Memorandum submitted by U.S. Department
of Justice (BB 57)
INTRODUCTION
1. This submission is made on behalf of
the U.S. Department of Justice (DOJ) in response to an invitation
by the Joint Select Committee to respond to certain questions
regarding the U.S. Foreign Corrupt Practices Act (FCPA), 15 U.S.C.
§§ 78dd-1, et seq., and U.S. experience over
the past thirty-two years in prosecuting corruption in international
business transactions.
2. The DOJ Criminal Division, Fraud Section,
is principally responsible for all criminal enforcement of the
FCPA, as well as all civil FCPA enforcement of the antibribery
provisions with respect to domestic concerns and foreign companies
and nationals.
3. The U.S. Securities and Exchange Commission
(SEC) is responsible for civil enforcement of the FCPA with respect
to issuers, corporations that have issued securities registered
in the U.S. or that are required to file periodic reports with
the SEC.
4. A representative of the Fraud Section
regularly participates as a member of the U.S. delegation to the
OECD Working Group on Bribery, and participated in a consultation
by OECD Parties and the OECD Secretariat in London with the U.K.
Law Commission following the publication of its November 2008 report
"Reforming Bribery."
BACKGROUND
5. 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 level foreign officials
to secure 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. Numerous
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 officers and employees have gone to prison. To avoid
such consequences, many firms have implemented detailed compliance
programs intended to prevent and detect 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,
including the U.K., signed the OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions
(the OECD Antibribery Convention). The United States ratified
this Convention and enacted implementing legislation in 1998.
6. The FCPA contains two sets of core provisions,
the antibribery provisions and the accounting provisions.
ANTIBRIBERY PROVISIONS:
BASIC PROHIBITION
The FCPA makes it unlawful to bribe foreign
government officials to assist in obtaining or retaining business.
With respect to the basic prohibition, there are five elements
which must be met to constitute a violation of the Act:
7. Elements:
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 that 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.
U.S. issuers and domestic concerns may be held
liable under the FCPA under either territorial or nationality
jurisdiction principles. Foreign issuers may only be held liable
under the FCPA's antibribery provisions under territorial jurisdiction
principles. U.S. and foreign 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, emails, wire transfers,
and interstate or international travel. In addition, issuers organized
under the laws of the U.S., or a U.S. State, territory, possession,
or commonwealth and domestic concerns may be held liable for any
act in furtherance of a corrupt payment taken outside the United
States, regardless of whether any means of interstate commerce
is used. 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. Such nationality-based jurisdiction obviously
does not extend to foreign issuers.
Prior to 1998, foreign companies, with the exception
of those who qualified as "issuers," and foreign nationals
were generally 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 can 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 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. 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.
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."
E. Business Purpose Test—The
FCPA prohibits payments made in order to assist a company or person
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.
8. Affirmative Defenses and Exception
The FCPA's antibribery provisions provide two
affirmative defenses: (1) that the payment was lawful under the
written laws of the foreign country; or (2) that the payment was
a reasonable and bona fide expenditure, such as travel and lodging
expenses, incurred by or on behalf of a foreign official, and
directly related to the demonstration or explanation of a product
or service or performance of a contract with a government agency.
Additionally, the FCPA includes an exception
allowing "facilitating" payments, which are payments
made to expedite or secure performance of a routine, non-discretionary
governmental action.
ACCOUNTING PROVISIONS
9. The FCPA's accounting provisions consist
of two parts. First, the "books and records" provisions
require all issuers to "make and keep books, records, and
accounts, which, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the issuer."
15 U.S.C. § 78m(b)(2)(A). Second, the "internal
controls" provisions require issuers to "devise and
maintain" an adequate "system of internal accounting
controls." 15 U.S.C. § 78m(b)(2)(B). The knowing
circumvention or knowing failure to implement a system of internal
accounting controls or the knowing failure to falsify any book,
record or account is a crime. 15 U.S.C. § 78m(b)(5).
ENFORCEMENT STATISTICS
10. Since its enactment, DOJ has brought
FCPA enforcement actions (including criminal charges, deferred
prosecution agreements, non-prosecution agreements, and civil
injunctions) against 78 natural persons and 63 legal
persons. These statistics do not include civil enforcement actions
brought by the SEC. Appended to this memorandum as Annex A is
a list of public DOJ enforcement actions from January 1, 2000 to
June 1, 2009.
