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Foreign Corrupt Practices Act: Primer for In-House Counsel, Review of 2008's Big Penalties and What to Expect in 2009
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March 16, 2009
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(This article first appeared in the February 2009 edition of The Defender, Howrey’s newsletter on securities litigation, government enforcement and white collar defense.)
Howrey LLP
If recent history is a barometer, there is every indication that enforcement of the Foreign Corrupt Practices Act will continue to be a priority for both the Department of Justice and Securities and Exchange Commission in 2009. As the nature and scope of enforcement actions filed by DOJ and SEC demonstrate, no business sector is immune from FCPA oversight, and corporate executives and officers are not exempt from prosecution.
In the current enforcement environment, government scrutiny includes international enforcement efforts and expanding U.S. resources. Other countries also have demonstrated a renewed interest in enforcing their own anti-bribery and corruption laws. For U.S. corporations doing business abroad – as well as for their officers, employees and agents – this increased scrutiny by U.S. and foreign authorities means greater financial risk and a growing need to pay close attention to corporate compliance with the FCPA and analogous foreign anti-bribery laws.
Following are an overview of the basic statutory structure of the FCPA, an examination of recent enforcement trends, and a look at what is in store for 2009.
An FCPA Primer: What In-House Counsel Should Know
By Mary Andrues
The FCPA was designed to deter improper inducements to foreign officials to influence business transactions abroad. 1/ The statute consists of two principal parts: the anti-bribery provisions and the accounting and record-keeping provisions.
The anti-bribery provisions prohibit any “covered person” from offering, authorizing or providing anything of “value” to a “foreign official” for the purpose of “obtaining or retaining business” with “corrupt” intent. 2/ The accounting and record-keeping provisions consist of two equally important requirements for companies registered with the SEC and listed on U.S. stock exchanges: 1) to make and maintain accurate books and records; and 2) to implement internal controls to prevent and detect FCPA violations. 3/
| A. | Anti-Bribery Provisions
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The jurisdiction of FCPA’s anti-bribery provisions is expansive and applies to “issuers” and “domestic concerns.”
A “covered person” within the meaning of the statute refers to any issuer of securities registered with the SEC, whether domestic or foreign; any domestic concern; and any other person, foreign company or foreign subsidiary engaged in or causing prohibited conduct within the territory of the United States. 4/ The term “domestic concern” includes any U.S. citizen, national or resident and any business concern organized under any state law or that has a principal place of business in the United States. Also included are all officers, directors and agents of such business concerns, whether or not they are physically located in the United States. 5/ The anti-bribery provisions apply to domestic concerns even when the domestic concern is hired or retained by a foreign company that is not otherwise subject to the FCPA.
Nothing of value can be offered or provided, directly or indirectly, to induce or influence an official decision or to secure an improper advantage. While “value” under the statute includes obvious items such as cash, reimbursements, non-monetary gifts or contributions in the name of the official, it is more expansive because an actual payment is not required. Nor is there any need for the foreign official to accept the bribe. Rather, all that is required to sustain an FCPA violation is that the benefit paid, offered or promised constitute an inducement for official action. The term “anything of value” also has no de minimis exception. The context in which the inducement is made will determine its value.
Not all payments to foreign officials constitute a violation of the FCPA. Payments made to facilitate or expedite the performance of routine government action, known as “grease payments,” are permissible. 6/ Moreover, the FCPA contains an affirmative defense permitting “reasonable and bona fide” expenditures directly related to the “promotion, demonstration or explanation of products or services” or “the execution or performance of a contract with a foreign government or agency thereof.” 7/ Payments that are lawful under “written laws and regulations” of the foreign official’s country also may be acceptable under the FCPA. 8/ Any payments under the affirmative defense provision of the FCPA should be scrutinized carefully in advance.
The term “foreign official” is given broad meaning. It applies to any public official, in any branch of government, paid or unpaid. For example, in countries where the government controls health-care or education, doctors, health-care employees and teachers may be considered “foreign officials” within the meaning of the FCPA. The term also applies to political candidates and parties; international organizations, such as the World Bank and United Nations; and government-owned or government-controlled commercial enterprises. It is important to remember that gifts to private persons, such as family members of a government official, also may fall under the purview of the statute.
The determinative factor is whether the inducement was associated with action or inaction to be taken by the public official within that official’s public capacity or responsibilities. The payment or offer need not relate to a specific business opportunity, and the business need not be with the foreign government. The payment or offer need only have the effect of influencing an official act or decision, securing an improper advantage, inducing an official to act or omit action in violation of official duties, or inducing an official to influence a governmental act.
It is important to note that as the number of prosecutions in the United States increases, the definition of to “obtain or retain business” continues to expand. In the 2009 FCPA enforcement environment, any offer of payment to a government official must be carefully scrutinized.
