A Resource Guide to the U.S. Foreign Corrupt Practices Act

• A Resource Guide to the U.S. Foreign Corrupt Practices Act By the Criminal Division of the U.S. Department of Justice and thy Enforcement Division of the U.S. Securities and Exchange Commission EFTA01080289 This guide is intended to provide information for businesses and individuals regarding the U.S. Foreign Corrupt Practices Act (FCPA). The guide has been prepared by the =if of the Criminal Division of the US. Department of Justice and the Enforcement Division of the US. Securities and Exchange Commission. It is non-binding, informal, and summary in nature, and the information contained herein does not constitute rules or regulations. As such, it is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, that are enforceable at law by any party, in any criminal, civil, or administrative matter. It is nor intended to substitute for the advice of legal counsel on specific issues related to the FCPA. It does not in any way limit the enforcement intentions or litigating positions of the US. Department of Justice, the US. Securities and Exchange Commission, or any other U.S. government agency. Companies or individuals seeking an opinion concerning specific prospective conduct are encouraged to use the US. Department ofJustice's opinion procedure discussed in Chapter 9 of this guide. This guide is United States Government property. It is available to the public free of charge online at wwwjustice.gov/ criminal/fraud/fcpa and wwwsec.gov/spodight/fcpashtml. EFTA01080290 A RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT By the Criminal Division of the US. Department ofJusticc and the Enforcement Division of the US. Securities and Exchange Commission EFTA01080291 FOREWORD We are pleased to announce the publication of A Resource Guide to the U.S. Foreign Comer Practices An. The Foreign Corrupt Practices Act (FCPA) is a critically important statute for combating corruption around the globe. Corruption has corrosive effects on democratic institutions, undermining public accountability and diverting public resources from impor- tant priorities such as health, education, and infrastructure. When business is won or lost based on how much a company is willing to pay in bribes rather than on the quality of its products and services, law-abiding companies are placed at a com- petitive disadvantage —and consumers lose. For these and other reasons, enforcing the FCPA is a continuing priority at the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The Guide is the product of extensive efforts by experts at DOJ and SEC, and has benefited from valuable input from the Departments of Commerce and State. It endeavors to provide helpful information to enterprises of all shapes and sizes— from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world. The Guide addresses a wide variety of topics, including who and what is covered by the FCPA's anti-bribery and accounting provisions; the definition of a 'oreign official"; what constitute proper and improper gifts, travel and entertainment expenses; the nature of facilitating payments; how successor liability applies in the mergers and acquisitions context; the hallmarks of an effective corporate compliance program; and the different types of civil and criminal resolutions available in the FCPA context. On these and other topics, the Guide takes a multi-faceted approach, setting forth in detail the statutory require- ments while also providing insight into DOJ and SEC enforcement practices through hypotheticals, examples of enforce- ment actions and anonymized declinations, and summaries of applicable case law and DOJ opinion releases. The Guide is an unprecedented undertaking by DOJ and SEC to provide the public with detailed information about our FCPA enforcement approach and priorities. We are proud of the many lawyers and staff who worked on this project, and hope that it will be a useful reference for companies, individuals, and others interested in our enforcement of the Act. rtkb---1 Lanny A. Breuer Assistant Attorney General Criminal Division Department of Justice 2,4J- 4n Robert S. Khuzami Director of Enforcement Securities and Exchange Commission November 14, 2012 EFTA01080292 EFTA01080293 CONTENTS Chapter 1: INTRODUCTION 2 The Costs of Corruption 2 Historical Background 3 National Landscape: Interagency Efforts 4 Department of Justice 4 Securities and Exchange Commission 4 Law Enforcement Partners 5 Department of Commerce and State 5 International Landscape: Global Anti-Corruption Efforts 7 OECD Working Group on Bribery and the Anti-Bribery Convention 7 Convention Against Corruption 8 Other Anti-Corruption Conventions 8 Chapter 2: THE FCPA: ANTI-BRIBERY PROVISIONS 10 Who Is Covered by the Anti-Bribery Provisions? 10 Issuers-15 U.S.C. § 78dd-1 10 Domestic Concerns-15 U.S.C. § 78dd-2 11 Territorial Jurisdiction -15 U.S.C. § 78dd-3 11 What Jurisdictional Conduct Triggers the Anti-Bribery Provisions? 11 What Is Covered? —The Business Purpose Test 12 What Does "Corruptly" Mean? 14 What Does "Willfully" Mean and When Does It Apply? 14 What Does "Anything of Value" Mean? 14 Cash 15 Gifts, Travel, Entertainment, and Other Things of Value 15 Charitable Contributions 16 Who Is a Foreign Official? 19 Department, Agency, or Instrumentality of a Foreign Government 20 Public International Organizations 21 How Are Payments to Third Parties Treated? 21 What Affirmative Defenses Are Available? 23 The Local Law Defense 23 Reasonable and Bona Fide Expenditures 24 What Are Facilitating or Expediting Payments' 25 Does the FCPA Apply to Cases of Extortion or Duress? 27 Principles of Corporate Liability for Anti-Bribery Violations 27 Parent-Subsidiary Liability 27 Successor Liability 28 Additional Principles of Criminal Liability for Anti-Bribery Violations: Aiding and Abetting and Conspiracy . . . 34 EFTA01080294 Additional Principles of Civil Liability for Anti-Bribery Violations: Aiding and Abetting and Causing 34 What Is the Applicable Statute of Limitations? 