1. Guide to the FCPA
Jim Chester
JD, LL.M, CCS, CHB
Chester/Associates, PLLC
Dallas, Texas
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2. US Trade Laws Implicated by
Global Sales and Marketing
- Foreign Corrupt Practices Act
- Anti-Boycott Laws
- Export Laws
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3. Part I
Foreign Corrupt Practices Act
(FCPA)
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4. Who is covered by the FCPA?
• Nearly any U.S. business with foreign
contact will be legally obligated under
the FCPA, as will foreign subsidiaries
of U.S. businesses, and some foreign
companies and individuals.
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5. Issuers of Securities
• Generally, “Issuers” are publicly
traded companies with 500 or more
shareholders and more than
$1,000,000 in total assets.
• Additional responsibility for FCPA
accounting/reporting provisions.
• Issuers are subject to more penalties.
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6. Domestic Concerns
• A “Domestic Concern” is any
business organized in the US, as
well as any U.S. citizen or resident,
even if living abroad.
• Domestic Concerns are subject anti-
bribery rules, but not reporting
requirements.
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7. Both Issuers & Domestic Concerns
• Are responsible for the acts of their
officers, employees, agents, etc.
• Also responsible for acts of
subsidiaries, even where they have
less than a 50% interest in a
subsidiary
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8. Others
• As of 1998, the FCPA contains a
“catch all” provision that applies
the anti-bribery rules to “any
person” who commits bribery on
U.S. territory.
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9. What does the FCPA require?
Issuers must keep detailed records.
• The FCPA’s accounting provisions are
designed prevent illegal conduct by
publicly traded companies by requiring
them to keep records that would reveal
illegal payments.
• Issuers are required to keep records that
“accurately and fairly” reflect all of the
issuer’s transactions and assets and must
be kept in “reasonable detail.”
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10. Bribery of Foreign Officials
• Issuers of securities, domestic concerns, and
others all fall under the FCPA’s anti-bribery
provisions.
• All U.S. nationals and businesses, including
their foreign subsidiaries, are prohibited
from bribery anywhere in the world.
• Foreign nationals and businesses also fall
under the anti-bribery requirements when
they are in the United States or its territory.
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11. Bribery of Foreign Officials
• “Payments” include offers, promises,
and authorizations to make payments
as well as actual payments.
• Anything of value that is offered,
authorized, promised, or given is a
payment.
____________________
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12. Bribery of Foreign Officials
• “Foreign officials” does not just mean a
public official in foreign governments.
• Political parties, their officials, and all
candidates for public office also count.
• Employees of state-owned corporations, such as
PEMEX, have been deemed foreign officials.
• Officers and employees of “public international
organizations” are specifically covered by the
FCPA.
• Any organization whose employees enjoy
diplomatic treatment are public international
organizations, (e.g., the United Nations)
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13. Bribery of Foreign Officials
• Moreover, the FCPA prohibits payments to
any person the payor knows will use any
portion of the payment to bribe a foreign
official.
• Payor does not need detailed knowledge of
how the payment will be used. “Conscious
disregard of suspicious circumstances” or
“deliberate ignorance” of an illegal payment
will not protect a company.
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14. Bribery of Foreign Officials
• The FCPA does not define “corruptly,” but U.S.
courts have interpreted it as creating an intent
requirement. Payors must intend “to induce the
recipient to misuse his official or to influence
someone else to do so.”
• Payors must voluntarily, intentionally, and with a
“bad purpose” seek an illegal result (judged by the
host country’s law) or use an illegal method to
achieve a lawful result. This intent requirement
only applies to improper payments and not to the
FCPA’s accounting requirements.
• Improper advantage is any advantage that is not
available under the host country’s written laws.
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15. Bribery of Foreign Officials
• Any payment made with the intent to secure an
unfair advantage or with a conscious disregard of
circumstances likely to lead to a violation of the
FCPA is illegal, regardless of whether it is made at
the suggestion or request of a foreign official.
• However, payments made by victims of actual
extortion are not covered by the FCPA.
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16. Bribery of Foreign Officials
• Previously, the FCPA only prohibited payments for
the purpose of obtaining, keeping, or directing
business to any person or entity. Thus, company
could make a payment to a foreign official to
obtain a lower customs rate or favorable tax
treatment.
• This is no longer the case.
• 1998 amendments to the FCPA broadened the scope of
what is considered an illegal purpose.
• Nearly any advantage may now be considered improper.
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17. What the FCPA Allows
• The FCPA explicitly allows three
types of payments.
• However, each of these exceptions is
narrow in scope and should be
interpreted conservatively by
companies seeking to use them.