The statute requires that the “covered person” act with “corrupt” intent. This does not mean that DOJ or the SEC need establish that a defendant knew his conduct violated the FCPA. Instead, the payment or offer need only be made with a reasonable expectation of some official favor in return. The intent of the public official being induced is irrelevant. Rather, the statutory scienter requirement is focused solely on the intent of the person seeking to obtain or influence official action. It is no defense that the public official did not have the actual authority to make or influence the official action or that the official did not act on the inducement.
| B. | Record-Keeping and Accounting Control Provisions
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FCPA’s record-keeping provisions require issuers to “make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the issuer.” 9/ “Reasonable detail” is defined as “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.” 10/
The record-keeping provisions were designed to prevent the omission, falsification or disguised entry of inducement payments to foreign officials on company books. However, because the record-keeping provisions did not specifically address the falsification of books and records and lying to auditors, SEC relies on two rules to ensure the accuracy of a company’s accounting records. Rule 13b2-1 of the Securities and Exchange Act prohibits the falsification of any books and records that are required to be maintained under the record-keeping provisions of the Act. 11/ Rule 13b2-2 prohibits any officer or director from making materially false or misleading statements or omitting material facts in connection with any audit, review or examination of financial statements or in the preparation of any filing required by the Act. 12/ False entries in a company’s books and records, as well as materially false or misleading statements to an auditor or federal regulator, also can provide the evidentiary basis for criminal intent under the anti-bribery provisions in the event the entries or statements were made to hide illegal inducements. 13/
The FCPA requires a company to implement an effective system of internal accounting controls. The accounting provisions place the onus on boards of directors, officers and shareholders to protect the company’s assets by providing “reasonable assurance” that transactions are authorized, properly recorded and conform with generally accepted accounting principles. 14/ No specific system of internal control is required under the statute. However, the system should provide for the implementation of an accepted accounting system, subject to oversight, and a means for evaluating and monitoring internal accounting controls.
Violations of FCPA’s anti-bribery provisions can subject persons and companies to civil and criminal liability. A criminal fine of $2 million per violation can be levied against corporate violators of the anti-bribery provisions, and persons can face up to five years in prison and/or a fine of $100,000 per violation. 15/
Criminal violations of the accounting and record-keeping provisions by persons can result in imprisonment for up to 20 years and/or fines of up to $5 million. Companies found criminally liable can be fined up to $25 million. 16/ SEC and DOJ also can seek civil enforcement actions for FCPA violations, which can include the imposition of fines, civil penalties and injunctive relief.
FCPA permits an issuer or domestic concern to request an opinion from DOJ regarding proposed business conduct that may implicate the anti-bribery provisions of the FCPA. 17/ The request must “be specific and must be accompanied by all relevant and material information bearing on the conduct” for which an opinion is being requested, including the identities of the parties to the transaction. 18/
The request must include the “circumstances of the prospective conduct, including background information, complete copies of all operative documents and detailed statements of all collateral or oral understandings.” 19/ DOJ has the authority to conduct “whatever independent investigation it believes appropriate” in rendering its opinion and often will seek supplemental information from all parties to the transaction. Therefore, as with all information provided to the government, the information provided by the issuer in support of an advisory opinion must be accurate and complete.
The Attorney General is required to issue an opinion within 30 days after receiving the request. However, this 30-day period does not begin to run until DOJ has obtained all of the information needed to render an opinion. The opinion must state whether the proposed conduct comports with FCPA. If so, the opinion serves as a rebuttable presumption that the conduct does not violate the anti-bribery provisions. 20/
Significant Prosecutions in 2008: Record Fines
By John Letteri
| A. | 2008 was Marked by Record Corporate Fines and Serious Jail Time
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Fines and penalties paid by corporate defendants settling FCPA matters hit new records in 2008. On December 15, 2008, SEC and DOJ imposed a combined $800 million in fines and penalties on Siemens AG for criminal and civil FCPA violations committed by the company when making more than $1.3 billion in improper payments to government officials in foreign countries, including Iraq, Argentina, Venezuela and Bangladesh. 21/ To settle these charges, the company agreed to retain an independent corporate monitor to oversee the company’s FCPA compliance efforts. The combined fines and penalties were the largest ever assessed under the FCPA.
This massive settlement followed on the heels of Vetco International’s 2007 payment of a $26 million FCPA criminal fine 22/ and Baker Hughes’ payment of $44 million to settle both civil and criminal FCPA charges. 23/ Earlier in 2008, Willbros Group, Inc. agreed to pay a $22 million criminal fine and a $10.3 million civil penalty to settle civil and criminal charges that it violated the anti-bribery and books and records provisions of the FCPA. 24/
In addition, individuals increasingly faced the prospect of serious jail time for FCPA violations. On October 6, 2008, the U.S. Supreme Court let stand stiff criminal sentences for two former employees of American Rice, Inc., David Kay and Douglas Murphy, who were found guilty after a jury trial of illegally authorizing more than $500,000 in bribes to Haitian customs officials during 1998-1999 to reduce ARI’s import tax payments. 25/ Kay received a 37-month sentence, and Murphy received a 63-month sentence.
