Justice Department on the Hunt for Violations of The Foreign Corrupt Practices Act -- U.S. Companies and Executives, Take Heed or Risk Prosecution

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1 Published on The National Law Review ( Justice Department on the Hunt for Violations of The Foreign Corrupt Practices Act -- U.S. Companies and Executives, Take Heed or Risk Prosecution By: Jonathan N. Halpern Josh Zive The drumbeat of criminal prosecutions for violations of the Foreign Corrupt Practices Act (FCPA) has dramatically quickened. The FBI recently declared investigations of corruption the "number one priority" of its Criminal Division, and the U.S. Department of Justice (DOJ) has reaffirmed its commitment to enforcing the FCPA aggressively, vowing to pursue "[t]he fight to erase foreign bribery from the corruption playbook." DOJ prosecutors appear to be plenty busy, with FCPA cases running lock-step with the government's growing assertions about its enforcement commitment. Right now, there are reportedly more than 140 active FCPA investigations before the DOJ. Under the FCPA's anti-bribery provision, which was enacted in 1977, it is a felony for U.S. companies and persons, among others, corruptly to give or promise anything of value to a foreign official (or so authorize) with the intent of inducing the official to assist the company to obtain or retain business. A separate provision requires that "issuer" companies record all business transactions in a reasonably detailed and accurate manner and implement adequate accounting controls to safeguard against financial or accounting misconduct. To enhance its commitment to prosecute more FCPA cases, the DOJ has ramped up its resources, coordinating strategies and criminal enforcement of a multitude of fraud statutes, including health care fraud statutes and anti-kickback and false statements violations. In the last four years, 57 FCPA cases reportedly have been prosecuted more than the total number of prosecutions dating back 28 years, when the FCPA became law. The DOJ and SEC recently have claimed convictions and reeled in enormous criminal fines and other penalties in several aggressive prosecutions and other enforcement actions. In the opening weeks of the new decade, there already has been a flurry of FCPA activity. Last week, BAE Systems agreed to plead guilty to conspiring to make false statements to the government in connection with its FCPA compliance, and to pay a fine of $400 million to the U.S. That was in addition to its settlement with the UK's Serious

2 Frauds Office that included another guilty plea and payment of a fine of approximately $47 million. The targets of the government's zeal are not just U.S. companies with international footprints, but their executives as well. No longer are corporate dispositions by guilty plea or deferred prosecution, even with increasingly staggering financial penalties, deemed sufficient punishment or an appropriate measure of deterrence. This week, the former president of PECC, an engineering consulting firm, pled guilty to FCPA conspiracy for arranging to bribe Panamanian officials to obtain lucrative contracts. (A former company officer and co-conspirator -- pled guilty last fall.) In late January, two former Willbros managers were sentenced on FCPA-related convictions, following their cooperation with the government, to more than a year each for their roles in scheming to bribe foreign officials to win pipeline business and tax advantages. According to one plea allocution, the managers schemed to deliver $1.8 million in cash bribes to Nigerian officials. The DOJ can be counted on to unabashedly press for substantial prison time for individuals convicted of conspiring to bribe foreign officials, especially if they are not government cooperators. Moreover, it may not matter whether or not payments are actually made or "foreign officials" ever receive anything of value. Last month, for the first time ever, the DOJ revealed its use of an undercover sting operation in an FCPA investigation. Posing as a "sales agent" for a foreign official, an FBI special agent allegedly struck deals with unsuspecting company executives seeking lucrative government contracts in exchange for "commissions" for the official. The preliminary results: the indictment and arrests of 22 executives and employees on FCPA charges for allegedly agreeing to pay bribes in exchange for government-awarded business. A total of 21 search warrants were executed in the U.S. and U.K. The sting, traditionally used in organized crime and narcotics trafficking investigations, apparently was launched following reports of foreign bribery in the military and law enforcement products industry. Last November, the DOJ launched a salvo at an entire industry, placing pharmaceutical companies squarely on notice that their overseas business dealings will be scrutinized through the high-powered lens of a prosecutorial microscope. According to the DOJ, government prosecutors will be looking within the pharmaceutical industry for violations of the FCPA. And if they find them, they can be counted on to indict companies and senior executives who cut corners or authorize pay-offs to foreign officials in exchange for business. As one official put it, the DOJ will be "intensely focused on rooting out foreign bribery in [the] industry." In an address to the annual Pharmaceutical Regulatory and Compliance Congress, Assistant Attorney General Lanny Breuer observed that, unlike their American counterparts, foreign health systems are more often owned, regulated or financed by a government agency. As a result of anticipated interaction with foreign officials, and perceived keen competition, AAG Breuer predicted that U.S. companies are at increased risk for submitting to the temptation of paying to play. Beyond legal forecasting, Breuer threatened would-be FCPA violators in the industry senior company executives -- not to stray lest they risk prosecution and substantial prison time.