34 Statute of Limitations in Criminal Cases 34 Statute of Limitations in Civil Actions 35 Chapter 3: THE FCPA: ACCOUNTING PROVISIONS 38 What Is Covered by the Accounting Provisions? 39 Books and Records Provision 39 Internal Controls Provision 40 Potential Reporting and Anti-Fraud Violations 41 What Are Management's Other Obligations? 42 Who Is Covered by the Accounting Provisions? 42 Civil Liability for Issuers, Subsidiaries, and Affiliates 42 Civil Liability for Individuals and Other Entities 43 Criminal Liability for Accounting Violations 44 Conspiracy and Aiding and Abetting Liability 45 Auditor Obligations 45 Chapter 4: OTHER RELATED U.S. LAWS 48 Travel Act 48 Money Laundering 48 Mail and Wire Fraud 49 Certification and Reporting Violations 49 Tax Violations 49 Chapter 5: GUIDING PRINCIPLES OF ENFORCEMENT 52 What Does DOJ Consider When Deciding Whether to Open an Investigation or Bring Charges? 52 DOJ Principles of Federal Prosecution 52 DOJ Principles of Federal Prosecution of Business Organizations 52 What Does SEC Consider When Deciding Whether to Open an Investigation or Bring Charges? 53 Self-Reporting, Cooperation, and Remedial Efforts 54 Criminal Cases 54 Civil Cases 55 Corporate Compliance Program 56 Hallmarks of Effective Compliance Programs 57 Commitment from Senior Management and a Clearly Articulated Policy Against Corruption 57 Code of Conduct and Compliance Policies and Procedures 57 Oversight, Autonomy, and Resources 58 Risk Assessment 58 Training and Continuing Advice 59 Incentives and Disciplinary Measures 59 Third-Party Due Diligence and Payments 60 EFTA01080295 Confidential Reporting and Internal Investigation 61 Continuous Improvement: Periodic Testing and Review 61 Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition Integration 62 Other Guidance on Compliance and International Best Practices 63 Chapter 6: FCPA PENALTIES, SANCTIONS, AND REMEDIES 68 What Are the Potential Consequences for Violations of the FCPA? 68 Criminal Penalties 68 U.S. Sentencing Guidelines 68 Civil Penalties 69 Collateral Consequences 69 Debarment 70 Cross-Debarment by Multilateral Development Banks 70 Loss of Export Privileges 71 When Is a Compliance Monitor or Independent Consultant Appropriate/ 71 Chapter 7: RESOLUTIONS 74 What Are the Different Types of Resolutions with DOJO 74 Criminal Complaints, Informations, and Indictments 74 Plea Agreements 74 Deferred Prosecution Agreements 74 Non-Prosecution Agreements 75 Declinations 75 What Are the Different Types of Resolutions with SEC? 76 Civil Injunctive Actions and Remedies 76 Civil Administrative Actions and Remedies 76 Deferred Prosecution Agreements 76 Non-Prosecution Agreements 77 Termination Letters and Declinations 77 What Are Some Examples of Past Declinations by DOJ and SEC' 77 Chapter 8: WHISTLEBLOWER PROVISIONS AND PROTECTIONS 82 Chapter 9: DOJ OPINION PROCEDURE 86 Chapter 10: CONCLUSION 90 APPENDIX: THE FOREIGN CORRUPT PRACTICES ACT 92 APPENDIX: ENDNOTES 104 EFTA01080296 Corporate bribery is bad business. In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet. Corporate bribery of foreign officials takes place primarily to assist corporations in gaining business. Thus foreign corporate bribery affects the very stability of overseas business. Foreign corporate bribes also affect our domestic competitive climate when domestic firms engage in such practices as a substitute for healthy com- petition for foreign business.' —United States Senate, 1977 EFTA01080297 EFTA01080298 chapter 1 Introduction INTRODUCTION Congress enacted the U.S. Foreign Corrupt Practices Act (FCPA or the Act) in 1977 in response to revelations of widespread bribery of foreign officials by U.S. companies. The Act was intended to halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integ- rity of the marketplace.= The FCPA contains both anti-bribery and accounting provisions. The anti-bribery provisions prohibit US. per- sons and businesses (domestic concerns), US. and foreign public companies listed on stock exchanges in the United States or which are required to file periodic reports with the Securities and Exchange Commission (issuers), and certain foreign persons and businesses acting while in the territory of the United States (territorial jurisdiction) from making corrupt payments to foreign officials to obtain or retain business. The accounting provisions require issuers to make and keep accurate books and records and to devise and maintain an adequate system of internal accounting controls. The accounting provisions also prohibit individu- als and businesses from knowingly falsifying books and records or knowingly circumventing or failing to imple- ment a system of internal controls. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) share FCPA enforcement authority and are committed to fighting for- eign bribery through robust enforcement. An important component of this effort is education, and this resource guide, prepared by DOJ and SEC staff, aims to provide businesses and individuals with information to help them abide by the law, detect and prevent FCPA violations, and implement effective compliance programs. The Costs of Corruption Corruption is a global problem. In the three decades since Congress enacted the FCPA, the extent of corporate bribery has become clearer and its ramifications in a trans- national economy starker. Corruption impedes economic growth by diverting public resources from important pri- orities such as health, education, and infrastructure. It undermines democratic values and public accountability and weakens the rule of law.3 And it threatens stability and security by facilitating criminal activity within and across 2 EFTA01080299 borders, such as the illegal trafficking of people, weapons, and drugs' International corruption also undercuts good governance and impedes US. efforts to promote freedom and democracy, end poverty, and combat crime and terror- ism across the globe' Corruption is also bad for