Guilty pleas in 2008 also resulted in significant jail time. Former ITXC Corp. employee Yaw Osei Amoako received an 18-month jail sentence after pleading guilty to criminal violations of the FCPA for his role in ITXC’s illegal payments to government officials in Rwanda, Nigeria and Senegal in connection with telephone network contracts in those countries. 26/ Ramendra Basu, a former World Bank employee, was sentenced to 15 months in prison for conspiring to steer World Bank contracts to consultants in exchange for kickbacks. 27/ A former Tokyo executive of Bridgestone Corporation, Misao Hioki, was sentenced to two years in jail and fined $80,000 for making corrupt payments to government officials in Latin America and elsewhere. 28/
A severe jail sentence also may await Albert “Jack” Stanley, a former officer and director of a global engineering, construction and services company, who pled guilty to participating in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts valued at more than $6 billion. According to his plea agreement, Stanley will serve seven years in prison and must pay $10.8 million in restitution. 29/ Similarly, Shu Quan-Sheng faces up to five years in prison after pleading guilty to paying bribes to Chinese officials on behalf of his company and a French company to win contracts for the sale of equipment used in fueling space launch vehicles. 30/ Shu will be sentenced in April 2009.
| B. | The Government Has Extended the Extra-Territorial Reach of the FCPA
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Even foreign employees of foreign companies were not immune from the reach of the FCPA in 2008. Christian Sapsizian, a French citizen employed by French telecommunications giant Alcatel, pled guilty and was sentenced to 30 months in prison for his role in a scheme to pay $2.5 million in bribes to Costa Rican telecommunications authority officials in exchange for a $149 million mobile telephone contract. 31/
In 2008, foreign companies continued to face prosecution in the United States for FCPA violations. Besides Siemens, Aibel Group Ltd., a United Kingdom corporation, pled guilty to a two-count superseding information and agreed to pay a $4.2 million fine for violating the anti-bribery provisions of the FCPA. 32/ Aibel admitted that from September 2002 until at least April 2005, it conspired to make $2.1 million in payments to Nigerian customs officials to obtain preferential customs treatment. Aibel was alleged to have made the payments through an international freight forwarding and customs clearance company.
| C. | Payments to Low-Level Employees of State-Owned Enterprises Also Resulted in FCPA Liability
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During 2008, the government continued to construe the term “foreign official” broadly when alleging FCPA liability, extending that term to reach employees of an Indian railway board 33/ and Chinese state-owned companies 34/ as well as to doctors working in Chinese state-owned hospitals. 35/ In an advisory opinion issued in June 2008, DOJ extended the term “foreign official” to include journalists working for Chinese state-owned newspapers and other media. 36/
| D. | United States v. Kay Leaves the Ability to Make Facilitating Payments Very Much in Doubt
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The Supreme Court let stand a Fifth Circuit decision that broadly interpreted the type of conduct that may violate the anti-bribery provisions of the FCPA, leaving the ability of a company to make legal facilitating payments very much in doubt. In United States v. Kay 37/, the Supreme Court denied a petition for writ of certiorari by the two former employees of American Rice, Inc.. They were found guilty of violating the FCPA by making payments designed to obtain or retain business, conduct that the FCPA expressly proscribes 38/, but in fact the payments were made to ensure that government officials accepted false bills of lading and other documentation that intentionally understated the amount of rice that ARI shipped to Haiti. 39/
The two defendants argued that the Fifth Circuit erred in affirming the guilty verdicts, in part, because the FCPA only applies to payments made directly to obtain or retain business. The defendants argued that the payments did not come within the purview of the FCPA because they resulted only in reducing the company’s import duties and sales taxes and not in directly obtaining or retaining business. The Supreme Court denied certiorari without comment and let stand the Fifth Circuit’s decision that payments that indirectly help a business gain an advantage, such as those authorized by the defendants, violated the FCPA. 40/ Under the Fifth Circuit’s holding, the payments to Haitian customs officials violated the FCPA because the payments lowered the overall costs to ARI, which in turn assisted the company in obtaining or retaining business.
