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George J. Terwilliger III is a partner in the Washington office of White & Case. He was deputy attorney general of the United States from 1991 to 1992. John C. Wells and Matthew J. Everitt, associates at the firm, assisted in the preparation of this article. The Foreign Corrupt Practices Act (FCPA) has received increased attention recently from prosecutors and corporations alike. For example, two subsidiaries of ABB Ltd. recently voluntarily reported FCPA violations to enforcement authorities, but were nonetheless charged with FCPA violations. Each entered a plea agreement with the government in which it agreed to pay a fine of more than $5 million, to disgorge profits and prejudgment interest, and to retain an independent monitor to review its FCPA compliance policies and procedures. In another recent proceeding, Titan Corp. agreed to pay more than $28 million in fines and disgorgement, and also to retain an independent monitor, to settle FCPA charges. In light of these developments, consideration of the act’s broad reach is well advised. One of the more vexing aspects of the act’s long arm is uncertainty regarding the exposure of U.S. corporations to FCPA liability for the acts of foreign subsidiaries. ‘Books and records’ and ‘anti-bribery’ provisions The FCPA contains two primary elements: “books and records” provisions and “anti-bribery” provisions. The books and records provisions generally require companies to keep accurate accounting records and maintain internal systems and controls. The anti-bribery provisions generally prohibit bribery of foreign officials. The books and records and anti-bribery provisions each apply only to certain business entities. The books and records provisions are applicable only to “issuers”-that is, companies that register securities in the United States or file reports in this country, or any officers, directors, employees or agents of such companies. 15 U.S.C. 78m(b). The anti-bribery provisions apply to several categories of covered entities: “issuers,” see 15 U.S.C. 78dd-1; “domestic concerns”-that is, citizens, nationals or residents of the United States or corporations or other business entities having their principal place of business in the United States or organized under U.S. law, see 15 U.S.C. 78dd-2; and also, in some circumstances, “any person” other than issuers or domestic concerns, see 15 U.S.C. 78dd-3. Further, the FCPA contains jurisdictional limitations on the application of its provisions to the entities in these categories. The books and records provisions of the FCPA apply to all operations of issuers, and, when an issuer owns a majority stake in a subsidiary, essentially create strict liability for failure to maintain an accurate accounting of such a subsidiary’s transactions. As to both issuers and domestic concerns, jurisdiction for application of the FCPA’s anti-bribery provisions may exist under either of two theories. First, if the mails or another instrumentality of interstate commerce are used in furtherance of a bribe to a foreign official, the anti-bribery provisions are applicable. Second, for U.S. issuers and domestic concerns, the anti-bribery provisions are applicable even in the absence of use of the mails or other instrumentality of interstate commerce. Under the “any person” statutory language, the anti-bribery provisions apply to any person other than an issuer or domestic concern who commits any act in furtherance of a bribe while in U.S. territory. While the question of whether a parent will be liable for books and records violations of a subsidiary is comparatively clear, the question of whether such liability will exist under the anti-bribery provisions in a given circumstance is decidedly not clear. The remainder of this article will discuss this issue and the bases that may be asserted by enforcement authorities to hold U.S. corporations liable for the acts of their subsidiaries under the anti-bribery provisions. When a subsidiary falls within the jurisdictional limitations of the anti-bribery provisions, it may, of course, be liable itself for violations of those provisions. Even when the FCPA’s anti-bribery jurisdictional provisions arguably do not cover a foreign subsidiary, however, its covered parent may nonetheless face FCPA liability for the actions of the subsidiary under several theories. First, if the parent or its employees authorized, directed or controlled the activity in question, liability plainly may exist. The FCPA’s statutory language contains the predicates for this theory of liability, prohibiting acts in furtherance of a bribe or authorization of such action by an issuer, domestic concern or other person. A recent enforcement action against Monsanto Co. by the Securities and Exchange Commission (SEC) provides an example of such allegations. Monsanto faced allegations that it violated the FCPA’s anti-bribery provisions after “a senior Monsanto manager, based in the United States, authorized and directed an Indonesian consulting