business. Corruption is anti-competitive, leading to distorted prices and disadvan- taging honest businesses that do not pay bribes. It increases the cost of doing business globally and inflates the cost of government contracts in developing countries!. Corruption also introduces significant uncertainty into business trans- actions: Contracts secured through bribery may be legally unenforceable, and paying bribes on one contract often results in corrupt officials making ever-increasing demands? Bribery has destructive effects within a business as well, undermining employee confidence in a company's manage- ment and fostering a permissive atmosphere for other kinds of corporate misconduct, such as employee self-dealing, embezzlement,' financial fraud,' and anti-competitive behavior.10 Bribery thus raises the risks of doing business, putting a company's bottom line and reputation in jeop- ardy. Companies that pay bribes to win business ultimately undermine their own long-term interests and the best inter- ests of their investors. Historical Background Congress enacted the FCPA in 1977 after revela- tions of widespread global corruption in the wake of the Watergate political scandal. SEC discovered that more than 400 U.S. companies had paid hundreds of millions of dol- lars in bribes to foreign government officials to secure busi- ness overseas." SEC reported that companies were using secret "slush funds" to make illegal campaign contributions in the United States and corrupt payments to foreign offi- cials abroad and were falsifying their corporate financial records to conceal the payments." Congress viewed passage of the FCPA as critical to stopping corporate bribery, which had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of US. companies, and hampered the efficient functioning of the markets.'' As Congress No problem does more to alienate citizens from their political leaders and institutions, and to undermine political stability and economic development, than endemic corruption among the government, political party leaders, judges, and bureaucrats. — VIED Anti-Corruption Strategy recognized when it passed the FCPA, corruption imposes enormous costs both at home and abroad, leading to mar- ket inefficiencies and instability, sub-standard products, and an unfair playing field for honest businesses." By enacting a strong foreign bribery statute, Congress sought to minimize these destructive effects and help companies resist corrupt demands, while addressing the destruc- tive foreign policy ramifications of transnational brib- ery." 'Me Act also prohibited off-the-books accounting through provisions designed to "strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure!" In 1988, Congress amended the FCPA to add two affirmative defenses: (1) the local law defense; and (2) the reasonable and bona Me promotional expense defense.'" Congress also requested that the President negotiate an international treaty with members of the Organisation for Economic Co-operation and Development (OECD) to prohibit bribery in international business transactions by many of the United States' major trading parmers." Subsequent negotiations at the OECD culminated in the Convention on Combating Bribery of Foreign Officials in International Business Transactions (Anti-Bribery Convention), which, among other things, required parties to make it a crime to bribe foreign officials." 3 EFTA01080300 DOJ Contact Information Deputy Chief (FCPA Unit) Fraud Section, Criminal Division Bond Building 1400 New York Ave, . Washington, DC 20005 Telephone: (202) 514-7023 Facsimile: (202) 514-7021 Email: [email protected] In 1998, the FCPA was amended to conform to the requirements of the Anti-Bribery Convention. These amendments expanded the FCPA's scope to: (1) include payments made to secure "any improper advantage"; (2) reach certain foreign persons who commit an act in fur- therance of a foreign bribe while in the United States; (3) cover public international organizations in the definition of "foreign official"; (4) add an alternative basis for juris- diction based on nationality; and (5) apply criminal pen- alties to foreign nationals employed by or acting as agents of US. companies.' The Anti-Bribery Convention came into force on February 15, 1999, with the United States as a founding party. National Landscape: Interagency Efforts DOJ and SEC share enforcement authority for the FCPA's anti-bribery and accounting provisions." They also work with many other federal agencies and law enforce- ment partners to investigate and prosecute FCPA viola- tions, reduce bribery demands through good governance programs and other measures, and promote a fair playing field for U.S. companies doing business abroad. Department of Justice DOJ has criminal FCPA enforcement authority over "issuers" (i.e., public companies) and their officers, chapter 1 Introduction directors, employees, agents, or stockholders acting on the issuer's behalf. DOJ also has both criminal and civil enforce- ment responsibility for the FCPA's anti-bribery provisions over "domestic concerns" —which include (a) US. citizens, nationals, and residents and (b) US. businesses and their officers, directors, employees, agents, or stockholders act- ing on the domestic concern's behalf—and certain foreign persons and businesses that act in furtherance of an FCPA violation while in the territory of the United States. Within DOJ, the Fraud Section of the Criminal Division has pri- mary responsibility for all FCPA matters." FCPA matters are handled primarily by the FCPA Unit within the Fraud Section, regularly working jointly with US. Attorneys' Offices around the country. DOJ maintains a website dedicated to the FCPA and its enforcement at http://www.justice.gov/criminal/fraud/ fcpa/. The website provides translations of the FCPA in numerous languages, relevant legislative history, and selected documents from FCPA-related prosecutions and resolutions since 1977, including charging documents, plea