The Fifth Circuit’s broad interpretation of the type of conduct that violates the FCPA likely will further constrict the facilitating payments or “grease payments” exception under the FCPA. This exception permits payments to foreign officials for “routine governmental action... which is ordinarily and commonly performed by a foreign official.” 41/ The breadth of the Kay holding may end the practice of making facilitating payments entirely, as companies will fear that any payment made to any government official will be construed as a bribe under the FCPA.
| E. | Self-Reporting and Remedial Compliance Programs Will Continue to Score Points with DOJ and SEC
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In determining the size and scope of the penalties to impose for statutory violations, DOJ and the SEC continued to credit companies that self-reported FCPA-related wrongdoing and took steps to improve FCPA compliance. Perhaps the best evidence of the government’s attitude toward self disclosure is the Siemens case. Under the Sentencing Guidelines, Siemens faced a maximum criminal fine of $2.7 billion but paid $450 million. DOJ gave Siemens considerable credit for undertaking “significant remedial measures, institute[ing] real reforms and cooperat[ing] since the inception of this investigation.” 42/ In announcing the settlement, the U.S. Attorney for the District of Columbia said that “[t]o its credit, Siemens has taken extraordinary steps to reveal its long-standing, systemic criminal conduct and it has fundamentally restructured its operations to make them transparent and honest going forward.” 43/ DOJ stated that the settlement was due to the actions Siemens took in bringing the improper payments to the attention of the government investigators, sharing the results of its internal investigation, disciplining offending employees, including senior executives, and instituting remedial measures.
In a matter involving AB Volvo, DOJ recognized the company’s “thorough review of improper payments and the company’s implementation of enhanced [FCPA] compliance policies and procedures” as key factors in DOJ’s decision to enter into a deferred prosecution agreement with the company. 44/ In the Aibel Group matter, DOJ stated that resolution of the case resulted “in large part, from the actions of the companies in voluntarily disclosing the matter to the Justice Department and the companies’ agreement to take significant remedial steps.” 45/ DOJ also noted with approval the efforts made by Willbros, WABTEC, Faro Technologies and AGA Medical Corporation in undertaking internal investigations of improper payments, reporting the results of the investigations to the government and then taking steps on their own to remedy FCPA compliance gaps. 46/
| F. | Rigorous FCPA-Related Due Diligence Is a Must in any Foreign Transaction
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In an advisory opinion issued in June 2008, DOJ demonstrated that it expects companies to go to great lengths during due diligence to ensure against contributing to corrupt activity when entering into foreign transactions. Using the advisory opinion process, an American company sought an opinion on whether it would violate the FCPA by entering into a transaction to purchase Expro Ltd., a United Kingdom-based oil and gas services company, and whether it would be liable for any pre-acquisition or post-acquisition FCPA violations by Expro. 47/ The company sought DOJ’s opinion on the matter because it knew that Expro, like many oil and gas companies, operated in areas where there may be a high risk of corruption, and the company was concerned that it did not have time to complete its FCPA due diligence before the acquisition bid deadline.
In its request for an advisory opinion, the company proposed that it would: 1) immediately disclose to DOJ any information that suggested that any FCPA corruption or internal controls issues existed at Expro; 2) within 10 days of the acquisition, provide to DOJ a comprehensive FCPA due diligence work plan; 3) complete that due diligence within one year of closing and provide reports to DOJ at 90-, 120- and 180- day intervals; 4) impose on Expro its business code of conduct and its FCPA anti-corruption policies and procedures; and 5) maintain Expro as a wholly-owned subsidiary if DOJ was investigating any corruption allegations. The company also proposed that it would acknowledge and agree that Expro and its subsidiaries and affiliates would retain liability for FCPA violations, both past and present. 48/
DOJ accepted the company’s proposal. The government stated that if the company met each of its proposed conditions, DOJ would not take any enforcement action with respect to the acquisition itself, nor with respect to any pre-acquisition conduct reported to DOJ within 180 days, or any post-acquisition conduct disclosed to the DOJ that did not continue beyond 180 days. 49/ In a footnote that further demonstrates the lengths to which DOJ expects companies to go in conducting FCPA due diligence, the government stated: “While the Department accepts the representation that in order to be a viable bidder for [Expro], [the company] had to enter into the confidentiality agreement, the Department discourages companies wishing to receive an FCPA Opinion Release in the future from entering into agreements which limit the information that may be provided to the Department.” 50/
An Evolving Landscape – What to Expect in 2009
By David Walters
The preceding review of significant 2008 cases and settlements is only one piece of the 2009 FCPA landscape. To forecast the nature and scope of FCPA enforcement in 2009, several factors must be considered, including: 1) the new administration; 2) FCPA cases likely to proceed to trial in 2009; 3) the continuation of settlements at record penalty levels; 4) new developments in the law, particularly in the area of respondeat superior; 5) developments in international law; and 6) increased corporate resources devoted to pre-empting FCPA violations. Businesses should consider each of these variables in planning for 2009.
| A. | The New Administration and the FCPA
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The most immediate focus for the Obama administration will be to rescue the American economy. In this time of economic recession and government bailouts, it may seem contradictory to think that President Obama will maintain the 2008 focus on FCPA enforcement. For example, his 271-page “Plan To Renew America’s Promise,” which includes numerous campaign speeches and a “1000–foot” outline of his administrative plan, no mention is made of quelling corporate fraud, bribes or FCPA violations. 51/ This omission cuts both ways. It may mean that the new administration is satisfied with the current focus on FCPA enforcement by government agencies and international anti-corruption conventions, such as the Organisation for Economic Cooperation and Development’s (“OECD”) Anti-Bribery Convention. It also may signify that enforcement of corporate wrongdoing is not on the “short list” of early priorities for the new administration.
