In an attempt to prevent corruption within global markets, the US government has been cracking down on companies and their employees under the Foreign Corruption Practices Act (FCPA).
Following a report in the mid 1970’s by the Securities and Exchange Committee (SEC), where over 400 U.S. companies admitted to making payments of over $300 million to foreign government officials, the FCPA was passed in 1977 to prohibit any form of payment or bribery to foreign officials for the purpose of obtaining or retaining business. The government has heightened investigations of companies under the FCPA, with fines rapidly rising after Titan Corp. paid $28.5 million to the SEC. In December 2008, German based Siemens AG plead guilty to violating the internal controls and books and records provisions of the FCPA, paying a record-breaking $800 million in U.S. fines. Over 120 major companies were investigated in 2009, and in January 2010, 22 individuals were arrested from smaller companies.
Company compliance with the FCPA is also complicated by the lack of precedence or judicial guidance. In U.S. v. Noriega, the judge ruled that “a state owned business may constitute an instrumentality of a foreign government,” making their employees foreign officials and putting their actions under the scrutiny of the FCPA. The broad interpretation of “foreign official” blurs the line for companies and individuals vulnerable to the Act. In an attempt to clarify the Act, Judge Matz used the five point test to determine whether a state owned enterprise was an “instrumentality of a foreign government.” The Mexican state-owned utility in question met all five points as it “provides a service to a majority of citizens or residents of a jurisdiction”, the “key officers and directors are, or are appointed by, government officials”, it is “financed largely through government appropriations,” “the entity is vested with controlling power to administer its designated functions,” and, “the entity is widely perceived and understood to be performing official functions.”
While the physical payment of funds is more easily defined, controversy stems from the nuanced ways in which one can influence another’s motives. Questions of what a bribe entails in certain societal and cultural settings fall under a grey area in which companies have to choose whether or not to risk breaking the law. Under the FCPA, nonmonetary transactions can be considered bribes as well, leaving American companies at the risk of losing business in foreign countries because of the cultural implications that the FCPA prohibits. For example, bribery is a commonplace practice in Latin American business transactions, and in China, hongbao (red envelopes with money for children on Chinese New Year) are presented as a customary practice all year. Lavish gifts and dinners are used as standard courtesy in many countries; raising the question of if these practices count as a breach of the FCPA.
So far, judges have been ruling in favor of the broad interpretation of the FCPA, but many companies are pushing matters to court, raising the possibility of a clarification of the Act as more cases come before judges. Bode & Grenier can help you with your FCPA compliance needs and provide you top-notch legal representation. Located in Washington, D.C., our compliance attorneys are in frequent contact with the DOJ and SEC attorneys investigating and prosecuting the FCPA and stay abreast of all the latest compliance developments. By comparison to the big law firms we offer compliance programs at rates that are affordable to small and midsize businesses expanding their overseas operations and sales. Please contact Jacob Lebowitz, Esq., at (202) 862-4306 or email email@example.com.