agreements, deferred prosecution agreements, non-prosecution agree- ments, press releases, and other relevant pleadings and court decisions. The website also provides copies of opinions issued in response to requests by companies and individuals under DOJ's FCPA opinion procedure. The procedures for submit- ting a request for an opinion can be found at http://www. justice.gov/criminal/fraudifcpa/docs/figncrptpdf and are discussed further in Chapter 9. Individuals and companies wishing to disclose information about potential FCPA viola- tions are encouraged to contact the FCPA Unit at the tele- phone number or email address above. Securities and Exchange Commission SEC is responsible for civil enforcement of the FCPA over issuers and their officers, directors, employees, agents, 4 EFTA01080301 SEC Contact Information FCPA Unit Chief Division of Enforcement U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Online: Tips, Complaints, and Referrals website http://www.sec.gov/complaint/tipscomplaint.shtml Office of Investor Education and Advocacy: (800) SEC-0330 or stockholders acting on the issuer's behalf. SEC's Division of Enforcement has responsibility for investigating and prosecuting FCPA violations. In 2010, SEC's Enforcement Division created a specialized FCPA Unit, with attorneys in Washington, M. and in regional offices around the country, to focus specifically on FCPA enforcement. The Unit investigates potential FCPA violations; facilitates coordination with DOJ's FCPA program and with other federal and international law enforcement partners; uses its expert knowledge of the law to promote consistent enforce- ment of the FCPA; analyzes tips, complaints, and referrals regarding allegations of foreign bribery; and conducts pub- lic outreach to raise awareness of anti-corruption efforts and good corporate governance programs. The FCPA Unit maintains a "Spotlight on FCPA" section on SEC's website at http://www.sec.govispotlight/ fcpa.shtml. The website, which is updated regularly, pro- vides general information about the Act, links to all SEC enforcement actions involving the FCPA, including both federal court actions and administrative proceedings, and contains other useful information. Individuals and companies with information about possible FCPA violations by issuers may report them to the Enforcement Division via SEC's online Tips, Complaints and Referral system, http://vr.vwsecgov/complaint/tip- scomplaintshtml. They may also submit information to SEC's Office of the Whistleblower through the same online system or by contacting the Office of the Whistleblower at (202) 551-4790. Additionally, investors with questions about the FCPA can call the Office of Investor Education and Advocacy at (800) SEC-0330. For more information about SEC's Whistleblower Program, under which certain eligible whistleblowers may be entitled to a monetary award if their information leads to certain SEC actions, see Chapter 8. Law Enforcement Partners DOJ's FCPA Unit regularly works with the Federal Bureau of Investigation (FBI) to investigate potential FCPA violations. The FBI's International Corruption Unit has pri- mary responsibility for international corruption and fraud investigations and coordinates the FBI's national FCPA enforcement program. The FBI also has a dedicated FCPA squad of FBI special agents (located in the Washington Field Office) that is responsible for investigating many, and providing support for all, of the FBI's FCPA investigations. In addition, the Department of Homeland Security and the Internal Revenue Service-Criminal Investigation regularly investigate potential FCPA violations. A number of other agencies are also involved in the fight against international corruption, including the Department of Treasury's Office of Foreign Assets Control, which has helped lead a number of FCPA investigations. Departments of Commerce and State Besides enforcement efforts by DOJ and SEC, the U.S. government is also working to address corrup- tion abroad and level the playing field for US. businesses through the efforts of the Departments of Commerce and State. Both Commerce and State advance anti-corruption and good governance initiatives globally and regularly assist US. companies doing business overseas in several EFTA01080302 important ways. Both agencies encourage US. businesses to seek the assistance of US embassies when they are con- fronted with bribe solicitations or other corruption-related issues overseas? The Department of Commerce offers a num- ber of important resources for businesses, including the International Trade Administration's United States and Foreign Commercial Service (Commercial Service). The Commercial Service has export and industry specialists located in over 100 U.S. cities and 70 countries who are available to provide counseling and other assistance to US. businesses, particularly small and medium-sized companies, regarding exporting their products and services. Among other things, these specialists can help a US. company con- duct due diligence when choosing business partners or agents overseas. The International Company Profile Program, for instance, can be part of a US. business' evaluation of poten- tial overseas business partners? Businesses may contact the Commercial Service through its website, http://export.gov/ cad, or directly at its domestic and foreign offices? Additionally, the Department of Commerce's Office of the General Counsel maintains a website, http://www. initiatives, that contains recent articles and speeches, links to translations of the FCPA, a catalogue of anti-corruption resources, and a list of international conventions and ini- tiatives. The Trade Compliance Center in the Department of Commerce's International Trade Administration hosts a website with anti•bribery resources, http://tcc.export. gov/Bribery. This website contains an online form through which US. companies can report allegations of foreign bribery by foreign competitors in international