were booked
as consulting services.
By asserting that
the payments were improperly
recorded, the SEC is implicitly asserting either that the payments to the wife
were indirect payments made to the legislator; or that the monies provided to a
person in whose well-being the official was interested (i.e., the wife) was
intended as a quid pro quo for the legislator s assistance in repealing the
law restricting foreign ownership.
121. FCPA Review
Procedure Release No. 80-01
(Oct. 29, 1980).
122. See also FCPA Review Procedure Release No. 83-02 (July 26, 1983) (Department of Justice declined to take enforcement action against a firm that was to pay the travel and lodging expenses of an official and his spouse for a proposed promotional tour).
122.1. SEC v. Schering-Plough Corp., Case No. 1:04CV00945 (D.D.C. June 9, 2004); In the Matter of Schering-Plough Corp., Administrative Proceeding File No. 3-11517, Rel. No. 49,838 (June 9, 2004).
123. [Reserved]
124. 15 U.S.C. 78dd-1(a)(3), 78dd-2(a)(3); S. REP. NO. 486, 99th Cong., 2d Sess. (1986) [hereinafter S. REP. NO. 486].
125. 18 U.S.C. 201. See also supra note 114 and accompanying text.
126. To be
liable as an
accomplice, a person
must act with
intent that the offense
be committed. See,
e.g.,
127. See discussion supra sections 1:1 and 1:1.1.
128. 15 U.S.C. 78dd-1(a)(3), 78dd-2(a)(3) (emphasis added).
129. The 1988 Amendment deleted the reason to know standard relating to payments to third parties. However, there is little practical difference between the current knowledge standard and the prior reason to know standard. See discussion infra section 7.
130. See discussion of knowledge standard, infra section 7.
131. [Reserved]
132. 15 U.S.C. 78dd-1(a), 78dd-2(a) (prohibits authorization of the payment of any money, or . . . authorization of the giving of anything of value).
133. Knowledge of the illicit payment would appear to be an implicit predicate to the authorization. One cannot authorize that which one does not know about. See H. REP. NO. 640, supra note 27, at 8. See also discussion on authorization, infra section 8.
134. For example, the Harris Corporation was indicted under the FCPA for authorizing a consultant retained by the Corporation to pay a portion of his commission to a Colombian official in order to obtain government contracts. Harris Corp., reprinted in 2 FOREIGN CORRUPT PRAC. ACT REP. (Bus. Laws, Inc.) 698.95. See also SEC v. Martin, Accounting and Auditing Enforcement Rel. No. 2572 (Mar. 6, 2007), (settlement of an SEC enforcement action brought against the individual defendant who authorized an Indonesian consulting firm to make illicit payment for the benefit of the defendants company).
134.1. See, e.g., Saybolt Intl B.V. v. Schreiber, 327 F.3d 173 (2d Cir. 2003).
135. See discussion
infra section 8.
136. 91 Stat. at 1495, 1497 (1977).
137. See Business Accounting and Foreign Trade Simplification Act: Joint Hearings on S. 414 Before the Subcomm. on International Finance and Monetary Policy and the Subcomm. on Securities of the Senate Comm. on Banking, Housing, & Urban Affairs, 98th Cong., 1st Sess. (1983) (Memorandum from Deputy Attorney General Edward C. Schmults) [hereinafter Schmults Memorandum]. In actuality, however, the requirement that a payment be made corruptly made it difficult to prosecute anyone under a negligence standard. Moreover, the Department of Justice had indicated that, as a matter of enforcement policy, it would not prosecute anyone under a negligence standard. See S. REP. NO. 486, supra note 124, at 25.
138. H.R. CONF. REP. NO. 576, supra note 92, reprinted in 1988 U.S.C.C.A.N. 1949, 195254.
139. 15 U.S.C. 78dd-1(f)(2), 78dd-2(h)(3).
140. H.R. CONF. REP. NO. 576, supra note 92 at 91921, reprinted in 1988 U.S.C.C.A.N. 195354 (citations omitted).
141. MODEL PENAL CODE 2.02(d)(7) contains a similar standard:
Requirement of Knowledge Satisfied by Knowledge of High Probability. When knowledge of the existence of a particular fact is an element of an offense, such knowledge is established if a person is aware of a high probability of its existence, unless he actually believes that it does not exist.
