WHITE PAPER: UNIVERSITY AND COLLEGE COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT IN CONNECTION WITH FOREIGN ACADEMIC PROGRAMS

Transcription

1 WHITE PAPER: UNIVERSITY AND COLLEGE COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT IN CONNECTION WITH FOREIGN ACADEMIC PROGRAMS By Sean R. Kelly, Esq. DanaLynn T. Cla, Esq. Saiber, LLC 18 Clumbia Turnpike, Suite 200 Flrham Park, NJ

2 An increasing number f U.S. clleges and universities are making plans t expand their invlvement in academic prgrams in freign cuntries. In sme instances, such invlvement is limited t the American educatinal institutin participating in a previusly existing prgram ffered either by a freign institutin r by anther American institutin. In ther cases, the American cllege r university is mre heavily invlved, wning and perating its wn branch campus n freign sil. T the extent that the American institutin is respnsible fr the peratin f the freign academic prgram, it is critical that the participating cllege r university be aware that it is subject t at least sme f the prvisins f the Freign Crrupt Practices Act ( FCPA ). As we explain belw in greater detail, the participating American institutin can cmply with the Act by adpting a written internal Cmpliance Plicy, and by including in its cntracts with emplyees and vendrs f the freign prgram language certifying the cmpliance f all such persns and entities with the FCPA. The FCPA and Its Enfrcement The FCPA The FCPA was enacted as a pst-watergate anti-crruptin measure. The Act has tw majr cmpnents: an anti-bribery prvisin, which prhibits crrupt payments, and a recrd-keeping prvisin, which applies nly t publicly traded cmmercial businesses (and is inapplicable t nt fr prfit institutins f higher learning). The FCPA s anti-bribery prvisin prhibits an entity r individual frm crruptly (i.e., intending t induce the recipient t misuse his fficial psitin) ffering, making, r authrizing the payment f anything f value (including cash, gifts, services, charitable dnatins, plitical cntributins, lans, travel expense reimbursements, sprts r entertainment utings, r hiring) t any persn (i.e., nt nly the fficial himself, but als any intermediary) knwing (including acting under circumstances where it shuld have been knwn) that the payment will be ffered t a freign fficial (bradly defined t include all kinds at all levels, including candidates fr ffice,) fr the purpse f btaining r retaining business (including btaining permits, licenses, cnstructin apprvals r visas, reducing custm duties r expediting custm clearances, lwering tax burdens r clsing audits, r increasing quta fr expatriate wrkers.) Penalties An entity that is fund t have vilated the FCPA s anti-bribery prvisins is subject t civil penalties f up t $10,000 per bribery vilatin as well as nn-mnetary remedies. Individuals may be persnally liable fr criminal fines f up t $100,000, imprisnment fr up t five (5) years, r bth. Individuals may als be subject t civil penalties f up t $10,000 per vilatin. Significantly, U.S. law enfrcement authrities may prve such persnal liability withut shwing the principal had actual knwledge f the bribery activity; rather, such individuals are typically charged as cntrl persns under Sectin 20(a) f the Securities Exchange act f 1934, which impses liability n 2

3 executives with supervisry authrity ver thse subrdinates wh vilate the law. The FCPA als prvides fr criminal sanctins. Enfrcement Enfrcement f the FCPA has increased radically with respect t the activities f U.S.- based entities in all gegraphic regins. Frm 2005 t 2010, enfrcement actins increased almst ten-fld. This escalatin in enfrcement is mst prevalent in rapidly emerging markets, particularly thse with a histry and culture f cmmercial and plitical crruptin. In recent years, U.S. entities with peratins in China, Russia, India and Brazil have been targets fr FCPA enfrcement effrts. Effective Cmpliance Prgram In mst respects, the expsure f a nt-fr-prfit institutin f higher educatin under the FCPA is less than that f mst U.S.-based entities with peratins verseas. Such institutins are entirely exempt frm the FCPA s accunting and reprting bligatins, which apply nly t cmmercial entities. Even as t the FCPA s anti-bribery prvisins, a nt-fr-prfit educatinal institutin s respnsibilities are limited in that the institutin will presumably have n interactin with freign gvernment fficials cncerning the activities that mst cmmnly cause FCPA prblems fr American businesses, such as the imprting and exprting f gds. With respect t the anti-bribery prvisins, hwever, the American cllege r university may have significant FCPA expsure. Depending n the particular circumstances f the freign prgram and the invlvement f the American institutin, the emplyees f the cllege r university culd encunter lcal fficials in a variety f situatins, such as immigratin, licensing, btaining building permits, cnstructing facilities, maintaining premises in accrdance with lcal laws, btaining and maintaining wrk visas, maintaining safety and health regulatins, and thrugh rutine law enfrcement. Thus, there may be ccasins when cllege r university emplyees make payments t r thrugh such freign fficials. Whenever mney is paid t a freign fficial, particular care must be taken t dcument the transactin, including specificatin f the gds r services prvided, detailed invicing, and payment t the apprpriate vendr, s that the paper trail cnfirms that the transactin was bna fide in all respects and was nt a bribe t the freign gvernment fficial fr the unlawful purpse f gaining sme imprper advantage. In rder t perate a freign academic prgram in cmpliance with the FCPA, the American cllege r university shuld take the fllwing steps: 1. Adpt a written set f standards and prcedures applicable t all administratrs, emplyees, and utside vendrs and cntractrs with whm the cllege r university des business in cnnectin with the freign 3