business transactions." The Department of Commerce also pro- vides information to companies through a number of US. and international publications designed to assist firms in complying with anti-corruption laws. For example, the Department of Commerce has included a new anti•corup- tion section in its Country Commercial Guides, prepared by market experts at US. embassies worldwide, that contains information on market conditions for more than 100 coun- tries, including information on the FCPA for exporters? chapter 1 Introduction The Department of Commerce has also published a guide, Business &bits: A Manual for Managing a Responsible Business Enterprise in Emerging Marko Economies, which contains information about corporate compliance pro- grams for businesses involved in international trade? The Departments of Commerce and State also pro- vide advocacy support, when determined to be in the national interest, for US. companies bidding for foreign government contracts. The Department of Commerce's Advocacy Center, for example, supports US. businesses competing against foreign companies for international con- tracts, such as by arranging for the delivery of an advocacy message by US. government officials or assisting with unan- ticipated problems such as suspected bribery by a competi- tor? The Department of State's Bureau of Economic and Business Affairs (specifically, its Office of Commercial and Business Affairs) similarly assists US. firms doing business overseas by providing advocacy on behalf of US. businesses and identifying risk areas for US. businesses; more infor- mation is available on its website, harp://www.state.gov/e/ eb/cba/. Also, the Department of State's economic officers serving overseas provide commercial advocacy and support for U.S. companies at the many overseas diplomatic posts where the Commercial Service is not represented. The Department of State promotes US. government interests in addressing corruption internationally through country-to-country diplomatic engagement; development of and follow-through on international commitments relat- ing to corruption; promotion of high-level political engage- ment (e.g., the G20 Anticorruption Action Plan); public outreach in foreign countries; and support for building the capacity of foreign partners to combat corruption. In fiscal year 2009, the U.S. government provided more than $1 billion for anti-corruption and related good governance assistance abroad. 6 EFTA01080303 The Department of State's Bureau of International Narcotics and Law Enforcement Affairs (INL) manages U.S. participation in many multilateral anti-corruption political and legal initiatives at the global and regional level. INL also funds and coordinates significant efforts to assist countries with combating corruption through legal reform, training, and other capacity-building efforts. Inquiries about the US. government's general anti-corruption efforts and implementation of global and regional anti-corruption ini- tiatives may be directed to INL on its website, hup://www. state.gov/j/inl/c/crime/corr/index.han, or by email to: anticorruption@stategov. In addition, the US. Agency for International Development (USAID) has developed several anti-corruption programs and publications, information about which can be found at http://wenmusaid.gov/what- we-dademocracy-human-rights-and-governance/promot- ing-accountability-transparency. Finally, the Department of State's brochure "Fighting Global Corruption: Business Risk Management," available at http://www.ogc.docgov/pdfs/ Fighting_Global_Corruption.pdf, provides guidance about corporate compliance programs as well as international anti- corruption initiatives. International Landscape: Global Anti- Corruption Efforts In recent years, there has been a growing interna- tional consensus that corruption must be combated, and the United States and other countries are parties to a number of international anti-corruption conventions. Under these conventions, countries that are panics undertake commit- ments to adopt a range of preventive and criminal law mea- sures to combat corruption. The conventions incorporate review processes that allow the United States to monitor other countries to ensure that they are meeting their inter- national obligations. Likewise, these processes in turn permit other parties to monitor the United States anti-corruption laws and enforcement to ensure that such enforcement and legal frameworks are consistent with the United States' treaty obligationsj ° US officials regularly address the subject of corruption with our foreign counterparts to raise awareness of the importance of fighting corruption and urge stronger enforcement of anti-corruption laws and policies. OECD Working Group on Bribery and the Anti- Bribery Convention The OECD was founded in 1961 to stimulate eco- nomic progress and world trade. As noted, the Anti-Bribery Convention requires its parties to criminalize the bribery of foreign public officials in international business transac- tions." As of November 1, 2012, there were 39 parties to the Anti-Bribery Convention: 34 OECD member coun- tries (including the United States) and five non-OECD member countries (Argentina, Brazil, Bulgaria, the Russian Federation, and South Africa). All of these parties are also members of the OECD Working Group on Bribery (Working Group)." The Working Group is responsible for monitoring the implementation of the Anti-Bribery Convention, the 2009 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, and related instruments. Its mem- bers meet quarterly to review and monitor implementation of the Anti-Bribery Convention by member states around the world. Each party undergoes periodic peer review." This peer-review monitoring system is conducted in three phases. The Phase 1 review includes an in-depth assess- ment of each country's domestic laws implementing the Convention. The Phase 2 review examines the effectiveness of each country's laws and anti-bribery efforts. The