U.S. companies cannot bribe (give or offer value for corrupt purposes) any foreign government official to secure business. This law was set in place in 1977 by the FCPA, and enforced by the U.S. Department of Justice, the U.S. Securities and Exchange Commission and the U.S. Treasury. Since this time, only two FCPA enforcement actions have been brought to courts.
However, from 2006 to 2007, the number of prosecutions jumped from 15 to 37. In mid-2008, more than 100 active cases exist in the court system.
If a business is convicted of bribery, it can be fined up to $44 million and corporate executives may receive prison terms lasting up to 20 years.
Some may wonder why the number of prosecutions has increased so rapidly. The answer is simply that the world has become increasingly flat. Electronic commerce has dramatically changed the face of international business transactions and has increased the speed at which money changes hands. This, in turn, has multiplied the opportunities for financial corruption. Businesses may believe that they run a lesser risk of getting caught in the act. A weakened economy, ingrained corruption in many foreign markets and heightened FCPA enforcement all create temptation to fall into habits of bribery.
What the FCPA Prohibits
For a gift or something of value given to a foreign official, regardless of his or her rank, to be illegal, it must be deemed as meant for "corrupt purposes." This means that it must assist the company in obtaining or retaining governmental or nongovernmental business. The success of the bribe is irrelevant.
The Common Exceptions:
Not for Corrupt Purpose
A gift or offering is not a bribe if it is not given for corrupt purposes.
It is difficult to prove that a company had no intentions of corruption. It is made an even greater challenge during investigation because often, foreign customs officials are given orders not to cooperate. For this reason, the DOJ "places no weight on common practice."
Sanctioned by Local Written Laws
Businesses also may not be able to use written local laws to their advantage. No countries' laws actually sanction bribery, and there are rarely written, formal laws regarding payments to facilitate transactions.
Facilitating Payments for Routine Government Action
Payments used solely to facilitate or expedite "routine government actions," such as obtaining permits or licenses, processing visas or work orders, providing police protection, scheduling inspections, shipping goods and mail, phone, power and water services, are permissible. Those payments that involve decisions to award or continue business are not.
Bona Fide Expenses Criteria; Record Keeping Requirements
Also, legitimate payments to or on the behalf of a foreign official for a valid and justifiable expense are exceptions. This is difficult to define and nearly impossible to enforce. However, the following are some broad guidelines for payments, which have been deemed "bona fide" in previous cases:
- Expenses directly related to the "promotion, demonstration or explanation of the products and services.
- Payments sent directly to the vendor, for the exact documented, reasonable amount.
- Necessary expenses for non-lavish accommodations are permissible.
- Expenses are to be paid solely for the official, not his or her family or entourage.
- The accommodations may include one or two days at large during a 10-day work-related period. They cannot involve 6 out of 10 days for pleasure travel.
- Travel costs are limited to domestic travel only.
- If an overseas tour of operation sites are necessary, due to the lack of comparable sites, closer to the official's residence.
- If souvenirs are related to the company's business or bear its logo.
However, because these guidelines are not comprehensive, it is recommended that a business obtains opinions from a reputable law firm before it decides to make a questionable payment. The DOJ will also issue specific opinions.
The following two criteria for a legal payment should always be followed:
- Records must be transparent, detailed and should omit no relevant items.
- Records should not be destroyed, as shoddy or lost records will most likely rouse suspicion in the enforcement agencies.
Who is a Foreign Government Official?
At times, it may become difficult to define who is a "foreign official." It is also recommended that a business or company seek legal counsel in both countries to determine this fact. If doubt remains, the individual should be treated as a "foreign official," to avoid later prosecution.
Because the FCPA is so nuanced, it is best for each company to incorporate a sort of "compliance program," which sets a group of recommendations and regulations for the members of the company. This can help avoid problems in the future. The following is a set of tips for creating such a program:
Seven Compliance Suggestions:
- Start with the appropriate compliance program in place.
In most instances, the best compliance programs include actions and reactions to any possible situation well before they occur. Ensuring compliance to these programs includes constantly reminding key entities of these protocols, as well as making individuals and entities transparent in all actions through accounting practices, document filing, and other internal records and periodic monitoring.
- Repeated training
In most cases, repeated practice of these procedures and periodic refreshers in their implantation will greatly improve the retention rate among employees.
- Understand your clientele beforehand
Analyze and classify at the outset whether your foreign contact is connected to a nongovernment, nonpolitical enterprise, or is subject to the FCPA. In the difficult cases, or if in a gray area, either strictly comply with the FCPA or seek a DOJ opinion.
- Analyze all monetary transactions before dispersing
A company legal expert should work closely alongside accounting and operational personnel in all matters regarding payments, the possible guidelines, and the possible violations that may occur. By regularly reviewing, and approving beforehand, any outgoing payments to foreign officials, a large loop hole for error can be erased.
- Adhere to true expense criterions and document accountability practices
Exceed or meet all of the aforementioned bona fide expense criteria. Generally, follow the two most closely related directives regarding internal controls and record keeping at all times.
- Utilize common sense and the "Smell Test"
Using common sense in dealing with foreign officials is the best defense in circumventing violations. For example, if a foreign official suggests lavish dinners with expensive entertainment for an entourage of names to not be included on reporting books, this probably is not a good idea. Likewise, frequenting areas known for their excess, such as areas involving gambling, prostitution, or other vices are probably not a good idea either. By using common sense, as well as thoroughly ensuring the legitimacy of a foreign official, many companies can entirely avoid worrying about compliance in the first place.
- Be realistic and feasible to business issues, but stand your ground in red flag areas
Maintaining solid and open communication with your internal FCPA compliance employees and foreign representatives is essential, but also, have these individuals understand the customs and practices of a foreign area's business culture as well. In some instances, suggesting alternatives to proposed ideas, which are questionable to FCPA compliance methods, may save companies major legal problems, while still allowing them to be sensitive to the customs of foreign entities. In essence, ruining a deal due to red tape does not always have to be the case.