However, the Code provision applies only when what is involved is a matter of an existing fact, not circumstances. Model Penal Code Commentary, supra note 110, at 2.02 cmt. 9. In contrast, the FCPA would impute knowledge not just of a particular fact, but of the criminal act itself.
141.1. See United States v. King, 351 F.3d 859 (8th
Cir. 2002), wherein the court gave a deliberate ignorance instruction to the
jury where the defendant was on notice of possible bribery activity and
deliberately declined to investigate; see also Information, United States v.
Baker Hughes Servs. Intl, Inc., No. CR H-07-0219 (S.D. Tex. Apr. 11, 2007)
(alleging that the defendants conduct was knowing when the defendant was
instructed by a foreign, state-owned
oil company to
retain a certain consultant, the
defendant did retain the consultant even though it performed no
legitimate services, and the defendants
employee stated that
if the consultant
were not retained we
can say goodbye
to this and
future business); Plea
Agreement, United States v. Vetco Gray UK Ltd. and Vetco Gray Controls
Ltd., No. CR H-07-004
(S.D.
142. See, e.g., United States v.
Puente, 982 F.2d 156 (5th Cir.), cert. denied, 508 U.S. 962 (1993) (reckless
indifference shown by defendant in failing to read form was
sufficient to establish
scienter requirement for
the crime of fraud);
United States v.
White, 765 F.2d
1469 (11th Cir.
1985);
143.
144. Jewell, 532 F.2d at 702, cited with approval in H.R. CONF. REP. NO. 576, supra note 92 at 920, reprinted in 1988 U.S.C.C.A.N. at 1953.
145.
146.
147.
148.
149.
150. See, e.g., the definition of recklessly in the Model Penal Code:
A person acts recklessly with respect to a material element of an offense when he consciously disregards a substantial and unjustifiable risk that the material element exists or will result from his conduct. . . .
Section 2.02(2)(c).
151.
151.1. SEC v. El Paso Corp., Civil Action No. 07CV00899 (S.D.N.Y. Feb. 7, 2007).
152. The Department of Justice never prosecuted a company or individual under the FCPA on the basis of reason to know. See S. REP. NO. 486, supra note 124, at 25.
153. Department of Justice officials have
remarked that the deletion of reason
to know
has changed neither the
prosecution standard nor
counsels advice.
154. There
are no specific
instances of red
flags identified in the FCPA. Rather, the term refers to information
or circumstances that come to the attention
of the
155. 15 U.S.C. 78dd-1(a), 78dd-2(a) (authorization of the payment of any money, or . . . authorization of the giving of anything of value).
156. SEC v. Eric L. Mattson & James W. Harris, Accounting and Auditing Enforcement Rel. No. 1,444 (Sept. 12, 2001); Exchange Act Rel. No. 44,784 (Sept. 12, 2001); Accounting and Auditing Enforcement Rel. No. 1,447 (Sept. 12, 2001) (Baker and Hughes authorized its accountant/agent to pay a $75,000 bribe to an Indonesian tax official to reduce the tax assessment against its wholly owned Indonesian subsidiary.) See also discussion on third-party payments, supra section 6.
157. H.R. NO. 640, supra note 27, at 8.
158. S. REP. NO. 430, 99th Cong., 2d Sess. (1986).
159.
160. S. REP. NO. 486, supra note 124, at 11.
161.
162. H.R. CONF. REP. NO. 576, supra note 92, at 91920, reprinted in 1988 U.S.C.C.A.N. 195253. See also discussion on knowledge, supra section 7.
163. See Schmults Memorandum, supra note 137, at 38.
164. The Unlawful Corporate Payments Act of
1977, adopted by the House and considered by the Conference Committee,
originally contained a provision which
imposed liability on
officers, directors, employees
or agents who knowingly and willingly acquiesced in an act or practice in
violation of the Act. H.R. 3815, 95th Cong., 1st Sess., 30A(c)(1) (1977),
reprinted in 1977 House Hearings,
at 6. During Congressional hearings, the
Department of Justice and other witnesses objected to using the word
acquiesce, stating that it was too vague a concept upon which to predicate
criminal liability.