final phase is a permanent cycle of peer review (the first cycle of which is referred to as the Phase 3 review) that evaluates a country's enforcement actions and results, as well as the country's efforts to address weaknesses identified during the Phase 2 review.? All of the monitoring reports for the par- ties to the Convention can be found on the OECD website and can be a useful resource about the foreign bribery laws of the OECD Working Group member countries." The United States was one of the first countries to undergo all three phases of review. The reports and appen- dices can be found on DOJ's and SEC's websites.? In its 7 EFTA01080304 Phase 3 review of the United States, which was completed in October 2010, the Working Group commended U.S. efforts to fight transnational bribery and highlighted a number of best practices developed by the United States. The report also noted areas where the United States' anti- bribery efforts could be improved, including consolidat- ing publicly available information on the application of the FCPA and enhancing awareness among small- and medium-sized companies about the prevention and detec- tion of foreign bribery. This guide is, in part, a response to these Phase 3 recommendations and is intended to help businesses and individuals better understand the FCPA." M. Convention Against Corruption The United States is a state party to the United Nations Convention Against Corruption (UNCAC), which was adopted by the M. General Assembly on October 31, 2003, and entered into force on December 14, 2005? The United States ratified the UNCAC on October 30, 2006. The UNCAC requires parties to crimi- nalize a wide range of corrupt acts, including domestic and foreign bribery and related offenses such as money launder- ing and obstruction of justice. The UNCAC also estab- lishes guidelines for the creation of anti-corruption bodies, codes of conduct for public officials, transparent and objec- tive systems of procurement, and enhanced accounting and auditing standards for the private sector. A peer review mechanism assesses the implementation of the UNCAC by parties to the Convention, with a focus in the first round on criminalization and law enforcement as well as inter- national legal cooperation? The United States has been reviewed under the Pilot Review Programme, the report of which is available on DOJ's website. As of November 1, 2012, 163 countries were parties to the UNCAC? Other Anti-Corruption Conventions The Inter-American Convention Against Corruption (IACAC) was the first international anti-corruption con- vention, adopted in March 1996 in Caracas, Venezuela, by members of the Organization of American States.01chapter 1 Introduction The IACAC requires parties (of which the United States is one) to criminalize both foreign and domestic brib- ery. A body known as the Mechanism for Follow-Up on the Implementation of the Inter-American Convention Against Corruption (MESICIC) monitors parties compli- ance with the IACAC. As of November 1, 2012, 31 coun- tries were parties to MESICIC. The Council of Europe established the Group of States Against Corruption (GRECO) in 1999 to monitor countries' compliance with the Council of Europe's anti- corruption standards, including the Council of Europe's Criminal Law Convention on Corruption." These stan- dards include prohibitions on the solicitation and receipt of bribes, as well as foreign bribery. As of November 1, 2012, GRECO member states, which need not be members of the Council of Europe, include more than 45 European countries and the United States? The United States has been reviewed under both MESICIC and GRECO, and the reports generated by those reviews are available on DOJ's website. 8 EFTA01080305 EFTA01080306 The FCPA: Anti-Bribery Provisions THE FCPA: ANTI-BRIBERY PROVISIONS The FCPA addresses the problem of international corruption in two ways: (1) the anti-bribery provisions, which are discussed below, prohibit individuals and businesses from bribing foreign government officials in order to obtain or retain business and (2) the accounting provisions, which are discussed in Chapter 3, impose certain record keeping and internal control requirements on issuers, and prohibit individuals and companies from knowingly falsifying an issuer's books and records or circumventing or failing to implement an is- suer's system of internal controls. Violations of the FCPA can lead to civil and criminal penalties, sanctions, and remedies, including fines, disgorgement, and/or imprisonment. In general. the FCPA prohibits offering to pay, pay- ing, promising to pay. or authorizing the payment of money or anything of value to a foreign official in order to influ- ence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business." Who Is Covered by the Anti-Bribery Provisions? The FCPA's anti-bribery provisions apply broadly to three categories of persons and entities: (1) "issuers" and their officers, directors. employees. agents. and sharehold- ers: (2) "domestic concerns" and their officers, directors. employees. agents. and shareholders: and (3) certain per- sons and entities, other than issuers and domestic concerns. acting while in the territory of the United States. Issuers-15 U.S.C. § 78dd-1 Section 30A of the Securities Exchange Act of 1934 (the Exchange Act). which can be found at 15 U.S.C. § 78dd-1. contains the anti-bribery provision governing 10 EFTA01080307 How Can I Tell If My Company Is an "Issuer"? • It is listed on a national securities exchange in the United States (either stock or American Depository Receipts); or The company's stock trades in the over-the- counter market in the United States and the company is required to file SEC reports. To see if your company files SEC reports, go to SEC's website at http://www.sec.gov/edgar/ sea rchedgar/webusers.htm. issuers." A company is an "issuer" under the FCPA if it has a class of securities registered under Section 12 of the Exchange Act' or is required to file periodic and other reports with SEC under Section 15(d) of the Exchange Act." In practice, this means that any company with a class of securities listed on a national securities exchange in the United States, or any company with a class of securi- ties quoted in the over-the-counter market in the United States and required to file periodic reports with SEC, is an issuer. A company thus need not be a U.S. company to be an issuer. Foreign companies with American Depository Receipts that are listed on a U.S. exchange are also issuers." As of December 31, 2011, 965 foreign companies were reg- istered with SEC:" Officers, directors, employees, agents, or stockholders acting on behalf of an issuer (whether US. or foreign nationals), and any co-conspirators, also can be prosecuted under the FCPA.'