Source: https://www.globallegalinsights.com/practice-areas/bribery-and-corruption-laws-and-regulations/usa
Timestamp: 2019-04-19 07:19:56+00:00

Document:
The Foreign Corrupt Practices Act (“FCPA”)1 became law in 1977 and has been enforced aggressively for many years. It is the US Government’s primary tool in combating overseas bribery and corruption. The Department of Justice (“DOJ”) has jurisdiction over criminal prosecutions, while the Securities and Exchange Commission (“SEC”) is empowered to bring civil enforcement actions. The FCPA has a broad geographical reach and creates significant exposure for both companies and individuals. Recent policy changes that increase the incentives for voluntary self-disclosures of apparent FCPA violations indicate that the DOJ may be moving away from large-scale corporate penalties,2 though US authorities have continued to bring large corporate enforcement actions in 2018.
In April 2016, building on the Yates Memorandum, the DOJ announced a one-year pilot program (“FCPA Pilot Program”), which was extended for an additional year in March 2017,5 designed to encourage companies to voluntarily disclose FCPA violations. More recently, in November 2017, the DOJ announced a revised FCPA Corporate Enforcement Policy (“CEP”), which builds on and replaces the FCPA Pilot Program and further incentivises voluntary self-disclosure on the part of companies that uncover apparent corruption.6 Specifically, the CEP converts the FCPA Pilot Program’s informal incentives for voluntary disclosure into a “presumption” that the DOJ will decline to prosecute and will not impose a monitor for corporations that disclose, cooperate and remediate.
Further, as demonstrated by enforcement actions in 2017 and 2018, global enforcement remains robust. For example, US officials collaborated for the first time with Singaporean authorities in investigating Keppel Offshore and Marine Ltd., a Singaporean company, and its US subsidiary for their years-long practice of bribing Brazilian officials.11 Brazilian law enforcement also participated in the investigation. This joint investigation culminated in December 2017 in a multi-jurisdictional settlement of $422 million, of which the US government and the Singapore government each received $105 million, while the Brazilian government received the rest. US officials also brought their first coordinated action with French authorities related to overseas corruption in a June 2018 action against Société Générale S.A. related to bribery of Libyan officials which resulted in a total payment of $585 million split equally between US and French authorities.
While the FCPA does not provide an absolute defence based on adequate anti-bribery procedures and due diligence, robust procedures are essential to mitigating FCPA exposure. If the US Government becomes aware of potential red flags or suspicious payments by a corporation, it will look for real, substantial and sustained compliance efforts, including a strong anti-corruption message from the top. Companies subject to the FCPA also should carefully consider, particularly in light of the CEP, whether to self-report violations in order to maximise the chance of a favourable resolution with the government.
No “issuer” (an entity whose shares are publicly traded on a US exchange, including most American Depository Receipts (“ADRs”), or any officer, director, employee or agent of such an entity) or “domestic concern” (US person, or officer, director, employee or agent of a US person) may corruptly pay, offer, authorise, or promise to pay money or anything of value to a foreign government official, candidate for office, or political party, in order to secure an improper advantage or assist in obtaining or retaining business.
As a result, both individuals and corporations have FCPA exposure. The FCPA covers, for instance, all US citizens regardless of location, foreign subsidiaries of US entities, US parents (which may be liable for the actions of their foreign subsidiaries), foreign entities traded on US exchanges, and indeed any non-US company or national that causes an act to be done within the United States by any person acting as an agent of the non-US person. Importantly, a principal can be liable for the actions of an agent even if the principal merely turns a blind eye to the high risk of a bribe and does not have actual knowledge of corrupt activity.
The bribery provision contains an exception for “facilitating or expediting payments” made in furtherance of routine governmental action. This exception is interpreted narrowly by enforcement authorities and the exception only applies when a payment is made to further “routine governmental action” that involves non-discretionary acts. According to guidance released by regulatory authorities, examples of “routine governmental action” include processing visas, providing police protection or mail service, and supplying utilities like phone service, power, and water. Routine government action does not include a decision to award new business or to continue business with a particular party. Nor does it include acts that are within an official’s discretion or that would constitute misuse of an official’s office. Importantly, anti-bribery laws in certain jurisdictions, including the United Kingdom, do not permit facilitation payments. Given the narrowness of the exception under the FCPA and the prohibition on facilitation payments in some jurisdictions, it is a global best practice to prohibit such payments.
