ANNEX 2
FOREIGN CORRUPT PRACTICES
ACT: ANTIBRIBERY PROVISIONS—LAY PERSON'S GUIDE PUBLISHED
BY THE US DEPARTMENT OF JUSTICE
Introduction
The 1988 Trade Act directed the Attorney General
to provide guidance concerning the Department of Justice's enforcement
policy with respect to the Foreign Corrupt Practices Act of 1977
("FCPA"), 15 U.S.C. §§ 78dd-1, et seq., to
potential exporters and small businesses that are unable to obtain
specialized counsel on issues related to the FCPA. The guidance
is limited to responses to requests under the Department of Justice's
Foreign Corrupt Practices Act Opinion Procedure (described below
at p. 10) and to general explanations of compliance responsibilities
and potential liabilities under the FCPA. This brochure constitutes
the Department of Justice's general explanation of the FCPA.
U.S. firms seeking to do business in foreign markets
must be familiar with the FCPA. In general, the FCPA prohibits
corrupt payments to foreign officials for the purpose of obtaining
or keeping business. In addition, other statutes such as the mail
and wire fraud statutes, 18 U.S.C. § 1341, 1343, and the
Travel Act, 18 U.S.C. § 1952, which provides for federal
prosecution of violations of state commercial bribery statutes,
may also apply to such conduct.
The Department of Justice is the chief enforcement
agency, with a coordinate role played by the Securities and Exchange
Commission (SEC). The Office of General Counsel of the Department
of Commerce also answers general questions from U.S. exporters
concerning the FCPA's basic requirements and constraints.
This brochure is intended to provide a general
description of the FCPA and is not intended to substitute for
the advice of private counsel on specific issues related to the
FCPA. Moreover, material in this brochure is not intended to set
forth the present enforcement intentions of the Department of
Justice or the SEC with respect to particular fact situations.
Background
As a result of SEC investigations in the mid-1970's,
over 400 U.S. companies admitted making questionable or illegal
payments in excess of $300 million to foreign government officials,
politicians, and political parties. The abuses ran the gamut from
bribery of high foreign officials to secure some type of favorable
action by a foreign government to so-called facilitating payments
that allegedly were made to ensure that government functionaries
discharged certain ministerial or clerical duties. Congress enacted
the FCPA to bring a halt to the bribery of foreign officials and
to restore public confidence in the integrity of the American
business system.
The FCPA was intended to have and has had an enormous
impact on the way American firms do business. Several firms that
paid bribes to foreign officials have been the subject of criminal
and civil enforcement actions, resulting in large fines and suspension
and debarment from federal procurement contracting, and their
employees and officers have gone to jail. To avoid such consequences,
many firms have implemented detailed compliance programs intended
to prevent and to detect any improper payments by employees and
agents.
Following the passage of the FCPA, the Congress became
concerned that American companies were operating at a disadvantage
compared to foreign companies who routinely paid bribes and, in
some countries, were permitted to deduct the cost of such bribes
as business expenses on their taxes. Accordingly, in 1988, the
Congress directed the Executive Branch to commence negotiations
in the Organization of Economic Cooperation and Development (OECD)
to obtain the agreement of the United States' major trading partners
to enact legislation similar to the FCPA. In 1997, almost ten
years later, the United States and thirty-three other countries
signed the OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions. The United States
ratified this Convention and enacted implementing legislation
in 1998. See Convention and Commentaries on the DOJ web site.
The antibribery provisions of the FCPA make it unlawful
for a U.S. person, and certain foreign issuers of securities,
to make a corrupt payment to a foreign official for the purpose
of obtaining or retaining business for or with, or directing business
to, any person. Since 1998, they also apply to foreign firms and
persons who take any act in furtherance of such a corrupt payment
while in the United States.
The FCPA also requires companies whose securities
are listed in the United States to meet its accounting provisions.
See 15 U.S.C. § 78m. These accounting provisions, which were
designed to operate in tandem with the antibribery provisions
of the FCPA, require corporations covered by the provisions to
make and keep books and records that accurately and fairly reflect
the transactions of the corporation and to devise and maintain
an adequate system of internal accounting controls. This brochure
discusses only the antibribery provisions.