° Domestic Concerns-1 U.S.C. § 78dd-2 The FCPA also applies to 'domestic concerns'" A domestic concern is any individual who is a citizen, national, or resident of the United States, or any corporation, part- nership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship that is organized under the laws of the United States or its states, territories, possessions, or commonwealths or that has its principal place of business in the United States." Officers, directors, employees, agents, or stockholders acting on behalf of a domestic concern, including foreign nationals or companies, are also covered." Territorial Jurisdiction -1 U.S.C. § 78dd-3 The FCPA also applies to certain foreign nationals or entities that are not issuers or domestic concerns? Since 1998, the FCPA's anti-bribery provisions have applied to foreign persons and foreign non-issuer entities that, either directly or through an agent, engage in any act in further- ance of a corrupt payment (or an offer, promise, or authori- zation to pay) while in the territory of the United States." Also, officers, directors, employees, agents, or stockholders acting on behalf of such persons or entities may be subject to the FCPA's anti-bribery prohibitions." What Jurisdictional Conduct Triggers the Anti- Bribery Provisions? The FCPA's anti-bribery provisions can apply to conduct both inside and outside the United States. Issuers and domestic concerns—as well as their officers, directors, employees, agents, or stockholders —may be prosecuted for using the U.S. mails or any means or instrumentality of interstate commerce in furtherance of a corrupt payment to a foreign official. The Act defines 'interstate commerce" as "trade, commerce, transportation, or communication among the several States, or between any foreign country and any State or between any State and any place or ship outside thereof The term also includes the intrastate use of any interstate means of communication, or any other interstate instrumentality."Thus, placing a telephone call or sending an e-mail, text message, or fax from, to, or through the United States involves interstate commerce—as does sending a wire transfer from or to a U.S. bank or otherwise using the US. banking system, or traveling across state bor- ders or internationally to or from the United States. Those who are not issuers or domestic concerns may be prosecuted under the FCPA if they directly, or through an agent, engage in any act in furtherance of a corrupt pay- ment while in the territory of the United States, regardless of 11 EFTA01080308 whether they utilize the US. mails or a means or instrumen- tality of interstate commerce." Thus, for example, a foreign national who attends a meeting in the United States that fur- thers a foreign bribery scheme may be subject to prosecution, as may any co-conspirators, even if they did not themselves attend the meeting. A foreign national or company may also be liable under the FCPA if it aids and abets, conspires with, or acts as an agent of an issuer ordomestic concern, regardless of whether the foreign national or company itself takes any action in the United States." In addition, under the "alternative jurisdiction" pro- vision of the FCPA enacted in 1998, US. companies or persons may be subject to the anti-bribery provisions even if they act outside the United States." The 1998 amend- ments to the FCPA expanded the jurisdictional coverage of the Act by establishing an alternative basis for jurisdiction, that is, jurisdiction based on the nationality principle." In particular, the 1998 amendments removed the requirement that there be a use of interstate commerce (e.g., wire, email, telephone call) for acts in furtherance of a corrupt payment chapter 2 The FCPA: Anti-Bribery Provisions to a foreign official by U.S. companies and persons occur- ring wholly outside of the United States." What Is Covered? —The Business Purpose Test The FCPA applies only to payments intended to induce or influence a foreign official to use his or her posi- tion "in order to assist ... in obtaining or retaining business for or with, or directing business to, any person!" This requirement is known as the "business purpose test" and is broadly interpreted." Not surprisingly, many enforcement actions involve bribes to obtain or retain government contracts." The FCPA also prohibits bribes in the conduct of business or Hypothetical: FCPA Jurisdiction Company A, a Delaware company with its principal place of business in New York, is a large energy company that operates globally, including in a number of countries that have a high risk of corruption, such as Foreign Country. Company A% shares are listed on a national U.S. stock exchange. Company A enters into an agreement with a European company (EuroCo) to submit a joint bid to the Oil Ministry to build a refinery in Foreign Country. EuroCo is not an issuer. Executives of Company A and EuroCo meet in New York to discuss how to win the bid and decide to hire a purported third-party consultant (Intermediary) and have him use part of his "commission" to bribe high-ranking officials within the Oil Ministry. Intermediary meets with executives at Company A and EuroCo in New York to finalize