firm to make an illegal payment totaling $50,000 to a senior Indonesian Ministry of Environment official.” SEC v. Monsanto Co., No. 05-0014 (D.D.C. complaint filed Jan. 6, 2005) at 1. The payment was “authorized and directed” when “the Senior Monsanto Manager told [a consultant] to ‘incentivize’ [a government official] with a cash payment of $50,000.” Id. at 4. In addition to parent liability for the actions of a foreign subsidiary that it authorized, directed or controlled, enforcement authorities may also seek to hold a parent liable for improper payments made by foreign subsidiaries when the parent has knowledge of the subsidiary’s conduct violating the anti-bribery provisions and, as the subsidiary’s parent, has the ability to control the foreign subsidiary. The FCPA’s statutory framework prohibits giving money or other thing of value to a third party (e.g., a subsidiary) while knowing that all or a portion of that money or thing of value will be used as a bribe. These provisions appear to be interpreted by enforcement authorities as providing a basis for liability predicated on a parent’s knowledge of its subsidiary’s actions. In In re Gore, an enforcement action that was instituted as part of FCPA proceedings against Triton Energy Corp. in the late 1990s, the SEC suggested that knowledge by a parent of a foreign subsidiary’s improper payments will be deemed to constitute an anti-bribery violation by the parent. Gore concerned improper payments by Triton Indonesia, a foreign subsidiary of the U.S. parent, to an agent acting as an intermediary between Triton Indonesia and Indonesian government agencies. In its Order Instituting Cease-and-Desist Proceedings, the SEC alleged that David Gore and Robert Puetz, members of Triton Energy’s senior management, were aware, from an internal auditor’s memorandum and other sources, of potentially improper payments to Indonesian government officials, yet failed to investigate and instead treated the payments as a cost of doing business. On this basis, the SEC alleged that Gore and Puetz caused Triton Energy (the parent) to violate the FCPA’s anti-bribery provisions. See In re Gore, SEC Exchange Act Release No. 38343, Feb. 27, 1997. In response to a complaint filed by the SEC, Triton Energy consented to a final judgment permanently enjoining it from violating the books and records provisions of the FCPA. See SEC Litigation Release No. 15266, SEC v. Triton Energy Corp., No. 1:97CV00401 (D.D.C. 1997). While Triton Energy did not itself accept any responsibility for violation of the anti-bribery provisions premised on the knowledge and inaction of its senior management, the SEC’s order suggests that it will pursue alleged violations on such grounds. In sum, a parent that has knowledge that its foreign subsidiary has engaged in activity that violates the FCPA’s anti-bribery provisions and does not take action to correct the problem “risks being deemed to have adopted or acquiesced in the corrupt payment.” H. Lowell Brown, “Parent-Subsidiary Liability Under the Foreign Corrupt Practices Act,” 50 Baylor L. Rev. 1, 32-33 (1998). If the subsidiary continues to make corrupt payments, and the parent has taken no steps to arrest the practice, it is likely that the parent would be “deemed to have constructive knowledge of the payments, as the result of ‘conscious avoidance’ or ‘willful blindness,’ and therefore would be subject to liability under the FCPA’s anti-bribery provisions.” Id. Piercing the corporate veil under the FCPA A parent also may face FCPA liability for a foreign subsidiary’s acts when the facts justify piercing the corporate veil. The government can pierce the corporate veil, resulting in direct liability for the parent, when there is an agency relationship between the parent and the subsidiary. If there are sufficient indicators of such a relationship and the subsidiary possesses the actual or apparent authority to act for the parent, such liability may exist. Further, when a parent dominates the affairs of the foreign subsidiary, the subsidiary may be deemed the parent’s alter ego, and liability for the subsidiary’s acts imputed to the parent. Finally, another aspect of parent/subsidiary liability under the FCPA bears noting in this context. While a parent may be liable for the acts of its subsidiary, a parent cannot acquire such liability if there was not FCPA jurisdiction over them when they occurred. For example, if a parent acquires a foreign subsidiary that was previously not subject to any of the FCPA’s jurisdictional “hooks,” the past acts of the subsidiary that would have violated the FCPA do not become violations simply because of the acquisition of the company by a parent that is covered. However, should the past practice continue after the acquisition, not only will liability potentially attach to the acquirer, but enforcement authorities will examine closely whether due diligence was adequately undertaken to uncover the payments and permit immediate remedial steps.

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