One way to get a better sense of the new administration’s attention to the FCPA is to look to the President’s choice for Attorney General, Eric Holder. Holder is a former United States Attorney, and in 1997, he was appointed Deputy Attorney General by President Clinton. In 1999, Holder authored the first DOJ memorandum providing guidelines for charging corporate wrongdoing (nicknamed the “Holder Memorandum”), which instructed prosecutors to affirmatively consider a corporation’s willingness to waive the attorney-client and work product privileges and its decision to advance legal fees and costs to accused employees in calculating cooperation credit. 52/ The Holder Memorandum often is considered the beginning of the crackdown on corporate fraud. The Eric Holder who authored this memorandum was involved in numerous corporate fraud prosecutions and likely would support the current expanding reach and growing number of FCPA investigations and prosecutions.
However, there is another side to Eric Holder. At the end of his tenure in the Clinton administration, Holder moved into private practice and defended clients like Chiquita Brands, International in multiple lawsuits and investigations involving illegal payments in foreign jurisdictions – in other words, FCPA violations. 53/ This Eric Holder defended corporate clients alleged to have committed egregious violations of the FCPA and other federal trade statutes. His recent defense experience suggests that Holder may focus less on expanding resources in the ferreting out of FCPA violations and more on corporate compromise and cooperation. This Holder might further the position of the DOJ in its new corporate charging memorandum, released in September 2008, called the “Filip Memorandum,” which softened the DOJ’s stance on the waiver of attorney-client and work product privileges in determining cooperation credit for corporate crimes.
To the extent there is a shift in prosecutorial priorities by the new administration, it is likely that this shift will not be felt in 2009. This is largely because the current leaders of DOJ, SEC and FBI already have declared their intention to step up FCPA enforcement in 2009. For example, DOJ recently announced that it expects the trend of increased enforcement to increase in 2009, “given the significant number of matters that we have under investigation. The number of individual prosecutions has risen, and that is not an accident. It is our view that to have a credible deterrent effect, people have to go to jail. People have to be prosecuted where appropriate. This is a federal crime, it’s not fun and games.” 54/ Federal agencies such as the FBI have budgeted increased expenditures for FCPA enforcement in 2009. 55/ If there is relief in sight from the new administration, it is not readily apparent for 2009.
Many corporate defendants recently have chosen to manage the risk of FCPA fines and penalties by settling with the government before trial. Indeed, since its enactment in 1977, an overwhelming majority of FCPA cases targeting corporations have resulted in some form of out-of-court settlement. As a result, corporate counsel can find little guidance for evaluating the strength of the factual bases for FCPA prosecutions. However, as DOJ and SEC continue targeting individuals in 2009 56/, the trend of out-of-court settlements may begin to change. There are three FCPA cases involving individuals that appear headed for trial. These cases still may settle, but they and other similar prosecutions are worth monitoring for judicial interpretations of the FCPA.
Frederic Bourke, owner of the luxury handbag brand Dooney and Bourke, was indicted with Victor Kozeny and David Pinkerton for FCPA violations involving an alleged plot to bribe officials in Azerbaijan. 57/ Kozeny is in the Bahamas fighting extradition, and Pinkerton has been dismissed from the case. Bourke intends to go to trial in the Southern District of New York in 2009 because, according to his counsel, “he wants to explore the possibility that someone decided to silence him.” 58/ Bourke, as the whistleblower to these alleged FCPA violations, claims that the case was brought to punish him for interfering in the United States’ relationship with Azerbaijan.
Of interest in the case is Bourke’s lawyers’ tactic of requesting the court to order the Central Intelligence Agency and the State Department to search for documents that may support these defense claims. Bourke’s lawyers also have asked the judge to force the National Security Agency to turn over recorded intercepts of conversations involving Kozeny, Bourke and others in Azerbaijan. 59/ These pre-trial proceedings may significantly influence the outcome of this case if the court rules that significant portions of the government’s classified materials are discoverable by the defense.