Enforcement
The Department of Justice is responsible for all
criminal enforcement and for civil enforcement of the antibribery
provisions with respect to domestic concerns and foreign companies
and nationals. The SEC is responsible for civil enforcement of
the antibribery provisions with respect to issuers.
Antibribery Provisions
b) Basic
Prohibition
The FCPA makes it unlawful to bribe foreign government
officials to obtain or retain business. With respect to the basic
prohibition, there are five elements which must be met to constitute
a violation of the Act:
A. Who—The
FCPA potentially applies to any individual, firm, officer,
director, employee, or agent of a firm and any stockholder acting
on behalf of a firm. Individuals and firms may also be penalized
if they order, authorize, or assist someone else to violate the
antibribery provisions or if they conspire to violate those provisions.
Under the FCPA, U.S. jurisdiction over corrupt
payments to foreign officials depends upon whether the violator
is an "issuer," a & "domestic concern,"
or a foreign national or business.
An "issuer" is a corporation that has issued
securities that have been registered in the United States or who
is required to file periodic reports with the SEC. A "domestic
concern" is any individual who is a citizen, national, or
resident of the United States, or any corporation, partnership,
association, joint-stock company, business trust, unincorporated
organization, or sole proprietorship which has its principal place
of business in the United States, or which is organized under
the laws of a State of the United States, or a territory, possession,
or commonwealth of the United States.
Issuers and domestic concerns may be held liable
under the FCPA under either territorial or nationality
jurisdiction principles. For acts taken within the territory of
the United States, issuers and domestic concerns are liable if
they take an act in furtherance of a corrupt payment to a foreign
official using the U.S. mails or other means or instrumentalities
of interstate commerce. Such means or instrumentalities include
telephone calls, facsimile transmissions, wire transfers, and
interstate or international travel. In addition, issuers and domestic
concerns may be held liable for any act in furtherance of a corrupt
payment taken outside the United States. Thus, a U.S. company
or national may be held liable for a corrupt payment authorized
by employees or agents operating entirely outside the United States,
using money from foreign bank accounts, and without any involvement
by personnel located within the United States.
Prior to 1998, foreign companies, with the exception
of those who qualified as "issuers," and foreign nationals
were not covered by the FCPA. The 1998 amendments expanded the
FCPA to assert territorial jurisdiction over foreign companies
and nationals. A foreign company or person is now subject to the
FCPA if it causes, directly or through agents, an act in furtherance
of the corrupt payment to take place within the territory of the
United States. There is, however, no requirement that such act
make use of the U.S. mails or other means or instrumentalities
of interstate commerce.
Finally, U.S. parent corporations may be held liable
for the acts of foreign subsidiaries where they authorized, directed,
or controlled the activity in question, as can U.S. citizens or
residents, themselves "domestic concerns," who were
employed by or acting on behalf of such foreign-incorporated subsidiaries.
B. Corrupt intent—The
person making or authorizing the payment must have a corrupt intent,
and the payment must be intended to induce the recipient to misuse
his official position to direct business wrongfully to the payer
or to any other person. You should note that the FCPA does not
require that a corrupt act succeed in its purpose. The offer
or promise of a corrupt payment can constitute a violation
of the statute. The FCPA prohibits any corrupt payment intended
to influence any act or decision of a foreign official
in his or her official capacity, to induce the official to do
or omit to do any act in violation of his or her lawful duty,
to obtain any improper advantage, or to induce a
foreign official to use his or her influence improperly to affect
or influence any act or decision.
C. Payment—The
FCPA prohibits paying, offering, promising to pay (or authorizing
to pay or offer) money or anything of value.
D. Recipient—The
prohibition extends only to corrupt payments to a foreign official,
a foreign political party or party official, or any
candidate for foreign political office. A "foreign
official" means any officer or employee of a foreign government,
a public international organization, or any department or agency
thereof, or any person acting in an official capacity. You should
consider utilizing the Department of Justice's Foreign Corrupt
Practices Act Opinion Procedure for particular questions as to
the definition of a "foreign official," such as whether
a member of a royal family, a member of a legislative body, or
an official of a state-owned business enterprise would be considered
a "foreign official."
The FCPA applies to payments to any public
official, regardless of rank or position. The FCPA focuses on
the purpose of the payment instead of the particular duties
of the official receiving the payment, offer, or promise of payment,
and there are exceptions to the antibribery provision for "facilitating
payments for routine governmental action" (see below).