165. See Contl Baking Co. v.
166. See, e.g.,
167. See United States v. Gillen, 599 F.2d 541 (3d Cir.), cert. denied, 444 U.S. 866 (1979) (corporate officer convicted of price fixing where he knew of illegal conduct and took no action to prevent subordinates from carrying it out).
168. Pattis v.
169. Pattis, 17 F.2d at 566.
170. Deacon v.
171.
172.
173.
174. [Reserved]
175. 15 U.S.C. 78dd-1(a)(1), 78dd-2(a)(2).
176. H.R. CONF. REP. NO. 831, supra note 1, at 1112.
177.
178. H.R. REP. NO. 640, supra note 27, at 8.
179. 15 U.S.C. 78dd-1(a), 78dd-2(a).
180. H.R. CONF. REP. NO. 576, supra note 92, at 918, reprinted in 1988 U.S.C.C.A.N. 1951. The domestic bribery statute prohibits offering or promising anything of value to any public official or person with the intent to influence any official act; or to influence such public official or person. . . to commit or aid in committing . . . any fraud; or to induce such public official or such person . . . to do or omit to do any act in violation of the lawful duty of such official or person. 18 U.S.C. 201(b).
180.1. International Anti-Bribery and Fair Competition Act of 1998, supra note 24.2, 2(a) and 3(a).
180.2. OECD Convention, art. I, 1. The OECD Commentaries indicate that other improper advantage refers to something which the company concerned was not clearly entitled, for example, an operating permit for a factory which fails to meet that statutory requirements. OECD Commentaries, supra note 78.7, at 5.
180.3 The above discussion is based on talks between the author and officials at the Department of Justice.
180.4.
180.5.
180.6.
181. 15 U.S.C. 78dd-1(a), 78dd-2(a).
182. H.R. CONF. REP. NO. 831, supra note 1, at 12.
183. H.R. CONF. REP. NO. 576, supra note 92, at 918, reprinted in 1988 U.S.C.C.A.N. 1951.
184.
185.
186. See
187. In FCPA Opinion Procedure Rel. No. 04-01 (Jan. 6, 2004), the Justice Department declined to take enforcement action against a U.S. law firm planning to hold a comparative law seminar on labor and employment law in Beijing, China where the firm had agreed to pay the travel and accommodation costs of Chinese government officials wishing to attend the seminar. In reaching this opinion, the Justice Department relied on a number of facts, including that the firm ha[d] no business before the entities that may send officials to the seminar and that it [was] unaware of any pending or anticipated business between the clients who will be invited to the seminar and the Chinese officials who will attend.
188. See
189.
190.
191.
192. Kay, 359 F.3d at 750.
193. See supra note 184.
194. Kay, 359 F.3d at 753.
195. See also discussion in section 9 supra.
196. The SEC s appeal of a related case, SEC v. Mattson, Civ. A. No. H-01-3106 (S.D. Tex. Sept. 9, 2002), is still pending.
197. 15 U.S.C. 78u (2000), amended by Act of July 30, 2002; 15 U.S.C.A. 78u (West Supp. 2003).
198.
199.
199.1. See In re The Titan Corp., Litig. Rel. No. 19,107 (Mar. 1, 2005); SEC v. Titan Corp.,
Civil Action No.
05-0411 (D.D.C. Mar.
1, 2005) (disgorgement and prejudgment interest in the
amount of $15, 479,000); In re GE In Vision,
Inc., Accounting and
Auditing Enforcement Rel.
No. 51,199 (Feb. 14, 2005)
(disgorgement and prejudgment interest in the amount of $617,700); In re ABB
Ltd., Accounting and Auditing Enforcement Rel. No. 20,496 (July
6, 2004) (disgorgement
and prejudgment interest
in the amount of
$5,915,000); In the
Matter of Statoil,
ASA, Administrative Proceeding,
Exchange Act Rel. No. 54,599 (Oct. 13, 2006) ($10.5 million disgorgement); Plea
Agreement, United States v. Baker Hughes Servs. Intl, Inc., No.