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18. What the FCPA Allows
• First, payments to “expedite or to secure the
performance of a routine governmental action” are
not covered by the FCPA.
• These “grease” payments are generally only allowed for
expediting non-discretionary actions by minor officials.
• Second, payments that are explicitly
allowed under the host country’s written
laws are not improper.
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19. What the FCPA Allows
• Third, “reasonable and bona fide
expenditures” that are directly related to the
promotion or demonstration of products or
the performance of a government contract
are allowed.
• These payments are designed to cover things
“such as travel and lodging expenses” incurred
by government officials as part of normal
business operations.
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20. FCPA Penalties & Enforcement
• The FCPA is enforced by the SEC and the
Department of Justice.
• SEC responsible civil suits and enforcement of
the FCPA’s accounting requirements.
• DOJ handles all criminal prosecutions.
• Significant overlap between these roles.
• SEC may refer cases to DOJ for criminal prosecution and
the two agencies may work together on some cases.
• Additionally, private parties may bring FCPA
issues to the attention of either agency.
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21. Penalties for Organizations
• Publicly traded companies face a wide
range of penalties, including some not
explicitly mentioned in the FCPA itself.
• May be barred from doing business with
government agencies or contractors.
• May be debarred from government agencies
such as the Commodity Futures Trading
Commission or have export licenses suspended.
• Investigation triggered by the FCPA can spread
to other areas if it turns up problems not
covered by the FCPA.
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22. Penalties for Organizations
The penalties for FCPA violations can be substantial:
• A willful violation of the FCPA can result in fines
up to:
– $25,000,000 for accounting violations and
– $2,000,000 for a violation of the anti-bribery provisions.
• Further, civil penalties of up to $10,000 per
violation may be assessed.
• Taken together with the cost of defending a FCPA
case, companies face severe economic
consequences for failure to comply with the FCPA.
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23. Penalties for Individuals
• Willful violators of the accounting provisions may be:
• fined up to $5,000,000 for each violation, and
• sentenced up to twenty years in prison for each violation
• Criminal penalties for willful violations of the anti-bribery
provisions –
• fines up to $100,000 per violation and
• up to five years in prison per violation
• Plus civil penalties up to $10,000 per violation.
• Corporations are forbidden from paying any portion of
fines levied against their employees or agents under the
FCPA.
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24. FCPA Compliance
• The safest approach to compliance with the FCPA’s anti-
bribery provisions is to refrain from making any payments to
foreign officials.
• In addition, U.S. companies should:
• Take active steps to prevent improper payments
• Thoroughly check out any overseas business contacts
• Include FCPA compliance provisions in all contracts with
foreign actors
• Demand a right to review foreign partners’ books and audit
them for FCPA compliance
• Reserve a right to terminate any contract with a party that is
violating the FCPA and immediately exercise that right if a
breach of the FCPA is discovered
• Make all payments transparent (no cash) and reasonable for
goods delivered or services rendered.
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25. FCPA Compliance
• U.S. companies must start at home. Any company with
significant foreign contacts should ensure its internal FCPA
compliance by:
• Creating a code of conduct
• Educating employees about the code of conduct and the
FCPA
• Creating channels for employees to safely report
suspected FCPA violations
• Establish and enforce penalties for violating the code of
conduct
• Screen potential employees, especially those who will
work abroad.
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26. FCPA Compliance Pitfalls
• The biggest pitfall facing U.S. companies
is foreign affiliates/agents.
• U.S. companies can be held vicariously liable
for breaches of the FCPA, and should seek to
extend their normal compliance regime to their
subsidiaries.
• Integrate accounting practices where feasible.
• Consistency in compliance will increase
transparency and help spot irregularities so that
they may be corrected.
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27. FCPA Compliance Pitfalls
• A second pitfall is the increasing
number of foreign anti-bribery laws.
• Also, US company may expose itself
to non-FCPA liability if its FCPA
compliance efforts cause it to exert
too much control over a foreign
subsidiary.
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28. FCPA Compliance Pitfalls
• Finally, a “yes” answer to any of the following questions should
send up a red flag that a particular arrangement may be improper:
1. Is your foreign agent also a government official or related to one?
2. Is the agent’s company owned by a political party, official, or the
family of an official?
3. Is the agent’s fee more than your company would normally pay
that type of service?
4. Is the payment excessive for the local market or under local law?
5. Are an agent’s services really necessary or are they a pretext?
6. Is corruption endemic in the local country?
7. Is your agent reputable and respected?
8. Are the foreign agent’s books and records in order?
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