the scheme. Eventually, millions of dollars in bribes are funneled from the United States and Europe through Intermediary to high-ranking officials at the Oil Ministry, and Company A and EuroCo win the contract. A few years later, a front page article alleging that the contract was procured through bribery appears in Foreign Country, and DOJ and SEC begin investigating whether the FCPA was violated. Based on these facts, which entities fall within the FCPA's jurisdiction? All of the entities easily fall within the FCPA% jurisdiction. Company A is both an "issuer" and a "domestic concern" under the FCPA, and Intermediary is an "agent" of Company A. EuroCo and Intermediary are also subject to the FCPA's territorial jurisdiction provision based on their conduct while in the United States. Moreover, even if EuroCo and Intermediary had never taken any actions in the territory of the United States, they can still be subject to jurisdiction under a traditional application of conspiracy law and may be subject to substantive FCPA charges under Pinkerton liability, namely, being liable for the reasonably foreseeable substantive FCPA crimes committed by a co-conspirator in furtherance of the conspiracy. 12 EFTA01080309 Examples of Actions Taken to Obtain or Retain Business Winning a contract Influencing the procurement process Circumventing the rules for importation of products Gaining access to non-public bid tender information Evading taxes or penalties Influencing the adjudication of lawsuits or enforcement actions • Obtaining exceptions to regulations • Avoiding contract termination to gain a business advantage.' For example, bribe payments made to secure favorable tax treatment, to reduce or elimi- nate customs duties, to obtain government action to pre- vent competitors from entering a market, or to circumvent a licensing or permit requirement, all satisfy the business purpose test." In 2004, the US. Court of AppeaLs for the Fifth Circuit addressed the business purpose test in United States v. Kay and held that bribes paid to obtain favorable tax treatment— which reduced a company's customs duties and sales taxes on imports—could constitute payments made to "obtain or retain" business within the meaning of the FCPA.f. The court explained that in enacting the FCPA, "Congress meant to prohibit a range of payments wider than only those that directly influence the acquisition or retention of govern- ment contracts or similar commercial or industrial arrange- ments!" The Kay court found that "[Ow congressional target was bribery paid to engender assistance in improving the business opportunities of the payor or his beneficiary, irrespective of whether that assistance be direct or indirect, and irrespective of whether it be related to administering the law, awarding, extending, or renewing a contract, or executing or preserving an agreement!"" Accordingly, Kry held that payments to obtain favorable tax treatment can, under appropriate circumstances, violate the FCPA: Avoiding or lowering taxes reduces operating costs and thus increases profit margins, thereby freeing up funds that the business is otherwise legally obligated to expend. And this, in turn, enables it to cake any number of actions to the disadvantage of competi- tors. Bribing foreign officials to lower taxes and cus- toms duties certainly ran provide an unfair advantage over competitors and thereby be of assistance to the payor in obtaining or retaining business. • • • [Wit hold that Congress intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business for some person, and that bribes paid to foreign tax officials to secure illegally reduced customs and tax liability constitute a type of payment that can fall within this broad coverage.' Paying Bribes to Customs Officials In 2010, a global freight forwarding company and six of its corporate customers in the oil and gas industry resolved charges that they paid bribes to customs officials. The companies bribed customs officials in more than ten countries in exchange for such benefits as: • evading customs duties on imported goods improperly expediting the importation of goods and equipment • extending drilling contracts and lowering tax assessments obtaining false documentation related to temporary import permits for drilling rigs • enabling the release of drilling rigs and other equipment from customs officials In many instances, the improper payments at issue allowed the company to carry out its existing business, which fell within the FCPA's prohibition on corrupt payments made for the purpose of "retaining" business. The seven companies paid a total of more than $235 million in civil and criminal sanctions and disgorgement. 13 EFTA01080310 In short, while the FCPA does not cover every type of bribe paid around the world for every purpose, it does apply broadly to bribes paid to help obtain or retain busi- ness, which can include payments made to secure a wide variety of unfair business advantages" What Does "Corruptly" Mean? To violate the FCPA, an offer, promise, or authori- zation of a payment, or a payment, to a government offi- cial must be made "corruptly"' As Congress noted when adopting the FCPA, the word "corruptly" means an intent or desire to wrongfully influence the recipient: The word "corruptly" is used in order to make clear that the offer, payment, promise, or gift, must be in- tended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payor or his client, to obtain preferential legis- lation or regulations, or to induce a foreign official to fail to perform an official function)" Where corrupt intent is present, the FCPA prohibits paying, offering, or promising to pay money or anything of value (or authorizing the payment or offer)." By focus- ing on intent, the FCPA does not require that a corrupt act succeed in its purpose? Nor must the foreign official actually solicit, accept, or receive the corrupt payment for the bribe payor to be liable." For example, in one case, a specialty chemic