The FCPA does not prevent companies from bona fide business promotion expenses, including legitimate hospitality for government officials. Some “hallmarks” of appropriate hospitality are when a gift is “given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law . . . . Items of nominal value, such as cab fare, reasonable meals and entertainment expenses, or company promotional items, are unlikely to improperly influence an official, and, as a result, are not, without more, items that have resulted in enforcement action by DOJ or SEC”.13 Large or extravagant gifts (e.g., watches, cash, exotic travel, etc.), however, are more likely to be considered to have been given with an improper purpose.
In practice, the “books and records” provision has led to many of the largest FCPA fines. Individuals can also be held civilly or criminally liable for participating in such violations. Companies may also fall foul of this provision even if not all of the elements of a bribery offence, as described above, have been met. For instance, if a corporation allowed a third-party agent to make corrupt payments to another person, but it was doubtful whether that person was a “foreign government official”, the corporation could still face FCPA prosecution under the books and records provision of the FCPA if the company’s books and records characterised such payments in a misleading way; for instance, recording them as consulting fees.
making a charitable contribution, even to a bona fide charity, if that contribution benefits a foreign official or is part of a quid pro quo.
the third party is a charity (even bona fide) affiliated with a foreign government or official(s).
While we cannot cover all FCPA enforcement developments in this space, we highlight a few that present the greatest potential for further development in the near future.
Three recent record-breaking enforcement actions demonstrate that international law enforcement cooperation remains the norm in anti-corruption enforcement. Such cooperation brings about “double jeopardy” risks – penalties in multiple jurisdictions for the same conduct – in connection with anti-corruption settlements.
In September 2017, as discussed above, Telia Company AB, a Swedish telecommunications firm, agreed to pay to more than $965 million in fines in the United States, the Netherlands, and Sweden to settle charges related to $331 million in bribes paid to an Uzbek government official.17 In its press release, the DOJ cited help from law enforcement authorities and other regulators in the Netherlands, Norway, Sweden, Switzerland, Latvia, France, Spain, Hong Kong, the British Virgin Islands, the Cayman Islands, Bermuda, Cyprus and Ireland.
The Telia case was the second FCPA action brought in connection with bribes paid to facilitate entry into the Uzbek market. In February 2016, VimpelCom Ltd. (“VimpelCom”) agreed to pay nearly $400 million to the DOJ and SEC and to retain an independent compliance monitor for three years and to pay a separate penalty of nearly $400 million to Dutch regulators.18 In addition to the charges against VimpelCom, the DOJ’s Kleptocracy Asset Recovery Initiative also brought complaints seeking forfeiture of $850 million in allegedly tainted funds connected to the Uzbek bribe recipient held in European bank accounts. Then, in June 2017, the DOJ obtained orders to seize assets held in certain European countries, demonstrating the parallel avenues used by the US Government to target funds connected to corrupt activities.
In June 2018, Société Générale S.A. entered into a settlement agreement with the DOJ related to bribery of Libyan officials which resulted in a total payment of $585 million split equally between US and French authorities. The charges related to bribes paid to Libyan officials through an intermediary “broker” to secure investments from Libyan state-owned financial institutions. The enforcement action represented the fifth-highest penalty to date.
Also of note, in January 2017, the SEC and DOJ for the first time entered into a joint FCPA resolution with a company for conduct stemming from violations of compliance obligations in prior FCPA settlements. Specifically, Zimmer Biomet, an Indiana-based medical device company, admitted that it violated its 2012 agreements with the DOJ and SEC by continuing to use a third-party distributor who was known to have paid bribes to Brazilian officials notwithstanding the fact that Biomet (Zimmer Holdings acquired Biomet in June 2015)20 had agreed to stop using that distributor in the 2012 agreements. Interestingly, the government did not allege that Zimmer Biomet violated the FCPA’s anti-bribery provisions. Instead, the government alleged that Zimmer Biomet’s actions violated the FCPA’s books and records provisions. For these violations and for allowing its Mexican subsidiary to pay bribes to Mexican customs officials, Zimmer Biomet was assessed a $17.4 million criminal penalty by the DOJ and a $6.5 million civil penalty by the SEC. In addition, the SEC ordered Zimmer Biomet to pay $6.5 million in disgorgement. Finally, Zimmer Biomet, which had been under the supervision of an independent corporate monitor since 2012, agreed to retain such a monitor for an additional three years.