3 Pharmaceutical companies with foreign operations should pay particular attention to the FCPA's definition of "foreign official," which extends beyond health ministers, customs officials and what the layperson would ordinarily expect the term to mean. Under the statute's expansive definition, a "foreign official" could include employees and managers of a state-owned or controlled hospital or health care system, including doctors, lab technicians, administrators, procurement officers, pharmacists and other health professionals. Thus, according to the Justice Department, under certain circumstances, it could be possible for each station along the drug production channel "approval, manufacture, import, export, pricing, sale and marketing" to involve a "foreign official." And with each station there is an attendant risk of an FCPA issue. Moreover, under the FCPA, "knowing" conduct is not limited to actual awareness, but covers "conscious avoidance" of circumstances in which a particular result is understood to be substantially certain to occur. An affirmative act need not be a prerequisite for FCPA liability. Nor does the existence of a written FCPA policy confer a pass in an FCPA prosecution. A failure to pursue rigorous due diligence and follow up with probing questions could, however, invite a grand jury investigation or worse. Apart from its gloomy report, the DOJ has also identified some affirmative measures that U.S. companies can take to help safeguard against the potentially grim consequences of an FCPA violation. AAG Breuer offered a couple of prophylactic recommendations. High on the list is the imperative that companies assiduously implement robust and effective FCPA compliance programs that are "faithfully enforced." To help ensure an adequate compliance program, a thorough review of existing policies and procedures should first take place, including an assessment of their effectiveness in light of the nature of the company's businesses and where they are operating. Performing due diligence of joint ventures and agent, sub-contractor and distributor engagements is an important component of an effective compliance program. Mere paper policies that are not implemented, enforced, monitored or audited can quickly backfire, however. Having an effective and tested compliance program in place is perhaps the best way that a U.S. company can protect its interests against the wayward actions of a rogue manager or employee at home or abroad. AAG Breuer's additional suggestion that the company voluntarily self-report following discovery of a violation, as part of overall cooperation with the government, merits serious attention. A company's decision to selfreport voluntarily should, of course, be carefully considered based on all the facts and circumstances and following full consultation with counsel Bracewell & Giuliani LLP Jonathan N. Halpern Partner Jonathan Halpern is a partner in Bracewell & Giuliani's litigation practice and focuses his

4 practice on white collar criminal defense, corporate internal investigations, trials, appeals and complex, civil litigation. A significant component of his practice consists of the representation of individuals and business organizations in investigations and prosecutions by the U.S. Department of Justice, U.S. Attorney's Offices, the Securities and Exchange Commission, and the U.S. Department of the Treasury, including the Internal Revenue Service and the Office of Thrift Supervision. His clients have represented diverse industries, including securities, health care, pharmaceutical, insurance, manufacturing and financial services. Mr. Halpern has substantial litigation experience in investigations of complex financial fraud; securities fraud; false claims; tax fraud; the Foreign Corrupt Practices Act; medical practice improprieties; Title 31 violations; the marketing and selling of auction rate securities; subprime mortgage lending practices; and environmental crimes. jonathan.halpern@bgllp.com Josh Zive Associate Josh Zive is an advocate for clients at the intersection of policy, law and politics. Mr. Zive assists clients in every stage of formal and informal policymaking. This includes drafting formal comments, working with clients and other professionals to design media and public strategies, and serving as an advocate for clients on Capitol Hill. Mr. Zive has developed particular, deep knowledge in the areas of international trade, campaign finance law and legislative advocacy. In the area of international trade, Mr. Zive counsels clients on matters involving compliance with international trade regulations, economic sanctions, and issues related to U.S. and international anti-bribery laws. He has offered presentations at anti-corruption seminars in the U.S. and abroad, and has helped leading international companies develop training and compliance programs designed to prevent violations of U.S. and international trade laws. In the area of campaign finance law, Mr. Zive has worked with several major clients of the firm on issues involving political action committees (PACs), ethics and election law, and compliance with lobbying disclosure laws. Mr. Zive served as the BBC's election law expert for international press coverage related to the 2004 Presidential election. joshua.zive@bgllp.com

5 3/23/2010 Source URL: