Crackdown on bribery

And corporate employees are in the cross hairs as well. One individual at Titan Corp was sentenced to three years in jail for FCPA violations, and an Alcatel executive has been indicted under FCPA.
In a speech last fall to the American Bar Association, Assistant Attorney General Alice Fisher said the DOJ is zeroing in on corruption because the agency believes bribery is the lynchpin of stifled economic growth and destabilized markets around the globe.
“We are, without a doubt, in the most aggressive period of enforcement under the FCPA,” said Bill Steinman, head of Powell Goldstein’s international anti-corruption practice group in Washington, D.C. “If you look at the last three years, from 2004 to now, there have been more FCPA investigations, prosecutions and settlements than the entire time period since the act first passed in 1977.”
As a result, when an auditor notices the budget for coffee at a Cambodian subsidiary jumps from $3,000 to $20,000 in the course of a year, the legal department now drops everything and figures out whether the office has a caffeine problem or a bribery problem.
Organizations are dedicating more financial and human resources to FCPA compliance than ever before, according to practitioners, because the DOJ, working in tandem with the Securities and Exchange Commission when a public company is involved, most certainly will go after them for violations.
The government isn’t just looking for violations committed by a shady character in a fedora stationed at the back of a restaurant with a briefcase full of cash.
Seemingly innocuous gifts and hospitality can get a company in trouble, too.
In-house counsel need to dust off and beef up their companies’ FCPA compliance policies, and they need to conduct training – case study-based, hypothetical-heavy training – with employees and third-party agents at home and abroad.
In-house lawyers also must be on the lookout for ambiguous situations that may violate the FCPA. An immediate, independent, thorough investigation into any perceived problem is also a must.
Another complication: Company lawyers will have to decide whether to disclose FCPA violations to the DOJ turned up during an internal investigation. The FCPA contains no affirmative obligation to report a violation, and while the government gives consideration for voluntary disclosure, recent penalties have reached tens of millions of dollars and individuals have gone to prison.
“These guys are not your friends,” cautioned Benjamin P. Fischburne of Winston & Strawn in Washington, D.C.