In November 2017, the DOJ released the CEP, which aims to encourage voluntary self-disclosure and to reduce duplicative penalties that are levied by multiple law enforcement agencies. As discussed above, the CEP transforms the FCPA Pilot Program’s incentives for voluntary self-disclosure into a “presumption” of non-prosecution. The CEP is notable because for the first time the DOJ has established a “presumption” in response to voluntary self-disclosures. While the FCPA Pilot Program had explicitly set forth standards for when companies may be eligible for reduction of penalties in FCPA enforcement actions, the DOJ had stopped short of establishing any kind of “presumption”.
The CEP offers credit to companies that: (1) voluntarily disclose violations; (2) fully cooperate with government authorities; and (3) timely and appropriately remediate violations. The CEP specifies that when a company satisfies these elements, “there will be a presumption that the company will receive a declination,” which will include disgorgement of profits.21 The presence of aggravating circumstances can overcome this presumption. The CEP defines “aggravating circumstances” to include: (1) involvement by executive management in FCPA violations; (2) significant profits stemming from misconduct; (3) pervasiveness of misconduct; and (4) repeat offences. Where a company discloses, cooperates and remediates but aggravating circumstances are present, the DOJ will recommend a 50% reduction off the minimum sanction under the US Sentencing Guidelines and will not impose a monitor (assuming implementation of an effective compliance program).
While FCPA-related litigation is relatively rare, one case that warrants monitoring could have a significant impact on potential jurisdiction over non-US persons under the FCPA. In United States v. Hoskins, the US Government has argued that an executive of Alstom S.A. should be held liable for FCPA violations under theories of conspiracy and aiding and abetting FCPA violations.24 Under these theories, a non-US person could be subject to criminal FCPA liability even where the defendant was not an agent of a domestic concern and did not commit acts while physically present in the United States because the individual conspired with, or aided and abetted violations by, individuals who were subject to the FCPA.
A US district court has twice rejected the government’s arguments, but the government filed an appeal to the United States Court of Appeals for the Second Circuit in April 2016. If the Second Circuit affirms the district court’s decisions, this would represent a limit on the government’s efforts to expand the extraterritorial reach of the FCPA. In contrast, a reversal would expand potential criminal liability for FCPA violations to non-US persons who previously seemingly were not captured by the FCPA’s already-broad jurisdiction. The Second Circuit heard oral arguments in this case in March 2017 and has not yet issued a ruling.
Contrary to the SEC’s position that disgorgement is an equitable remedy without time constraints, recent federal court cases have clarified that SEC claims for disgorgement are subject to a five-year statute of limitations.25 On June 5, 2017, in Kokesh v. SEC, the US Supreme Court unanimously held that 28 U.S.C § 2462 bars the SEC from obtaining disgorgement in actions brought beyond the five-year statute of limitations.26 The Court rejected the SEC’s contention that disgorgement is an equitable remedy that restores the status quo, and held that since disgorgement orders “go beyond compensation, are intended to punish, and label defendants wrongdoers as a consequence of violating public laws, they represent a penalty and thus fall within the 5-year statute of limitation”.27 By limiting disgorgement to alleged anti-bribery and recordkeeping violations over the most recent five years, the ruling will constrain the SEC’s leverage in settlement discussions for FCPA cases (as well as other subject areas). The case may also raise new considerations for companies/individuals contemplating whether to toll the statute of limitations.
In February 2017, the DOJ released a guidance document, “Evaluation of Corporate Compliance Programs”, that companies may use to preview what enforcement authorities may discuss during investigations and/or settlement proceedings.28 While helpful, the guidance primarily reinforces core standards already introduced by the Resource Guide to the FCPA and US Sentencing Guidelines. US government guidance, including the new evaluation guidance, has historically highlighted certain “hallmarks” of compliance: commitment of senior management, code of conduct/policies and procedures, resources, autonomy/independence of compliance program, training, incentives and disciplinary measures, risk assessment processes and analytics, third party due diligence, and periodic testing/review.
