Recently, U.S. and foreign governments have been aggressively pursuing bribery investigations and enforcing relevant laws and regulations.
In November 2007, Siemens disclosed that an internal investigation uncovered about $1.9 billion in questionable payments made by the company to outsiders between 2000 and 2006. Munich prosecutors, after uncovering evidence of unlawful behavior by Siemens, extracted $290 million in fines, and it is likely the U.S. will seek stiffer penalties.
In April 2007, Baker Hughes agreed to pay $44.1 million to settle a probe into alleged bribery regarding its operations in Kazakhstan, Nigeria, Indonesia, Uzbekistan, Russia, and Angola.
Among the many laws aimed at curbing bribery of foreign officials, the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) have played an integral role in the global campaign against corruption.

Elements

The anti-bribery provisions of the FCPA prohibit (1) an issuer, domestic concern, or foreign person in the U.S. (2) from making use of the mails or any instrumentality of interstate commerce (3) corruptly in furtherance of (4) an offer or payment of money or anything of value (5) to a foreign official or to a third party while knowing that some of the payment will be shared with a foreign official (6) for the purpose of influencing any act of that foreign official in violation of the duty of that official or to secure any improper advantage in order to obtain or retain business.
A violation of the anti-bribery provisions of the FCPA may result in significant criminal and civil penalties and other adverse consequences.
The anti-bribery provisions of the FCPA apply to U.S. companies, citizens, and resident aliens, and any person who commits an act in furtherance of a bribe while located in the territorial U.S.
Additionally, the parent corporation headquartered in the U.S. may be held liable under the FCPA for a bribe paid by a foreign agent or subsidiary if the parent corporation authorizes, directs, or controls payment of the bribe.
For conduct to be deemed “corrupt,” the person making or authorizing the payment must do so voluntarily, intentionally, and with a bad purpose of accomplishing either an unlawful end or result by some unlawful method or means.
The term “anything of value” has been defined primarily by case law and is broadly construed. It can include cash or cash equivalents, and non-cash benefits like travel, donations, tangible and intangible objects, employment, and extravagant gifts.
“Foreign officials” under the FCPA are officers or employees of any foreign government or any department or agency, unit, or branch thereof. The scope is broad. For example, the term includes government ministers, royal family members, military officers, and employees of public international organizations and state-owned government-controlled businesses and institutions. Even without official titles or positions, if individuals exercise influence within a government, they may be considered “foreign officials.”
The Securities and Exchange Commission and Department of Justice interpret “obtain or retain business” broadly to include an effort to obtain any economic benefit. Payments made to reduce taxes or customs duties, to obtain licenses, and to accelerate the payment of tax refunds have all been held to be bribes.
In addition, the business to be obtained or retained need not be with a foreign government or state-owned business. Further, the business sought need not be awarded to the company paying the bribe to be a violation of the FCPA. What is required is that the action being influenced relates to the official capacity of the person being induced.

Exceptions and affirmative defenses

There are two exceptions to the anti-bribery provision of the FCPA. One involves payments to facilitate performance of a routine governmental action. Routine governmental actions, such as the processing of government papers, providing of police protection, and scheduling of inspections, are non-discretionary actions that a foreign official ordinarily performs in the conduct of daily business.
The other involves illicit payments to those who are not foreign officials, provided that these payments are not indirect payments to foreign officials.
The FCPA also provides two affirmative defenses to the anti-bribery provisions.
The first allows a “payment, gift, offer or promise of anything of value” to a foreign official, political party, or candidate’s country, provided that such an offering is in accordance with the written laws of that country.
The second encompasses a payment, gift, offer, or promise of anything of value that constitutes a “reasonable and bona fide expenditure” directly related to product or service promotion or performance of a contract with a foreign government or agency. This defense is only available if the defendant can show that the bona fide expenditure lacks a corrupt purpose.

Tips to ensure compliance

The first step a company should take to ensure compliance is to assess the risk of noncompliance and be on the lookout for warning signs of violations. Does the company make frequent cash disbursements? Are reimbursement requests poorly documented? Does the company’s industry have a history of bribery? Are transactions executed through complex legal structures?
To deter violations, or mitigate potential exposure, successful companies typically:
1. Educate employees about laws, regulations, and internal policies, and require employees to sign an annual statement stating that they understand the FCPA;
2. Ensure management involvement in the compliance program, and that a senior officer has direct responsibility for compliance;
3. Implement record retention policies and procedures that allow the company to retrieve and review documents;
4. Provide appropriate means to report violations (e.g., code of conduct and whistleblower process that ensure employees have a confidential means to notify relevant individuals of improper behavior);
5. Institute an employee screening program, especially for individuals who will be operating abroad;
6. Conduct a due diligence investigation through oral questions, written questionnaires, and requests for references and documentary support of company agents, partners, or consultants that may be potential violators;
7. Ensure the company prevents substantial discretionary authority from being delegated to individuals who the company knows, or should know, have a propensity to engage in illegal or improper activities;
8. Implement an internal review process that includes regular compliance audits;
9. Include provisions in consultancy or partnership agreements stating the parties are aware of the FCPA and they agree not to violate the law; and
10. Respond quickly and appropriately to reported violations.

Robust compliance

If a government investigation occurs, a robust FCPA compliance program will reduce the risk of criminal prosecution or civil sanctions because regulators will consider whether the business encouraged an anti-bribery culture or one where violation could thrive. Also, compliance efforts should be documented carefully, so the company can prove, if necessary, that it has implemented a comprehensive FCPA compliance program.
Finally, when implementing such a program, management must ensure that policies clearly identify consequences to employees and agents if they violate the law or company policy.

Richard Winkler is a NECCA board member. He can be reached at 617.791.6282 and at [email protected]