Top-down message
First and foremost, in-house counsel need to ensure a strong message comes from the head of the company that bribery and violations of FCPA won’t be tolerated.
Every organization also needs a written policy against bribery that sets forth the importance of following the requirements of FCPA
The policy must be clear – not numerous pages of legalese when really what you’re trying to say is “don’t take bribes,” said Alexandra Wrage of Trace International, a nonprofit membership organization providing anti-bribery services and training to multinationals and third-party agents. Make the policy available in all languages spoken by all employees at all sites, and distribute it to them.
Recently, Wrage met with a Chinese employee to talk about the company’s anti-bribery policy. Not only did the employee have no idea what the policy said, he had no idea even where to find it, Wrage said.
When making an acquisition, ensure the new employees in foreign countries are well aware of these issues, too.
“You need to be very careful when you make an acquisition that involves a lot of non-Americans who may not be trained in this culture,” Fischburne said. “All countries have laws like FCPA, but some are only three years old whereas FCPA is 30.”
“The German or Saudi subsidiary isn’t going to have a corporate policy that will meet U.S. standards,” he added. “Part of your missionary work is to be sure whoever you acquire knows the corporate policies and understands that really, the chairman and the president don’t want to go to jail.”
In-house counsel also must ensure the lawyers focused on anti-bribery aren’t “off in a corner somewhere,” Wrage said. They have to be integrated within the organization and part of the reporting structure. And they should have the power to stop a deal when necessary.
“Even if it’s a big deal,” Wrage said. “If they’re not empowered to do that, if they just draft policies, employees will pick up on that very quickly.”
The legal department needs to work closely with auditors. You’ll rarely catch someone with criminal intent under the act, Wrage said. What you’ll see instead is auditors questioning why – and she said this is a true story – the Cambodian subsidiary spent that extra $17,000 on coffee.
Another important aspect of preventing FCPA violations is ensuring existing and new third party agents understand and agree to abide by FCPA.
“You need to sit with new agents and say, ‘We don’t want you to do anything improper. We don’t look to you for a way to do what we can’t do.’ You need to look them in the eye and communicate that,” Fischburne said.
That message must be delivered by someone in the legal department – not the head of sales and marketing, who is looking to hire the best salesman – to every contractor, at least by phone, if not in person. Each contractor should have a file, too, where this discussion is documented.
Training is the final essential element of FCPA compliance initiatives.
“Not the sort of training that says ‘Bribery is bad and these are the reasons why.’ Training that says if a government official hits you up, this is how you should respond. It has to be scenario-based,” said Wrage.
She also suggested using case studies from the countries where your organization does business, because how business is conducted can differ from country to country.
Employees and third-party agents need to know they are subject not only to U.S. law when doing business on behalf of a U.S. company – even if that business is not conducted on U.S. soil – but the country’s local rules, United Nations rules and regulations of the Organisation for Economic Development and Cooperation. Enforcement action can take place in all these venues simultaneously.
“There’s no limitation on parallel proceedings,” said Palmina M. Fava of DLA Piper in New York City.
To truly ensure compliance, there has to be consequences when people get it wrong – both the law and an organization’s corporate policy.
“You can’t be the English cop who says, ‘Stop! Or I’ll shout stop again!’” Wrage said. “If you have a corporate policy that you can’t work with sales reps on commission overseas without due diligence, and someone says, ‘The process will be too slow and inconvenient, I’ll do the deal and figure out the paperwork later,’ that’s a violation of the policy and not the law, but that behavior has to be sanctioned.”
Otherwise, you’re sending the message that employees should be more careful not to get caught next time.
Red flags
Several obvious signs of a bribe being paid are out there, such as paying commissions or prices inconsistent with the marketplace. That’s a sign the agent could be sharing the commission with someone else. Similar suspicions should arise when an agent asks that a payment be sent to an account outside their home country.
Across the board, the more subtle issues FCPA practitioners deal with are gifts and hospitality.
For example, perhaps you’re opening a new factory in Country A, and you invite everyone who was part of the deal for the celebration and everyone receives goodie bags with PDAs. What do you do when the local government official who heads the country’s foreign investment committee shows up?
“Do you give it to him? Do you exclude him and risk looking like you disfavor him? Especially if there’s no culture of refusing gifts there, you have a problem because the government official is going to accept the gift,” said John Reynolds of Wiley Rein in Washington, D.C. “You have to make sensible judgments and train people to stop and think about it beforehand to avoid an embarrassing or awkward situation.”
Don’t fall for it when a lawyer in a foreign country or a foreign official says, “It’s OK, everybody does it here.” That should not be taken to mean, “It’s legal here,” Reynolds advised.
“Bribery isn’t legal anywhere. There is no country that says bribery is OK. There are places where ‘It’s customary’ and places where ‘The custom is different here.’ You shouldn’t fall for that one,” he said, “even if the argument is coming from your own sales and marketing staff. ‘Everyone does it, there,’ is not a defense when you are prosecuted for an FCPA violation.”
Your third-party agents also may tip you off to a problem. Fava’s firm provides clients with a questionnaire in-house counsel can give agents, as well as an agreement to be signed that will provide access to the agent’s books and records of the transaction, she said.
“We have found that some agents aren’t comfortable completing the due diligence. That’s another red flag,” Fava said.
That being said, Reynolds often finds he has to talk in-house counsel down from scuttling a business deal with a partner that’s perfectly honest. Don’t panic if a foreign agent hesitates to sign a contract with broad standard language saying the agent understands the FCPA and will comply with it, he said.
“If a foreign subcontractor says they’re uncomfortable signing this, in-house counsel’s reaction is often, ‘What the devil is wrong with you?’ For my part, I want to listen to why they’re uncomfortable. You know who signs anything and everything without a moment’s hesitation? The crooks,” Reynolds said.
Be suspicious if your due diligence reveals a third-party agent is related to a government official. And, be sure the head of any foreign charity to which your organization donates isn’t also an official of the government – or that his wife isn’t.
“Who would think you could get in trouble with the U.S. government for giving to a foreign charity?” Fischburne said. “Some companies stand on their head to be good corporate citizens wherever they go,” but it’s imperative those companies do their due diligence to ensure their donations won’t be construed negatively.

Prompt investigation
If all the red flags are pointing to a violation, immediately conduct a thorough, independent investigation to get to the root of the problem. Then determine if it’s as big a problem as you thought.
For example, “it’s very commonplace for competing representatives who want to work with multinationals to say negative things about each other,” Steinman said. “If you’re approached by Representative B, who says Representative A is a dirty briber, you’ve got to look at that. If someone’s telling you something pretty adverse about someone, you want to look at that. You need to satisfy yourself that where there’s smoke, there’s no fire.”
In that case, additional diligence and research, perhaps through corroborating sources or other negative information in the marketplace, will reveal the truth. Employees and internal audits are other good sources of information, Steinman said.
One element of the investigation should involve finding out who already knows about the issue.
“You need to get the most credibility with the government as you can – be sure they’re not already investigating you and you don’t know that,” Fava said.
Once you have the information, one of your hardest decisions will be figuring out whether to come clean with the DOJ.
“What if it looks like a serious problem? That’s the million-dollar question. Certainly there’s disagreement among FCPA practitioners about voluntary disclosure. The DOJ doesn’t want you to wait until you’ve got your arms around it and have taken care of the problem. They say to come in as soon as you know so we can work together on it. I don’t know that that’s entirely practical or workable,” Steinman said.
“If it’s a public company, that’s a little more complex because public companies report their financials and other things to the SEC,” he continued. “They’ve got to contend with Sarbanes-Oxley. The decision is more complicated.”
Then again, firms that disclose build rapport and credibility with the agency, which may end up paying off in the future, Fava noted.