Halliburton Co. recently announced its discovery of evidence that in 1995 a consortium it later acquired had considered making payments to Nigerian officials in order to win an energy contract.

The announcement, made in a filing with the Securities and Exchange Commission, also disclosed that Halliburton had turned this evidence over to the U.S. Department of Justice and the SEC. This disclosure supplemented Halliburton’s announcement this past winter of a broader bribery probe being conducted by the DOJ and the SEC.

While Halliburton’s recent disclosure potentially implicates the Foreign Corrupt Practices Act (the “FCPA”) – the federal law prohibiting bribes to foreign government officials – it is far from clear that the reported conduct in fact violated the FCPA.

Halliburton noted that it had found no evidence that the consortium actually made any payments, begging the question why this supplemental disclosure was made in the first place.

Although the voluntarily disclosure of potentially criminal conduct may be a mitigating factor when the DOJ is making charging decisions, the FCPA itself imposes on companies no disclosure obligations, either to investors or to law enforcement officials.

Halliburton’s decision to announce this fragmentary and inconclusive information to the investing community is a stark reminder of the increased importance of self-reporting since 2002, when Congress enacted the Sarbanes-Oxley Act.

Sarbanes-Oxley, which put in place extensive reforms of the accounting requirements of publicly traded companies, has upped the ante for corporate management when making decisions about disclosing possible internal wrongdoing. Conduct that implicates the FCPA poses particular disclosure challenges.

FCPA Particulars

Since 1977, the FCPA (15 U.S.C. §78dd-1, et seq.) has made it unlawful to offer or pay a thing of value to a foreign official for the corrupt purpose of obtaining or retaining business for or with any person, or for the corrupt purpose of directing business to any person (15 U.S.C. §§78dd-1(a), -2(a) and -3(a)).

The law applies to issuers of registered securities, issuers required to make periodic reports to the SEC, U.S. citizens, nationals and residents, entities organized under state laws, and entities with a principal place of business in the United States (15 U.S.C. §§78dd-1(g)(1), 78dd-2(i)(1)).

The use of the mails or an instrumentality of interstate commerce is a jurisdictional requirement for prosecuting conduct occurring within the United States, but not for extraterritoriality conduct.

While the FCPA has no disclosure requirement, there is one in the Sarbanes-Oxley Act, which mandates a company’s chief executive officer and chief financial officer to certify in public filings with the SEC that they have disclosed to the company’s auditors and the audit committee of its board of directors “any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls” (15 U.S.C. §7241(a)(5)(B).

Once information is in the hands of the company’s auditors, it is more likely to appear in public filings with the SEC.

An act of bribery (such as a violation of the FCPA) arguably is a form of fraud that falls within the scope of Sarbanes-Oxley’s disclosure requirement.

For instance, 18 U.S.C. §1346 defines a “scheme or artifice to defraud” under the mail and wire fraud statutes to include a theft of the intangible right to honest services, which includes bribes to public officials. Corporate management must consider the possibility that evidence of even non-material evidence of conduct implicating the FCPA may need to be disclosed to auditors as a fraud involving the company’s management.

Recent Ruling

In deciding what FCPA-related information must be disclosed under Sarbanes-Oxley, corporate management must take into account some recent developments in the “criminalization” of international public corruption.

Several months ago the 5th U.S. Circuit Court of Appeals interpreted the FCPA to reach a broad range of conduct, including conduct not intended to induce business. In United States v. Kay, 359 F.3d 738 (5th Cir. 2004), two employees of a Texas company were indicted for paying Haitian customs officials to understate the amount of rice being shipped to Haiti in order to reduce customs duties and sales taxes owed to the Haitian government.

The district court dismissed the indictment on the grounds that the FCPA criminalizes only payments used to “assist” a company in “obtaining or retaining business,” and not payments to reduce taxes.

The 5th Circuit reversed, concluding, “Congress meant to prohibit a range of payments wider than only those that directly influence the acquisition or retention of government contracts or similar commercial or industrial arrangements.” 359 F.3d at 749. The court noted that, because the FCPA expressly exempts payments to expedite or to secure the performance of a routine governmental action (what the court called the “grease exception”), “Congress intended for the FCPA to prohibit all other illicit payments that are intended to influence non-trivial official foreign action in an effort to aid in obtaining or retaining business for some person. ” Id. at 749-50.

Kay is part of a widening sweep of international anti-corruption efforts that promises more developments in this area.

In December 2003, the U.S. and 93 other nations signed the United Nations International Convention Against Corruption, which provides in Article 16 that each signatory “shall adopt such legislative and other measures as may be necessary to establish as a criminal offence, when committed intentionally, the promise, offering or giving to a foreign public official or an official of a public international organization, directly or indirectly, of an undue advantage, for the official himself or herself or another person or entity, in order that the official act or refrain from acting in the exercise of his or her official duties, in order to obtain or retain business or other undue advantage in relation to the conduct of international business.”

The Convention’s reference to “other undue advantage” arguably is broader than the FCPA’s prohibition against “obtaining or retaining” business, although the Kay court’s expansive definition of the FCPA may render the differences in language immaterial.

Moreover, Article 15 of the Convention obligates its signatories to adopt laws making it a criminal offense to intentionally promise, offer or give to a public official, or for a public official intentionally to solicit or accept, an “undue advantage … in order that the official act or refrain from acting in the exercise of is or her official duties.”

This provision ultimately may have the effect of narrowing one of the FCPA’s two affirmative defenses. The FCPA provides that a payment that is lawful under the written laws and regulations of the country of the foreign official receiving the payment is not illegal under 15 U.S.C. §78dd.

To the extent other countries legislate tougher anti-bribery laws in response to the Convention, this affirmative defense will have diminishing importance.

In the post-Sarbanes-Oxley regulatory environment, corporate management must consider its disclosure obligations with far greater care than in the past. Activity that potentially violates the FCPA creates some unique challenges in meeting these obligations.

While managers may fear the harm to investor relations that may result from the hasty disclosure of conduct that ultimately turns out not to have violated the FCPA, they must balance this against the strict disclosure burdens imposed by Sarbanes-Oxley, the broadened scope of the FCPA, and increased international efforts to curb public corruption. Given the high stakes, Halliburton’s recent announcement may well have been justified.

David M. Osborne is an associate at Dwyer & Collora, LLP. He practices in the areas of securities regulation and white-collar criminal defense.