X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
When operating in foreign countries, should corporate America “do like the locals?” Perhaps. If “doing like the locals” means following local customs to compete effectively, then corporate America should do so with gusto. If, on the other hand, “doing like the locals” means paying bribes, then corporate America should run the other way. The Foreign Corrupt Practices Act (FCPA) makes it a crime in the United States to pay bribes in foreign countries. The government does not hesitate to enforce the FCPA. Just this month, the worldwide chairman of New Jersey-based Johnson & Johnson’s Medical Devices and Diagnostic Unit abruptly resigned amid Johnson & Johnson’s disclosure that certain of its foreign subsidiaries made improper payments in violation of the FCPA. In this era of globalization, more and more U.S. based companies participate in foreign markets and are therefore exposed to a vast assortment of foreign business practices. As this article discusses, these companies must take great care to ensure their worldwide compliance with the FCPA. The FCPA has two main provisions – anti-bribery provisions prohibiting corrupt payments to foreign officials and record keeping provisions requiring transparent records related to foreign payments. The Department of Justice and the SEC jointly enforce the FCPA, which imposes both civil and criminal liability. Anti-Bribery Provisions The FCPA’s anti-bribery provisions prohibit U.S. corporations (as well as their officers, directors, employees and agents) from making corrupt payments to foreign officials. Corrupt payments are ones intended to induce the recipient to misuse his official position or to influence someone else to do so. Payments made to a wide variety of people implicate the FCPA. For example, “foreign officials” as defined by the FCPA include officers or employees of foreign governments, departments, agencies or instrumentalities of foreign governments, foreign political parties or party officials, candidates for foreign political office, and officials of public international organizations. Indirect payments made by or to third parties are equally illegal, if the payor knows that any portion of the payment will be corruptly offered, promised or given to a foreign official. Knowledge may be inferred from the circumstances of the payment, so that corporations and executives cannot simply turn a blind eye to suspicious payments. The FCPA prohibits the payment of “anything of value,” which has been interpreted to include both tangible and intangible objects, such as the promise of future employment, expense-paid travel, favorable loans, golf outings, sports equipment, charitable contributions and college scholarships. Only so-called “grease payments” – payments to low-level foreign officials to facilitate the performance of “routine governmental functions” – do not violate the FCPA. The FCPA applies to payments made to influence official decisions that benefit a company (but that do not award it business). In U.S. v. Kay, for example, the 5th U.S. Circuit Court of Appeals held that payments to a Haitian official to induce him to understate customs duties and sales tax on imported rice were prohibited by the FCPA. In 1998, Congress expanded the FCPA to sweep in corrupt payments that have no particular connection with the United States other than being made by or for a U.S. corporation. Prior the amendment, corrupt payments violated the FCPA only if the defendant utilized the U.S. mail or other instrumentality of interstate commerce in furtherance of the payment. Congress also subjected foreigners to the FCPA by allowing for the prosecution of any person who acted in furtherance of a corrupt foreign payment while present in the United States. Congress also added two affirmative defenses. First, payments permitted by the written laws of the foreign country are not prohibited. Second, the repayment of “reasonable and bona fide” expenses incurred by a foreign official are exempted from the FCPA. In 1999, Metcalf & Eddy, a Massachusetts environmental engineering company, entered into a consent agreement and paid a $400,000 fine after the DOJ brought civil charges regarding its “reasonable and bona fide” expenditures. Metcalf & Eddy had provided numerous first class trips to Paris and various destinations in the United States, as well as an exceptionally high travel per diem to the chairman of an Egyptian government entity and his family, hoping to influence him to grant two contracts to Metcalf & Eddy. This settlement demonstrates that the “reasonable and bona fide expenses” exception is narrowly construed. Recordkeeping Provisions The FCPA requires corporations to maintain accurate books and records and to assert adequate internal controls such that they cannot conceal bribes, falsify them as payments for other transactions, or fail to record information that would have revealed the bribe’s impropriety. Companies must keep books, records and accounts in such reasonable detail so as to accurately reflect transactions and the disposition of assets. Companies must record foreign transactions so as to permit financial statements to be prepared in conformity with GAAP. There is no materiality requirement to the FCPA’s recordkeeping provisions and, as such, no de minimus exception to their requirements. Companies must put in place internal controls sufficient to provide reasonable assurances that transactions are executed in accordance with management’s general or specific authorization. Management’s general or specific authorization is also required for access to assets. Finally, companies must account for assets at regular intervals and take appropriate action if assets go missing. A company that knowingly disregards these internal control provisions may be subject to criminal liability. The government aggressively enforces these recordkeeping provisions. For example, in a recent enforcement action against Schering Plough, the SEC alleged improper donations totaling $76,000 by a Schering Plough subsidiary in Poland. The payments to the charitable organization were allegedly intended to induce the head of the organization to influence a government entity to purchase Schering Plough’s products. The SEC did not allege that the parent company approved or authorized the payments. The parent company, nevertheless, settled the matter by paying $500,000 and agreed to hire an independent consultant to monitor FCPA compliance. IBM similarly paid $300,000 to settle allegations by the SEC that its Argentine subsidiary entered into a bogus contract with a third company to funnel bribes to government officials. According to the SEC, IBM violated the FCPA record keeping provisions by recording the payments as “third-party subcontractor expenses.” Conclusion Increased globalization will undoubtedly lead to increased FCPA enforcement. Corporations, their executives, and their lawyers, must keep FCPA compliance “on the front burner.” And, it is not enough for the “home office” to be mindful; foreign divisions and subsidiaries must be trained on the FCPA must certify at least annually their compliance with the FCPA. DAVID M. LAIGAIE , a partner at Dilworth Paxson, heads the corporate investigations and white collar group. His areas of practice include health care fraud, securities fraud, tax fraud, export violations, pharmaceutical marketing fraud, municipal corruption, defense procurement fraud and public finance fraud. He regularly conducts internal corporate investigations. He can be reached at 215-575-7168 or [email protected]. MARIANA ROSSMAN , a member of Dilworth Paxson’s corporate investigations and white collar group, is a former assistant defender for the Defender Association of Philadelphia. She focuses her practice in corporate investigations, white collar defense and complex civil litigation. She can bereached at 215-575-7244 or [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.