In comparison to prior guidance, the new guidance places additional emphasis on certain areas. In relevant part, guidance includes approximately 120 questions that enforcement officials may ask when evaluating the effectiveness of a company’s compliance program. Several of the questions call for detailed and granular information, including whether “business units/divisions” were consulted prior to the rollout of compliance procedures/policies and the company has trained individual relationship managers “about what compliance risks are and how to manage them”.29 The questions demonstrate a new emphasis on management failures of oversight, resourcing dedicated to a compliance program, and compensation/incentive structures pertaining to compliance. Among other things, the questions highlight the importance of documenting risk assessments. The document also includes questions that probe the independence and integrity of an internal investigation.
US authorities may employ a number of tools other than the FCPA to combat bribery. For instance, the Travel Act prohibits commercial bribery (bribery of a non-government official), even though the FCPA does not. Additionally, corporations may face considerable exposure as a result of civil lawsuits by customers, competitors, and even their own shareholders. US authorities have also begun to go after bribery from the “demand” side, by prosecuting allegedly corrupt foreign officials for offences such as money-laundering and wire fraud, and attempting to seize any US assets of such foreign officials. Corporations can also be debarred from federal contracts, and institutional investors may be barred from doing business with a firm that is subject to FCPA action. Other institutions, such as the World Bank, may also debar a firm for bribery violations.
The monitorships to which many corporations consent in order to resolve FCPA violations are also costly and, as the Zimmer-Biomet example discussed above demonstrates, may increase government scrutiny of other areas of the corporation’s activities. The DOJ has continued to impose hybrid monitorships as a requirement of some – but not all – enforcement actions, meaning that an independent monitor was required for part, but not all, of the term of the Deferred Prosecution Agreement. The decision whether to impose a monitorship appears to be based on the company’s ability to remediate past wrongdoing and on the severity of the company’s unlawful conduct. Hybrid monitorships are more likely to be imposed where a company has substantially cooperated with an investigation and has undertaken remediation efforts, but the original conduct or the remediation efforts leave the Department of Justice with concerns. In contrast, where the original offence is considered serious and the extent of remediation is unclear or lacking, the government may insist on a monitorship throughout the term of the settlement.
Additionally, as the Telia Company AB, VimpelCom, Rolls-Royce, and Société Générale actions demonstrate, US Government officials continue to work closely with other governments in investigating potential cross-border corruption.
1. 15 U.S.C. § 78dd-1, et seq.
2. See US Dep’t of Justice, FCPA Corporate Enforcement Policy (Nov. 29, 2017) (hereinafter “CEP”) available at https://www.justice.gov/criminal-fraud/file/838416/download.
3. The Criminal Division of the US Dep’t of Justice & the Enforcement Division of the US Securities and Exchange Commission, FCPA: A Resource Guide to the US Foreign Corrupt Practices Act (November 2012) (hereinafter, FCPA Resource Guide), available athttp://www.justice.gov/criminal/fraud/fcpa/guide.pdf.
4. Individual Accountability for Corporate Wrongdoing, DOJ, September 9, 2015 (hereinafter “Yates Memorandum”), available at http://www.justice.gov/dag/file/769036/download; US Dep’t of Justice, The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance (April 5, 2016) (available at https://www.justice.gov/opa/file/838386/download).
5. Acting Assistant Attorney General Kenneth A. Blanco Speaks at the American Bar Association National Institute on White Collar Crime (Mar. 10, 2017), available at https://www.justice.gov/opa/speech/acting-assistant-attorney-general-kenneth-blanco-speaks-american-bar-association-national (hereinafter Blanco ABA Remarks).
6. CEP, supra note 1.
7. Telia Company AB and Its Uzbek Subsidiary Enter Into a Global Foreign Bribery Resolution of More Than $965 Million for Corrupt Payments in Uzbekistan, US Dep’t of Justice (Sept. 21, 2017) available athttps://www.justice.gov/opa/pr/telia-company-ab-and-its-uzbek-subsidiary-enter-global-foreign-bribery-resolution-more-965.
8. Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges,US Dep’t of Justice (Dec. 22, 2017) available athttps://www.justice.gov/opa/pr/teva-pharmaceutical-industries-ltd-agrees-pay-more-283-million-resolve-foreign-corrupt.
9. Panasonic Avionics Corporation Agrees to Pay $137 Million to Resolve Foreign Corrupt Practices Act Charges, US Dep’t of Justice (April 30, 2018) available athttps://www.justice.gov/opa/pr/panasonic-avionics-corporation-agrees-pay-137-million-resolve-foreign-corrupt-practices-act; Panasonic Charged With FCPA and Accounting Fraud Violations, US Securities and Exchange Commission (April 30, 2018) available at https://www.sec.gov/news/press-release/2018-73.
10. Société Générale S.A. Agrees to Pay $860 Million in Criminal Penalties for Bribing Gaddafi-Era Libyan Officials and Manipulating LIBOR Rate, US Dep’t of Justice (June 4, 2018) available at https://www.justice.gov/opa/pr/soci-t-g-n-rale-sa-agrees-pay-860-million-criminal-penalties-bribing-gaddafi-era-libyan.
11. Keppel Offshore & Marine Ltd. and U.S. Based Subsidiary Agree to Pay $422 Million in Global Penalties to Resolve Foreign Bribery Case (December 22, 2017) available athttps://www.justice.gov/opa/pr/keppel-offshore-marine-ltd-and-us-based-subsidiary-agree-pay-422-million-global-penalties.
12. See Securities & Exchange Commission v. Straub, 921 F. Supp. 2d 244 (S.D.N.Y. 2013). Less than two weeks later, a different federal judge in New York dismissed claims against a foreign FCPA defendant, finding that any connection to false US filings was “far too attenuated” to establish jurisdiction over the defendant. US Securities & Exchange Commission v. Sharef, 924 F. Supp. 2d 539, 546 (S.D.N.Y. 2013). The second court, however, did not have occasion to address the question of whether emails sent through US servers form a sufficient basis for jurisdiction.
13. FCPA Resource Guide, supra note 3, at 17.
14. FCPA Resource Guide, supra note 3, at 43.
15. US Dep’t of Justice, Fraud Section Year in Review 2017, available at https://www.justice.gov/criminal-fraud/file/1026996/download.
16. US Securities and Exchange Commission, SEC Enforcement Actions: FCPA Cases, available at https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml.
17. Telia Company AB, supra note 7.
18. See VimpelCom to Pay $795 Million in Global Settlement for FCPA Violations, US Securities & Exchange Commission (Feb. 18, 2016), available at https://www.sec.gov/news/pressrelease/2016-34.html; see also VimpelCom Limited and United LLC Enter into Global Foreign Bribery Resolution of More than $795 Million, US Department of Justice (Feb. 18, 2016), available at https://www.justice.gov/opa/pr/vimpelcom-limited-and-unitel-llc-enter-global-foreign-bribery-resolution-more-795-million.
19. Rolls-Royce plc Deferred Prosecution Agreement with US Department of Justice, Dec. 20, 2016, available at https://www.justice.gov/opa/press-release/file/927221/download.
20. Zimmer Completes Combination with Biomet, June 24, 2015, available at http://investor.zimmerbiomet.com/news-and-events/news/2015/24-06-2015-191859180.
21. CEP, supra note 1.
22. See US Securities & Exchange Commission, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, Release No. 34-44969 (Oct. 23, 2001), available at http://www.sec.gov/litigation/investreport/34-44969.htm.
23. See US Securities & Exchange Commission, Policy Statement of the Securities and Exchange Commission Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions, SEC Rel. No. 34-61340 (Jan. 13, 2010), available at https://www.sec.gov/rules/policy/2010/34-61340.pdf.
24. United States v. Hoskins, 123 F. Supp. 3d 316, 318 (D. Conn. 2015).
25. See SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016).
26. See Kokesh v. SEC, No. 16-529, slip op. at 2–3 (US Jun. 5, 2017).
28. Evaluation of Corporate Compliance Programs, US Department of Justice (Feb. 8, 2017), available at https://www.justice.gov/criminal-fraud/page/file/937501/download (hereinafter DOJ Evaluation Guidance).
29. DOJ Evaluation Guidance at 7.

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