Greater domestic competition for fewer engineering and construction projects has led many U.S. contractor to expand operations to the international arena. Seeking any possible advantage to either establish or entrench its foreign foothold, a contractor may decide to intensify its interactions with foreign decision makers. Such interactions, however, may come at a steep cost to contractors if done in violation of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1, et seq. (“FCPA” or the “Act”). Improper payments to foreign officials, among other activities, can result in severe civil and criminal penalties, which include suspension and debarment from contracting with the U.S. federal government.
Given the consequences for violating the FCPA, contractors who want to take advantage of new global opportunities must be aware of the scope and effect of the Act. Focusing on the anti-bribery provisions of the FCPA, this article will address who and what the FCPA covers, the related penalties for each violation, and what enforcement agencies consider when deciding to open an investigation or bring charges against potential violators. Finally, the article highlights the importance of a robust FCPA compliance program to avoid potentially devastating sanctions.
DOJ And SEC Provide Clarity
On November 14, 2012, the Department of Justice (“DOJ”), together with the Securities and Exchange Commission (“SEC”) published a highly anticipated resource guide (the “Guide” can be found at http://www.justice.gov/criminal/fraud/fcpa/guide.pdf). Although non-binding, and by no means an exhaustive reference, the Guide provides helpful information on the FCPA’s requirements, the approach of agency enforcement, as well as several hypothetical examples aimed to aid U.S. companies in developing effective compliance programs. The Guide did not render any changes to the statutory language of the FCPA, but it does offer detailed interpretations of the Act from the agencies responsible for its enforcement.
The FCPA was enacted in 1977 primarily to address corporate accounting transparency and to rein in bribery of foreign officials by U.S. companies. As stated in the Guide, the “FCPA was designed to prevent corrupt practices, protect investors, and provide a fair playing field for those honest companies trying to win business based on quality and price rather than bribes.” (Guide at 90.)
What and Who are Covered?
The FCPA “prohibits offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value to a foreign official in order to influence 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.” (Guide at 10.)
The anti-bribery provisions of the Act apply to “issuers” (generally defined as companies that trade stock in the U.S. markets and are required to file SEC reports) and “domestic concerns” (any citizen, corporation, partnership, etc., that is organized and has its principal place of business in the United States). This in effect covers all U.S. business centers. The Act covers an issuer’s and domestic concern’s officers, directors, employees, agents, and shareholders. Payments to third-parties to carry out proscribed actions under the Act are also prohibited.
The FCPA governs conduct both inside and outside the United States, and violators may be prosecuted for using U.S. mail or “any means or instrumentality of interstate commerce in furtherance of a corrupt payment to a foreign official.” (Guide at 11.) In other words, “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 U.S. banking system, or traveling across state borders or internationally to or from the United States.” (Guide at 11.)
The FCPA only applies to payments intended to induce a foreign official to use his or her position “in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person.” 15 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a). To violate the Act, such payments must be made “corruptly” (an intent or desire to wrongfully influence the recipient) and “willfully” (an act committed voluntarily and purposefully, and with a bad purpose). (Guide at 14.)
The Guide instructs that many enforcement actions by the DOJ and the SEC “involve bribes to obtain or retain government contracts.” (Guide at 13.) Examples detailed in the Guide of actions taken to obtain or retain such business that might run afoul of the Act include: winning a contract; influencing the procurement process; gaining access to non-public, bid tender information; influencing the adjudication of lawsuits or enforcement actions; obtaining exceptions to regulations; and avoiding contract termination.
Who is a Foreign Official?
The FCPA defines “foreign official” to include:
any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
15 U.S.C. § 78dd-1(f)(1)(A); 15 U.S.C. §§ 78dd-2(h)(2)(A), 78dd-3(f)(2)(A). The Guide emphasizes that the Act “broadly applies to corrupt payments to ‘any’ officer or employee of a foreign government and to those acting on the foreign government’s behalf” and “thus covers corrupt payments to low-ranking employees and high-level officials alike.” (Guide at 20.).
Foreign officials, as defined by the act, can be bureaucrats at all levels of government. For example, in one prominent investigation concerning the construction of retail stores in Mexico, it was alleged that bribes were paid to mayors, city council members, and low-level bureaucrats. Such bribes were allegedly paid to obtain favorable permits, zoning approvals and reductions in environmental impact fees. Other examples of improper payments investigated by the DOJ include payments to hospital administrators and members of regulatory committees.
The FCPA Imposes Severe Penalties On Violators
To achieve its public policy goals, the FCPA imposes substantial penalties on violators. For each violation of the anti-bribery provisions, a company is subject to a criminal fine of up to $2 million. Individuals, including officers, directors and agents of a company are subject to a criminal fine of up to $100,000 and imprisonment for up to five years. Both companies and individuals are also subject to potential civil penalties of $16,000 for each violation
In addition to these criminal and civil penalties, individuals and companies who violate the FCPA may face suspension and debarment from U.S. federal government contracting. (Guide at 70, citing 48 C.F.R. §§ 9.406-2, 9.407-2 (allowing suspension and debarment for the “[c]omission of any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.”).
According to the Guide, the DOJ will consider several factors in “conducting an investigation, determining whether to charge a corporation, and negotiating plea or other agreements.” (Guide at 53.) Among other factors, the DOJ will assess: the nature and seriousness of the offense; the pervasiveness of the wrongdoing within the company; the company’s history of similar misconduct; the company’s timely and voluntary disclosure of any wrongdoing; the existence of an effective pre-existing compliance program; and the company’s remedial actions.
Importance Of Compliance Program
Companies seeking to expand their foreign businesses must consider the inherent risks and rewards of such an endeavor, and prepare an effective FCPA compliance program. As articulated in the Guide, “[i]n a global marketplace, an effective compliance program is a critical component of a company’s internal controls and is essential to detecting and preventing FCPA violations.” (Guide at 56.) The Guide counsels that an effective compliance program must be tailored to reach company’s “needs, risks and challenges,” and should start with a strong commitment from senior management and a clearly articulated policy against corruption. (Guide at 57.) The program should include stringent oversight, accessible training, periodic review and complimentary incentives and disciplinary measures. (Guide at 57-62.) The Guide encourages the use of a “clear, concise, and accessible” code of conduct that evolves and is accessible to “all employees and to those conducting business on the company’s behalf.” (Guide at 57, 62).
Contractors engaging in foreign projects must be mindful of the reach and repercussions of the FCPA. Violations of the Act can result in substantial criminal and civil fines, as well as suspension and debarment from U.S. government contracting—the lifeblood of many contractors. Contractors that wish to expand their global exposure must institute and follow clear and effective compliance controls and procedures.