In addition, Bourke’s lawyers have asked the court for specific jury instructions regarding his alleged defenses. The court’s rulings on these instructions have provided helpful jurisprudence for future FCPA cases. For example, the judge agreed that “true extortion” can be a viable defense to an FCPA violation. In other words, if sufficient evidence is adduced indicating the foreign payment was a result of extortion, a jury instruction may be permitted to define what constitutes true extortion. The court indicated that true extortion must involve more than a simple demand for payment, but, unlike a claim of duress, it need not include threats of bodily harm. 60/ The judge also stated that a narrower FCPA defense of duress exists when there is a threat of serious physical harm or death. 61/ However, the court denied Bourke the opportunity to provide a defense that the payments did not violate the FCPA because they were lawful under the laws and regulations of the country where the bribe occurred. This ruling is consistent with the current expansive position taken by the U.S. government that any payment to a foreign official that results in a business advantage assists in “obtaining or retaining business” in violation of the FCPA. 62/
In January 2008, DOJ secured the indictments of Hollywood producer Gerald Green and his wife, Patricia Green, for alleging providing more than $1.8 million in bribes to a former governor of the Tourism Authority in Thailand in order to obtain the management contract for the Bangkok International Film Festival. The payments allegedly were made indirectly to their daughter’s bank accounts in Singapore, the United Kingdom and the Isle of Jersey. Their daughter was a friend of the Thai government official, and the payments were recorded improperly in the books and records of the Greens’ companies as “sales commissions.” Mr. Green also allegedly made cash payments to the same government official. 63/
Trial was scheduled to begin in 2008, but a superseding indictment was filed alleging that Mrs. Green filed two false tax returns in 2005 and 2006, which included deductions for “commissions” that she knew were “bribes.” 64/ This trial, if it proceeds in 2009, will be of interest because of the dovetail of the FCPA allegations with tax fraud allegations; the penetration of government scrutiny into all industries, including Hollywood; and the issue of whether the Greens’ daughter was their agent in making the allegedly illegal payments.
| United States v. Jefferson
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The indictment alleges that Representative William Jefferson promised to make a $500,000 “front-end payment” to a Nigerian official for regulatory approvals for telecommunications services by a joint venture in which members of his family had an interest. 65/ In addition, the plan included a “back-end” payment of 50 percent of the profits of the joint venture to the Nigerian official. 66/ The charges include violations of the anti-bribery provisions of the FCPA, soliciting and accepting bribes, money laundering, wire fraud and obstruction of justice. 67/ Rep. Jefferson sought dismissal of his case because the testimony of his former staff members in the grand jury was based on his work in Congress and thereby was protected by the Speech and Debate Clause of the Constitution. The U.S. Court of Appeals for the Fourth Circuit denied the motion. 68/
| C. | Developments in the Law of Respondeat Superior
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Perhaps one of the most interesting developments in FCPA law for 2009 may come in an appellate case that surprisingly contains no allegations of FCPA violations. In United States v. Ionia Management, the government alleged criminal violations of a statute that restricts dumping bilge and sludge water from ocean-going vessels, even when the vessels are outside U.S. waters. This case recently was argued in the U.S. Court of Appeals for the Second Circuit, and one of the key issues was the scope of respondeat superior, the legal doctrine holding companies vicariously liable for crimes committed by employees within the scope of their employment. 69/ With respondeat superior, a prosecutor has leverage over a corporation because once an employee admits an offense or is convicted, the company also can be held accountable. 70/
In Ionia Management, the company argued that the scope of the doctrine of respondeat superior is too broad. The law imposes vicarious criminal liability on organizations for nearly all criminal acts of employees – even low-level employees “acting against explicit instructions and in the face of the most robust corporate compliance program.” 71/ A broad application of vicarious liability tips the scale in favor of the prosecution and forces corporations to settle investigations with DOJ and SEC once a bad actor is identified, oftentimes without even mounting a defense.
If the Second Circuit agrees with the argument of Ionia Management and redefines the scope of the respondeat superior doctrine, this will encourage corporations to have a robust compliance program. It also may encourage corporations to vigorously defend FCPA investigations rather than automatically assume that they must settle the action to avoid severe penalties at trial because liability will be assumed where a single rogue employee is found to have violated the statute.
| D. | Corporate Resources and FCPA Compliance
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One of the major FCPA highlights in 2009 is likely to be a continued sharp increase in corporate awareness of FCPA issues. In discussing the recent increase in FCPA enforcement, Mark Mendelsohn, Deputy Chief of DOJ’s Fraud Section, Criminal Division, said: “As we bring cases in industries that were not previously a focus of FCPA enforcement actions, that does have the effect of causing a lot of players in that industry to wake up and pay attention.” 72/ In truth, over the last few years enforcement under OECD and other international anti-bribery conventions has expanded in scope and breadth. This expansion has prompted a growing number of domestic corporate entities with international connections and foreign corporations with a presence in the United States to implement FCPA compliance programs. It is nothing new that “[a]wareness of corporate responsibilities has become paramount in today’s post 9/11, Sarbanes Oxley world.” 73/
According to a recent survey conducted by KPMG of 103 corporate executives in a variety of business sectors, 84 percent report that they have implemented FCPA or anti-corruption policies and procedures; 75 percent report that they have whistleblower mechanisms in place; and 67 percent report that they have at least a minimal communication and training program on these issues. 74/ These statistics demonstrate that many companies have a basic infrastructure to address FCPA issues internally. However, less than half (45 percent) reported any procedures for monitoring compliance with the FCPA, and only 32 percent reported having a dedicated FCPA compliance officer. 75/ The area of largest focus reported by corporate executives (69 percent of those surveyed) was continued education and training for corporate employees on FCPA issues. 76/ These statistics demonstrate that it remains incumbent upon businesses to dedicate substantial resources to educate and train employees to protect against potential FCPA violations and to quickly investigate and responsibly respond to alleged FCPA violations.
