03 September 2008

International fraud and asset tracing litigation news - summer: Bribery and the long arm of the United States


The US Foreign Corrupt Practices Act (“FCPA”)

The FCPA is the de facto international standard regarding bribery of foreign officials and is the most heavily enforced foreign bribery statute in the world.  US prosecutors and regulators are more aggressive and extraterritorial in the enforcement of the FCPA than any other country.

The anti-bribery provisions of the FCPA prohibit giving or offering to give anything of value to a foreign official for the purpose of obtaining, retaining, or directing business or otherwise obtaining an improper advantage.  The FCPA also requires companies with securities listed on US trading markets to maintain adequate internal accounting controls and records.  The anti-bribery provisions apply not only to US companies and US nationals, but also to foreign companies that are required to file with the Securities and Exchange Commission, including foreign issuers of American Depository Receipts trading on a US market.  There are over 150 foreign companies with such ADRs, and over 1000 foreign companies trading on the NYSE, NASDAQ or OTC markets.

Penalties for Violation

Criminal penalties for violations of the FCPA anti-bribery provisions are severe. Corporations and other business entities are subject to a fine of up to $2,000,000 per violation. Officers, directors, stockholders, employees, and agents are subject to a fine of up to $250,000 per violation and imprisonment for up to five years.  Under the US Alternative Fines Act, the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment.  Fines imposed on individuals may not be paid by their employer or principal.

The FCPA does contain several “safe harbors.”  Under very limited circumstances, the FCPA permits facilitating or “grease” payments to foreign officials in order to expedite or secure the performance of a “routine governmental action.”  “Routine governmental action” means only those actions that are ordinarily and commonly performed by a foreign official, such as obtaining permits, licenses or other official documents or expediting lawful customs clearances.  Facilitating payments must be completely unrelated to the award of new business or the continuation of prior business.

The FCPA also permits certain payments to foreign officials made in connection with the promotion or demonstration of company products or services such as a tour of a company's manufacturing facility.  Companies can easily find themselves outside of this “safe harbor” when such inspections or tours have little or no business content and consist primarily or entirely of sightseeing or vacation activities.

Payments that are lawful under foreign laws may also be lawful under the FCPA.  Whether a payment was lawful under the written laws of the foreign country, however, may be difficult to determine.  Such payments should not be made without first seeking advice.

The Long Arm effects of the FCPA

US prosecutors can obtain jurisdiction over a foreign company or executive if any action in furtherance of a corrupt payment is taken within the United States.  This includes the use of the postal system, the US banking system, and the sending or receiving of facsimiles, telephones, wire transfers with the United States.

For example, US prosecutors are investigating the UK defense company BAE with regard to the alleged $2 billion illegal payments to the former Saudi ambassador to the United States, Prince Bandar bin Sultan, in return for the sale of jet fighters to the Saudi government.  Deposits were allegedly made into Price Bandar's Washington, DC bank account.

In 2007, French citizen and former executive of Alcatel CIT Christian Sapsizian pleaded guilty to participating in the payment of more than $2.5 million in bribes to senior Costa Rican government officials in order to obtain a mobile telephone contract from Costa Rica's state-owned telecommunications authority.  Alcatel CIT's ADRs were traded on the NYSE and Sapsizian initiated the corrupt payments from Alcatel's bank in New York.  This case demonstrates the US government's willingness to prosecute a foreign citizen, employed by a foreign company, residing and having his office outside the United States, for corrupt payments to a foreign official.

Protection Strategies

There are steps you can take to protect yourselves and your companies.  First and foremost, increase your awareness of the FCPA requirements so that you can recognize what conduct is prohibited and avoid potential traps.  Second, with the assistance of counsel, develop an effective compliance program that includes a written anti-corruption policy, specific procedures to implement that policy, employee training, and annual compliance activities.  Third, if you discover a violation of the FCPA, take appropriate corrective action-which action may include a voluntary disclosure to US officials.

The FCPA is not a statute that can be ignored.  With increased awareness and forward thinking, companies and their executives can take steps to protect themselves.