U.S. Foreign Corrupt Practices Act (FCPA)

Transcription

1 U.S. Foreign Corrupt Practices Act (FCPA) Laos Chapter American Chamber of Commerce in Thailand 26 August 2013 Douglas Mancill, Partner PriceSanond Bangkok Thailand

2 What is the FCPA? A U.S. law that criminalizes bribery of foreign officials (and others). Applies to conduct inside and outside of the U.S. The FCPA has two main sections: The anti-bribery prohibitions (will be discussed). The accounting prohibitions (outside the scope of this talk). Enacted in 1977, but we have seen a dramatic increase in enforcement starting about seven years ago. For example: a fine of US$800 million; a 15 year prison term. Other countries have enacted similar legislation.

3 Who is Covered by the FCPA? Three main categories of parties and entities: Issuers and their officers, employees, agents, etc. Domestic Concerns and their officers, employers, agents, etc. Certain other parties while acting in the U.S. But foreign firms have been hit hard: Foreign Firms Most Affected by U.S. Law Barring Bribes, New York Times, 3 September Siemens hit with massive fine (German authorities also involved); Alcatel- Lucent (French), JGC Corporation (Japanese), etc.

4 Expansive Jurisdiction of the FCPA Jurisdiction based on nationality: U.S. persons and companies may be subject to jurisdiction even if they act solely outside the U.S. Jurisdiction based on conduct: Those who are not issuers or U.S. concerns can be prosecuted if they directly, or through an agent, engage in any act in furtherance of a corrupt payment while they are in the U.S.

5 What is Covered by the FCPA? The Business Purpose test interpreted broadly: Obvious: obtain or retain a contract. Perhaps not so obvious: Circumventing importation rules (but facilitation payment exception). Gaining access to non-public tender information Obtaining exceptions to regulations. Influencing lawsuits or regulatory action. U.S. v Kaye (5 th Circuit en banc) is the seminal case in this area. Paying bribes to reduce taxes is a business purpose for purposes of FCPA liability.

6 The payment, promise, etc., must be made corruptly. What does that mean? In brief and high level terms, the intent must be to induce an official to misuse his or her authority. Examples: Direct business or a project to a party. Obtain preferential legislation. Because the focus is on intent, it does not matter if the payment or promise is actually successful.

7 Anything of value counts The Hollywood version of corruption is a suitcase full of cash surreptitiously slipped under the table to an official, but the FCPA covers much more than that: Many FCPA cases have been based on excessive expenditures for trips and entertainment. For example: A US$12,000 birthday trip for a government decision maker that included trips to wineries and dinners.

8 Who is a Government Official? A foreign official, a political party or official of a political party a political party, any candidate for political office or any third party knowing they will make a payment to the foregoing. Foreign official also equals employee or officer of a public international organization. Two tricky areas: Instrumentality of a foreign government This can include state-owned enterprises. In some countries it can seem as though everyone is a government official. The knowledge requirement see next slide.

9 Payments to Third Parties & Intermediaries. This is an area where we see many problems. Some seem to think a payment that would otherwise be prohibited is allowed if it is made through an agent or other intermediary. The head in the sand problem. If deliberate blindness or conscious avoidance can be established, there is knowledge. In practical terms, if there is a high probability that the payment will be used for a corrupt purpose, and it is, the payment will be subject to 20/20 hindsight.

10 Payments to Third Parties Questions to Ask: Connections can be a liability. Why are you retaining or hiring this person? What legitimate commercial value does she or he bring? Do background checks. Is the agent really qualified to provide the services for which the agent is retained? What is the scope of the agent s work? Can you articulate and value it? Is the amount the agent will earn for such work commercially reasonable? If not, questions will be asked about the delta.

11 Affirmative Defenses There are two affirmative defenses: Local Law Defense: The payment, offer, etc., was lawful under the written laws of the Foreign Official s jurisdiction. Very difficult to use in practice. Reasonable & Bona Fide Expenditure: Expenses directly related to the promotion, demonstration or explanation of a company s products. Subject to abuse; exercise with care. A defendant carries the burden of proof.

12 Narrow Exception for Facilitation Payments The facilitation payment exception applies to routine payments that involve non-discretionary acts. Examples of payments that may be considered exempt as facilitation payments: Processing work permits and visas. Obtaining phone service. Police protection Size does seem to matter. In practice a large number of small charges will be aggregated when there are other corrupt activities.

13 Parent-Subsidiary Liability There are two ways a parent company can be held liable: 1. Parent company may have participated sufficiently in the prohibited activity to be considered directly liable. 1. Traditional agency principles. The fundamental issue is control. The Department of Justice looks at knowledge and direction of the subsidiary s actions.

14 Penalties Civil and criminal penalties Fine of up to US$2 million for each violation. Fines in the tens of millions of dollars are common in FCPA cases. Officers, etc., subject to a fine of up to US$100,000 and imprisonment of up to five years per violation. Civil penalties. Disgorgement. Disbarment. Deferred Prosecutions Agreements (DPAs) common. Model compliance programs around the standardized Attachment C to DPAs.

15 Enforcement Environment Slight dip in the last year, but increased enforcement expected. Cooperation is being rewarded. More cases going to trial. An effort to punish executives with jail rather than punish shareholders with large fines. Whistle blower provisions of Frank-Dodd Act: 10%-30% of the fines and penalties for information that leads to recovery of more than US$1 million in fines and penalties.

16 Thank you While reasonable efforts have been made to ensure the preceding slides are accurate, this presentation does not constitute legal advice. Douglas Mancill PriceSanond 16th Floor, Q House Sathorn 11 South Sathorn Road Bangkok, Thailand