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For more information about the issues covered in this report, please contact Mary Andrues in our Los Angeles office at 213-892-1865 or at andruesm@howrey.com; John Letteri in our Washington, D.C. office at 202-383-6519 or at letterij@howrey.com; David Walters in our Chicago office at 312-846-5649 or at waltersd@howrey.com; or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
ENDNOTES
| 1/ | The FCPA was enacted in 1977 and subsequently amended in 1988 and 1998. See, 15 USC §§78m, et seq.
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| 2/ | 15 USC §§78dd-1, -2, -3.
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| 3/ | 15 USC §78m.
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| 4/ | 15 USC §§78dd-1, -2, -3.
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| 5/ | 15 USC §78dd-2(h).
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| 6/ | 15 USC §78dd-1(b), (f)(3).
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| 7/ | 15 USC §78dd-1(c).
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| 8/ | Id.
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| 9/ | 15 USC §78m(b)(2)(A).
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| 10/ | 15 USC §78m(b)(7).
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| 11/ | 17 CFR §240.13b2-1.
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| 12/ | 17 CFR §240.13b2-2.
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| 13/ | False financial statements also can lead to criminal liability under the Sarbanes-Oxley Act and a myriad of statutes under Title 18 of the United States Code, including mail and wire fraud, money laundering and false statements. Interference in a government investigation can result in obstruction of justice or obstruction of a federal audit charges.
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| 14/ | Under the FCPA, “reasonable detail” and “reasonable assurance” have the same definition. See, 15 USC §78m(b)(7).
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| 15/ | 15 USC §§78dd-2(g), -3(e); 78ff(c) (1)(A), (2)(A). When civil or criminal fines are levied against an individual, the fine cannot be paid, directly or indirectly, by the issuer. 15 USC §78ff(c)(3).
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| 16/ | 15 USC §78ff(a).
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| 17/ | 15 USC §§78dd-1(e), -2(f); 28 CFR §§80.1-80.16.
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| 18/ | 28 CFR §80.6.
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| 19/ | Id.
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| 20/ | 28 CFR §§80.8, 80.10.
|
| 21/ | DOJ Press Release No. 08-1105 (December 15, 2008).
|
| 22/ | DOJ Press Release No. 07-075 (February 6, 2007).
|
| 23/ | DOJ Press Release No. 07-296 (April 26, 2007); SEC Litigation Release No. 20094 (April 26, 2007).
|
| 24/ | DOJ Press Release No. 08-417 (May 14, 2008); SEC Litigation Release No. 20571 (May 14, 2008).
|
| 25/ | Kay v. United States, 129 S.Ct. 42 (2008), reh’g denied, 2008 WL 5046518 (December 1, 2008).
|
| 26/ | DOJ Press Release No. 08-766 (September 2, 2008). Two other former ITXC employees, Roger Young and Steven Ott, received five years of probation, including three months of home confinement and three months in a community confinement center for Young and six months of home confinement and six months in a community confinement center for Ott.
|
| 27/ | DOJ Press Release No. 08-341 (April 25, 2008).
|
| 28/ | DOJ Press Release No. 08-1084 (December 10, 2008).
|
| 29/ | DOJ Press Release No. 08-772 (September 3, 2008); SEC Litigation Release No. 20700 (September 3, 2008).
|
| 30/ | DOJ Press Release No. 08-1020 (November 17, 2008).
|
| 31/ | DOJ Press Release No. 08-848 (September 23, 2008); see also, DOJ Press Release No. 07-411 (June 7, 2007).
|
| 32/ | DOJ Press Release No. 08-1041 (November 21, 2008).
|
| 33/ | Westinghouse Air Brake Technologies Corp., DOJ Press Release No. 08- 116 (February 14, 2008), SEC Litigation Release 20457 (February 14, 2008) [payments made to employees of India’s Railway Board to secure railroad equipment sales].
|
| 34/ | In the Matter of Faro Technologies, Inc., SEC Administrative Proceeding No. 3-13059 (June 5, 2008) [payments made to low level employees of Chinese state-owned businesses in return for contracts to sell products].
|
| 35/ | AGA Medical Corp., DOJ Press Release No. 08-491 (June 3, 2008) [payments made to doctors working in Chinese state-owned hospitals in return for medical product purchases].
|
| 36/ | Foreign Corrupt Practices Act Review Opinion Procedure Release No. 08-03 (July 11, 2008).