CR H-07-0129 (S.D.
200. 15 U.S.C. 78u (2000), amended by Act of
July 30, 2002, Pub. L. 107-204, 15 U.S.C.A. 78ff(a) (West Supp. 1993). 15
U.S.C. 78ff(a). See
201.
202.
203.
204. 15 U.S.C. 78m(b)(4), (5) (2000), amended by Act of Jan. 16, 2002, and July 30, 2002, 15 U.S.C. 78m(b)(4), (5) (West Supp. 2003).
205. S. REP. NO. 486, 99th Cong., 2d Sess. 9 (1986).
206. No corresponding change was made to SEC Rules 13b2-1 and 13b2-2. Accordingly, a criminal violation of these rules would require a finding that the defendant acted willfully, or in the case of a false or misleading filing, willfully and knowingly, under 15 U.S.C. 78ff(a).
207. See, e.g., In re Colonial Ltd. P ship
Litigs., 854 F. Supp. 64, 106 (D. Conn. 1994);
In re Crazy
Eddie Secs. Litig.,
812 F. Supp.
338, 351 (E.D.N.Y. 1993);
208. Herlands, supra note 11, at 14849. See discussion supra, chapter 4, note 46.1 and accompanying text.
209.
210.
211.
212. See, e.g.,
213. A violation of the bribery provisions by an issuer is explicitly excluded from the application of the general penalty provisions of the 1934 Exchange Act. See 15 U.S.C. 78ff(a), as amended by 103(b)(1) of the FCPA of 1977, Pub. L. No. 95-213, 103(b)(1) (1977).
214. 15 U.S.C. 78dd-2(g)(1)(A), 78ff(c)(1)(A) (2000).
215. 15 U.S.C. 78dd-2(g)(2)(A), (2)(B), 78ff(c)(2)(A), (c)(2)(B), as amended by 18 U.S.C. 3571.
216. 15 U.S.C. 78ff(c)(2)(A), 78ff(c)(2)(B),78dd-2(g)(2)(A); 78dd-2(g)(2)(B) (2000), amended by Act of July 30, 2002, 15 U.S.C. 78ff(c) (West Supp. 2003).
217. See
218. See id. 2B4.1.
219.
220. 18 U.S.C. app. ch. 8 (1991).
221. Organizations means a person other than an individual. The term includes corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments and political subdivisions thereof, and non-profit organizations. GUIDE- LINES MANUAL, supra note 21, 8A1.1.
222.
223. See id. 2C1.1(a), 5E1.2(a), (c).
224. A violation of the bribery provision of the
FCPA is, effective November 1, 2002, placed in the same category as the
domestic bribery offense, at a base level
of 14.
225. See id.
226. See id. 8C2.1, 2C1.1(c).
227.
228.
229.
230. 15 U.S.C. 78ff(c) (2000), amended by Act of July 30, 2002, 15 U.S.C. 78ff(c) (West Supp. 2004).
231. 15 U.S.C. 78u(d) (2000), amended by Act of July 30, 2002, 15 U.S.C. 78u(d) (West Supp. 2003). See SEC v. Sam P. Wallace Co., Inc., Complaint for Permanent Injunction, Consent and Undertaking of Sam P. Wallace Company, and Consent to Entry of Final Judgment of Permanent Injunction, reprinted in 2 FOREIGN CORRUPT PRAC. ACT REP. (Bus. Laws, Inc.) 68390; SEC v. Ashland Oil, Inc., reprinted in 2 FOREIGN CORRUPT PRAC. ACT REP. (Bus. Laws, Inc.) 696.95.
232. 15 U.S.C. 78dd-2(g)(1)(B) (2000).
233.
234. 15 U.S.C. 78ff(c)(3).
234.1. See SEC v. Baker Hughes Inc., Accounting and
Enforcement Rel. No. 2602 (Apr. 26, 2007)
(combined penalties and
fines for Baker
Hughes and its subsidiary, Baker Hughes Services.
International totaled $44 million); U.S. v. Vetco Gray Controls Inc., Vetco
Gray Controls Ltd., Vetco Gray UK Ltd. and Abel Group Ltd. (S.D. Tex. 2007)
(combined penalties and fines totaled $26
million). In
234.2. See,
e.g.,
235. 48 C.F.R.
236. 48 C.F.R. 9.406-2(a)(3) (2006). The reference to bribery does not refer to the violation of any specific law or regulation.
237. For example, the Harris Corporation was suspended for authorizing its consultant to pay a portion of his commission to a foreign official. See supra note 4.
238. If legal proceedings are not initiated within twelve months after the date of suspension notice, the suspension must be terminated except in the case of an extension (up to six months) by the Assistant Attorney General. See 48 C.F.R. 9.407-4(b) (2006); Frequency Elecs., Inc. v. United States Air Force, 151 F.3d 1029 (4th Cir. 1998) (applying eighteen-month maximum debarment unless legal proceedings are initiated).
239. See 48 C.F.R. 9.406-1(a) (2006).
240. 22 C.F.R. 709 (2006); 22 U.S.C. 2197(l) (2001).
241. See, e.g., 22 C.F.R. 208.305, 208.405 (2002) (Agency for International Development).
242. See Exec. Order No. 12,549, 51 Fed. Reg. 6,370 (Feb. 18, 1986); Notice, 53 Fed. Reg. 19,160 (May 26, 1988) (implementing uniform rules for government-wide suspension or debarment action for non-procurement activities).
243. Exec. Order No. 12,549, 51 Fed. Reg. 6,370 (Feb. 18, 1986).
244. 22 U.S.C. 2778 et seq. (2000), amended by Act of Dec. 17, 2004, 22 U.S.C. 778(g)(3) and (g)(1)(A)(vi) (West Supp. 2003).
245.
246.
247. 22 C.F.R. 120 (2006).
248. See 22 C.F.R. 120.1(a).
249. 22 C.F.R. 121 (2006).
250. 22 C.F.R. 126.7(a) (2006).
251. See 22 C.F.R. 126.7(a)(3) and (4); 120.27(a)(6) (2006).
252. For example,
Lockheed was barred
indefinitely from exporting
its C-130 Hercules aircraft as a
result of charges that the company bribed an Egyptian official. This had the
effect of undermining its $1.6 billion bid to supply the
253.
254. See 22 U.S.C. 2778(g)(4) (2000), amended by Act of Dec. 17, 2004, 22 U.S.C. 2778(g)(4) (West Supp. 2003). The Department of State has applied this same standard to the reinstatement of export privileges for indictments.
255. See also 22 C.F.R. 126.7(a)(b), which provides for the disapproval of a license where any party to the export, any manufacturer of the defense article or service or any person who has a significant interest in the transaction has been debarred or suspended under the ITAR; 22 C.F.R. 127.1(c), which prohibits a person who knows that a party is suspended or debarred under the ITAR from purchasing for export any defense article or service from such person; Contractor s Certification and Agreement with Defense Security Assistance Agency that requires, for any defense articles or services sold under the Foreign Military Sales program, the certification that the contractor is not suspended or debarred from con- ducting business with the U.S. government, that export privileges are not suspended or revoked, and that no suspended or debarred firm will be used as a source of supplies or as a subcontractor. Guidelines for Military Financing of Direct Commercial Contracts, issued by the Defense Security Cooperation Agency (Aug. 2001).
256. Ronald S. Cohn, a former tax partner in Dechert Price & Rhoads, contributed to this section.
257. 26 U.S.C. 162 (2000).
257.1. In
258. 26 U.S.C. 95164 (2000), amended by Act of March 9, 2002, 26 U.S.C. 951-64 (West Supp. 2003).
259. In general, a CFC is a foreign corporation that is majority-owned or majority-controlled by U.S. persons who hold significant interests in the foreign entity. For this purpose, a significant interest is, in general, ownership of stock in the foreign corporation representing 25% or more of the value of, or voting power in, that company. See 26 U.S.C. 957.
260. For most corporations, an understatement is substantial if it is more than the greater of $10,000 or 10% of the correct tax liability.