E. Business Purpose Test—The
FCPA prohibits payments made in order to assist the firm in obtaining
or retaining business for or with, or directing
business to, any person. The Department of Justice interprets
"obtaining or retaining business" broadly, such that
the term encompasses more than the mere award or renewal of a
contract. It should be noted that the business to be obtained
or retained does not need to be with a foreign government
or foreign government instrumentality.
THIRD PARTY PAYMENTS
The FCPA prohibits corrupt payments through intermediaries.
It is unlawful to make a payment to a third party, while knowing
that all or a portion of the payment will go directly or indirectly
to a foreign official. The term "knowing" includes
conscious disregard and deliberate ignorance. The elements
of an offense are essentially the same as described above, except
that in this case the "recipient" is the intermediary
who is making the payment to the requisite "foreign official."
Intermediaries may include joint venture partners
or agents. To avoid being held liable for corrupt third party
payments, U.S. companies are encouraged to exercise due diligence
and to take all necessary precautions to ensure that they have
formed a business relationship with reputable and qualified partners
and representatives. Such due diligence may include investigating
potential foreign representatives and joint venture partners to
determine if they are in fact qualified for the position, whether
they have personal or professional ties to the government, the
number and reputation of their clientele, and their reputation
with the U.S. Embassy or Consulate and with local bankers, clients,
and other business associates. In addition, in negotiating a business
relationship, the U.S. firm should be aware of so-called "red
flags," i.e., unusual payment patterns or financial arrangements,
a history of corruption in the country, a refusal by the foreign
joint venture partner or representative to provide a certification
that it will not take any action in furtherance of an unlawful
offer, promise, or payment to a foreign public official and not
take any act that would cause the U.S. firm to be in violation
of the FCPA, unusually high commissions, lack of transparency
in expenses and accounting records, apparent lack of qualifications
or resources on the part of the joint venture partner or representative
to perform the services offered, and whether the joint venture
partner or representative has been recommended by an official
of the potential governmental customer.
You should seek the advice of counsel and consider
utilizing the Department of Justice's Foreign Corrupt Practices
Act Opinion Procedure for particular questions relating to third
party payments.
Permissible Payments and Affirmative
Defenses
The FCPA contains an explicit exception to the bribery
prohibition for "facilitating payments" for "routine
governmental action" and provides affirmative defenses which
can be used to defend against alleged violations of the FCPA.
FACILITATING PAYMENTS FOR ROUTINE
GOVERNMENTAL ACTIONS
There is an exception to the antibribery prohibition
for payments to facilitate or expedite performance of a "routine
governmental action." The statute lists the following examples:
obtaining permits, licenses, or other official documents; processing
governmental papers, such as visas and work orders; providing
police protection, mail pick-up and delivery; providing phone
service, power and water supply, loading and unloading cargo,
or protecting perishable products; and scheduling inspections
associated with contract performance or transit of goods across
country.
Actions "similar" to these are also
covered by this exception. If you have
a question about whether a payment falls within the exception,
you should consult with counsel. You should also consider whether
to utilize the Justice Department's Foreign Corrupt Practices
Opinion Procedure, described below on p. 10.
"Routine governmental action" does not
include any decision by a foreign official to award new business
or to continue business with a particular party.
AFFIRMATIVE DEFENSES
A person charged with a violation of the FCPA's antibribery
provisions may assert as a defense that the payment was lawful
under the written laws of the foreign country or that the money
was spent as part of demonstrating a product or performing a contractual
obligation.
Whether a payment was lawful under the written laws
of the foreign country may be difficult to determine. You should
consider seeking the advice of counsel or utilizing the Department
of Justice's Foreign Corrupt Practices Act Opinion Procedure when
faced with an issue of the legality of such a payment.
Moreover, because these defenses are "affirmative
defenses," the defendant is required to show in the first
instance that the payment met these requirements. The prosecution
does not bear the burden of demonstrating in the first instance
that the payments did not constitute this type of payment.
Sanctions Against Bribery
c) Criminal
The following criminal penalties may be imposed for
violations of the FCPA's antibribery provisions: corporations
and other business entities are subject to a fine of up to $2,000,000;
officers, directors, stockholders, employees, and agents are subject
to a fine of up to $100,000 and imprisonment for up to five years.