4 prgram. The key elements in the drafting and implementatin f such a plicy are as fllws: The plicy must be clear and easily cmprehensible, articulating institutinal plicy, identifying prhibitins and requirements, and prviding cntact infrmatin fr administratrs charged with cmpliance. The plicy shuld als explain hw suspected vilatins are t be reprted, and the cnsequences f such vilatins. The plicy shuld be widely distributed amng emplyees invlved in the freign prgram, including making it available nline. In rder t ensure the plicy is cmprehensible t emplyees native t the hst cuntry, it shuld be made available in the language f that hst cuntry. The plicy shuld prvide fr the apprpriate and prmpt internal investigatin f any allegatins f bribery vilatins. Having a rbust cmpliance prgram such as this may nt insulate the American cllege r university frm penalties under the FCPA, but the Department f Justice has histrically given cnsiderable weight t the entity s effrts at cmpliance in determining whether t impse penalties and the nature and severity f such penalties. 2. Allcate cmpliance respnsibility at a high level f authrity. Cmmercial enterprises generally place respnsibility fr FCPA cmpliance with their Chief Financial Officer. A cllege r university shuld place ultimate respnsibility with a similarly highly placed financial fficer at the main U.S. campus, and that fficer shuld be accuntable t the Bard with respect t any FCPA cmpliance issue that might arise. On-site respnsibility shuld be allcated t the institutin s chief financial administratr at the freign campus. It may als be advisable t establish a prcedure t ensure there is regular cmmunicatin between the chief cmpliance fficer in the U.S. and the designated cmpliance administratr at the freign campus t discuss FCPA cmpliance and determine whether any additinal internal cntrls are necessary r apprpriate. 3. Cnduct thrugh due diligence n all agents and vendrs. The Department f Justice has fcused its FCPA enfrcement effrts n U.S.- based entities that vilate the FCPA, intentinally r therwise, by failing t screen ut agents and vendrs t make sure thse persns and entities were nt engaged in bribery. Over the histry f FCPA enfrcement, almst 65% f enfrcement actins have arisen ut f the crrupt activities f third parties acting n behalf f U.S.-based entities. Such middlemen may include lcal attrneys, tax advisrs, accuntants, cnsultants, lbbyists, 4

5 real estate brkers, jint venture partners, cntractrs r subcntractrs, suppliers, and immigratin service prviders. The Department f Justice has identified several red flags that shuld cause a U.S.-based entity cnducting verseas peratins t be particularly suspicius that a vendr r agent might be engaged in bribery: Invlvement by gvernment fficials, r peple with clse ties t such fficials. A histry f crruptin in the cuntry. A request by an agent r vendr fr an unusually high payment r cmmissin. Invicing with inadequate clarity, r nn-standard invicing. Requests fr payments in cash r bearer instrument. Requests fr payment t third party, r t ut-f-cuntry destinatin. Agent r vendr recmmended by gvernment fficial. Beynd being mindful f such red flags, the institutin shuld avail itself f readily available investigative tls including the State Department and Cmmerce Department, the cmmercial representatives at the lcal U.S. Embassy, and f curse the internet -- in researching the histry, activities and reputatin f its prspective agents and vendrs. Finally, the participating American cllege r university shuld maintain a file f its due diligence review s that it can readily demnstrate its gd faith effrts in the event f a FCPA investigatin. 4. Require all agents and vendrs t certify FCPA cmpliance. The institutin shuld require any cntracts r purchase rders it enters int with freign agents r vendrs t cntain assurances by the agent r vendr nt nly as t cmpliance with the FCPA and all lcal anti-bribery laws, but als as t apprpriate methds f billing and payment and maintenance f accurate bks and recrds. 5. Require all f the institutin s emplyees at the freign campus t certify FCPA cmpliance. 6. In the event an internal investigatin reveals an instance f a pssible FCPA vilatin, cnsider self-disclsure t the U.S. law enfrcement authrities. As with the cmpliance prgram, self-disclsure will nt prevent the Department f Justice frm cmmencing an enfrcement actin, but the Department will likely take such self-disclsure int accunt in 5

6 determining whether t impse penalties and the nature and severity f any such penalties. The decisin whether t self-disclse in a particular instance is a difficult ne, and shuld be made in clse cnsultatin with cunsel. If the American institutin s freign prgram expands substantially, then it may becme apprpriate t cnsider the fllwing additinal cmpliance measures: Train emplyees wh act as cntacts with agents and vendrs. Set up a htline r ther mechanism fr the annymus reprting f suspected bribery activity. Cnduct peridic audits f agents and vendrs t ensure cntinuing cmpliance with the FCPA. * * * The freging prvides a general utline f the FCPA expsure faced by American clleges and universities arising ut their peratin f academic prgrams verseas. The precise nature and extent f such expsure will depend n the details f the prgram. An institutin f higher educatin cnducting freign prgrams shuld seek legal cunsel with respect t the applicability f the FCPA t its particular prgrams. 6