|
| 37/ | 129 S.Ct. 42 (2008), reh’g denied, 2008 WL 5046518 (December 1, 2008).
|
| 38/ | 15 USC §78dd-1(a)(1) [prohibiting payment of bribes to “assist... [a covered entity] in obtaining or retaining business for or with... any person”].
|
| 39/ | United States v. Kay, 513 F.3d 432 (5th Cir. 2007), reh’g en banc denied, 513 F.3d 461 (5th Cir. 2008), cert. denied, 129 S.Ct. 42 (2008), reh’g denied, 2008 WL 5046518 (December 1, 2008).
|
| 40/ | 513 F.3d at 442.
|
| 41/ | 15 USC §§78dd-1(b), (f)(3).
|
| 42/ | DOJ Press Release No. 08-1105 (December 15, 2008).
|
| 43/ | Id.
|
| 44/ | DOJ Press Release No. 08-220 (March 20, 2008).
|
| 45/ | DOJ Press Release No. 08-1041 (November 21, 2008).
|
| 46/ | DOJ Press Release No. 08-417 (May 14, 2008) [Willbros matter]; DOJ Press Release No. 08-116 (February 14, 2008), SEC Litigation Release No. 20457 (February 14, 2008) [WABTEC matter]; In the Matter of Faro Technologies, Inc., SEC Administrative Proceeding No. 3-13059 (June 5, 2008); DOJ Press Release No. 08-491 (June 3, 2008) [AGA Medical Corp. matter].
|
| 47/ | Foreign Corrupt Practices Act Review Opinion Procedure Release No. 08-02 (June 13, 2008).
|
| 48/ | Id. at 2-4.
|
| 49/ | Id. at 4-6.
|
| 50/ | Id. at 6, n. 1.
|
| 51/ | Obama, “Change We Can Believe In: Barack Obama’s Plan to Renew America’s Promise” (Three Rivers Press, September 9, 2008).
|
| 52/ | Howrey Webinar on Corporate Charging Guidelines, September 2008.
|
| 53/ | See, e.g., en.wikipedia.org/wiki/Eric_Holder.
|
| 54/ | American Bar Association Conference, “The Foreign Corrupt Practices Act: Current SEC and DOJ Enforcement Initiatives,” September 11, 2008, Washington, DC.
|
| 55/ | FY2009 FBI Congressional Budget Justification, available at: www.usdoj.gov/jmd/2009justification/pdf/fy09-fbi.pdf.
|
| 56/ | See, e.g., “Two More Ex-Willbros Employees Charged,” fcpablog.blogspot.com/2008/12/
two-more-ex-willbros-workers-charged.html.
|
| 57/ | www.ca2.uscourts.gov/decisions/isysquery/b5c9f997
-dc24-4a8d-9327-35f9b8cf6b99/223/doc/07
-3107-cr_opn.pdf#xml=http://www.ca2.uscourts.gov/
decisions/isysquery/b5c9f997-dc24-4a8d-9327-
35f9b8cf6b99/223/hilite/ at Pgs. 3-4.
|
| 58/ | fcpablog.blogspot.com/2008/11/bourke-
alleges-vindictive-prosecution.html.
|
| 59/ | Id.
|
| 60/ | United States v. Kozeny, 528 F.Supp.2d 535, 539-40 (S.D.N.Y. 2008).
|
| 61/ | Id. at 540.
|
| 62/ | 15 USC §§78dd-1(a)(1).
|
| 63/ | United States v. Gerald Green and Patricia Green, No. 08-CR-00059 (C.D. Cal. 2008).
|
| 64/ | lawprofessors.typepad.com/whitecollarcrime
_blog/2008/11/william-jeffers.html.
|
| 65/ | United States v. Jefferson, 07-00209 (E.D. Va., filed June 4, 2007).
|
| 66/ | Id.
|
| 67/ | Id.
|
| 68/ | www.uslaw.com/library/International_Law/
Congressmans_FCPA_ Trial_Draws_Near.php?item=296749.
|
| 69/ | lawprofessors.typepad.com/whitecollarcrime_blog/
2008/06/reevaluating-c.html.
|
| 70/ | www.fcpablog.blogspot.com/2008/
in-masters-defense.html.
|
| 71/ | Id.
|
| 72/ | Roane, “Peeking Under the Table” (June 6, 2008), www.Portfolio.com/news-markets/top-5/2008/06/06/
Feds-Hunt-Foreign-Corruption.
|
| 73/ | Norris, “FCPA Awareness and Adherence,” World Academy, www.theworldacademy.com/
articleFCPAAwareness.html.
|
| 74/ | “2008 Anti-bribery and Anti-corruption Survey,” KPMG Forensic Division, Summer 2008.
|
| 75/ | Id. at 4.
|
| 76/ | Id. at 10.
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