Moreover, under the Alternative Fines Act, these fines may be
actually quite higher—the actual fine may be up to twice
the benefit that the defendant sought to obtain by making the
corrupt payment. You should also be aware that fines imposed on
individuals may not be paid by their employer or principal.
CIVIL
The Attorney General or the SEC, as appropriate,
may bring a civil action for a fine of up to $10,000 against any
firm as well as any officer, director, employee, or agent
of a firm, or stockholder acting on behalf of the firm, who violates
the antibribery provisions. In addition, in an SEC enforcement
action, the court may impose an additional fine not to exceed
the greater of (i) the gross amount of the pecuniary gain to the
defendant as a result of the violation, or (ii) a specified dollar
limitation. The specified dollar limitations are based on the
egregiousness of the violation, ranging from $5,000 to $100,000
for a natural person and $50,000 to $500,000 for any other person.
The Attorney General or the SEC, as appropriate,
may also bring a civil action to enjoin any act or practice of
a firm whenever it appears that the firm (or an officer, director,
employee, agent, or stockholder acting on behalf of the firm)
is in violation (or about to be) of the antibribery provisions.
OTHER GOVERNMENTAL ACTION
Under guidelines issued by the Office of Management
and Budget, a person or firm found in violation of the FCPA may
be barred from doing business with the Federal government. Indictment
alone can lead to suspension of the right to do business with
the government. The President has directed that no executive
agency shall allow any party to participate in any procurement
or nonprocurement activity if any agency has debarred, suspended,
or otherwise excluded that party from participation in a procurement
or nonprocurement activity.
In addition, a person or firm found guilty of violating
the FCPA may be ruled ineligible to receive export licenses; the
SEC may suspend or bar persons from the securities business and
impose civil penalties on persons in the securities business for
violations of the FCPA; the Commodity Futures Trading Commission
and the Overseas Private Investment Corporation both provide for
possible suspension or debarment from agency programs for violation
of the FCPA; and a payment made to a foreign government official
that is unlawful under the FCPA cannot be deducted under the tax
laws as a business expense.
PRIVATE CAUSE OF ACTION
Conduct that violates the antibribery provisions
of the FCPA may also give rise to a private cause of action for
treble damages under the Racketeer Influenced and Corrupt Organizations
Act (RICO), or to actions under other federal or state laws. For
example, an action might be brought under RICO by a competitor
who alleges that the bribery caused the defendant to win a foreign
contract.
Guidance from the Government
The Department of Justice has established a Foreign
Corrupt Practices Act Opinion Procedure by which any U.S. company
or national may request a statement of the Justice Department's
present enforcement intentions under the antibribery provisions
of the FCPA regarding any proposed business conduct. The details
of the opinion procedure may be found at 28 CFR Part 80. Under
this procedure, the Attorney General will issue an opinion in
response to a specific inquiry from a person or firm within thirty
days of the request. (The thirty-day period does not run until
the Department of Justice has received all the information it
requires to issue the opinion.) Conduct for which the Department
of Justice has issued an opinion stating that the conduct conforms
with current enforcement policy will be entitled to a presumption,
in any subsequent enforcement action, of conformity with the FCPA.
Copies of releases issued regarding previous opinions are available
on the Department of Justice's FCPA web site.
For further information from the Department of Justice
about the FCPA and the Foreign Corrupt Practices Act Opinion Procedure,
contact Mark F. Mendelsohn, Deputy Chief, Fraud Section, at (202)
514-1721; Charles Duross, Assistant Chief, Fraud Section, at (202)
353-7691; or Hank Walther, Assistant Chief, Fraud Section, at
(202) 307-2538 .
Although the Department of Commerce has no enforcement
role with respect to the FCPA, it supplies general guidance to
U.S. exporters who have questions about the FCPA and about international
developments concerning the FCPA. For further information from
the Department of Commerce about the FCPA contact Eleanor Roberts
Lewis, Chief Counsel for International Commerce, or Arthur Aronoff,
Senior Counsel, Office of the Chief Counsel for International
Commerce, U.S. Department of Commerce, Room 5882, 14th Street
and Constitution Avenue, N.W., Washington, D.C. 20230, (202) 482-0937.
United States Department of Justice
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