"WRITTEN LAW"
AFFIRMATIVE DEFENSE
11. The FCPA has an affirmative defense
where "the payment, gift, offer, or promise of anything of
value that was made, was lawful under the written laws and regulations
of the foreign official's, political party's, party official's,
or candidate's country." The requirement of written laws
and regulations precludes reliance on local business customs,
practices, or norms. Similarly, the Commentaries to the OECD Antibribery
Convention provide in paragraph 8 that it is not an offence
"if the advantage was permitted or required by the written
law or regulation of the foreign public official's country, including
case law."
This "written law" defense under the
FCPA has been raised by a defendant in only one court proceeding,
where it was rejected in a written decision of the trial court.
A copy of the decision is appended to this memorandum as Annex
B. In that decision, the Honorable Shira Scheindlin, United States
District Judge for the Southern District of New York, wrote:
For purposes of the FCPA's affirmative defense,
the focus is on the payment, not the payer. A person cannot be
guilty of violating the FCPA if the payment was lawful under foreign
law. But there is no immunity from prosecution under the FCPA
if a person could not have been prosecuted in the foreign country
due to a technicality (eg, time-barred) or because a provision
in the foreign law "relieves" a person of criminal responsibility.
An individual may be prosecuted under the FCPA for a payment that
violates foreign law even if the individual is relieved of criminal
responsibility for his actions by a provision of the foreign law.
United States v. Kozeny, et al., 05 Cr.
518 (SAS), 2008 WL 4658807 (21 October 2008).
DOJ is not aware of any occasion in which FCPA charges were brought
and the defense succeeded. There may be a small number of instances
in which the written-law defense was relevant to a DOJ decision
not to bring charges. Importantly, there may be instances in which
a payment itself is lawful under local written law, but not if
it is made for corrupt purposes. For example, it may be lawful
in Country X for a company to give a direct campaign contribution
to a political candidate; however, it is probably not lawful under
local written law in Country X for the company to give that campaign
contribution expressly in exchange for the candidate's agreement
to endorse legislative action favorable to the company once that
candidate is elected.
On one occasion, a request was submitted to
DOJ under its Opinion Procedure (described further below) for
an opinion related to the written law defense. In Release 92-01,
a U.S. company entering into a joint venture with Pakistan's Ministry
of Petroleum and Natural Resources was required by Pakistani law
to provide a minimum of $200,000 in annual funding to train
various Pakistani government personnel in technical and management
disciplines. The company requested DOJ to review its plans to
provide funding and hold trainings in the United States and Europe
and pay for government officials' travel, lodging, meals, and
seminar fees. DOJ stated that it did not presently intend to take
any enforcement action with respect to this prospective activity
up to $250,000 per annum. A copy of Release 92-01 is
appended as Attachment C.
As the Joint Committee has noted, under the
FCPA there is no express defense for individuals who reasonably,
but erroneously, believe that they were acting in accordance with
the foreign law of the official. Criminal violations of the FCPA,
however, require that an individual act "corruptly"
and "willfully." In addition, advice of legal counsel
that certain conduct is not in violation of the FCPA may, under
certain circumstances, serve as a defense.
CORPORATE LIABILITY
12. Companies or other legal persons can
be held liable for violating the FCPA's antibribery provisions
under a variety of circumstances. Principles of criminal corporate
liability under U.S. law are generally a result of case law. In
addition to case law, DOJ prosecutors are guided in the prosecution
of legal persons by a DOJ policy document called "The Principles
of Prosecution of Business Organizations," United States
Attorney's Manual, Title 9, Chapter 9-28.000. A copy of the Principles
is appended as Annex D. Consistent with DOJ policy, DOJ prosecutors
have discretion whether or not to criminally charge a legal person,
even under circumstances in which such a legal person could be
charged.
13. The Principles of Federal Prosecution
of Business Organizations state the following, with respect to
corporate liability:
Corporations are "legal persons," capable
of suing and being sued, and capable of committing crimes. Under
the doctrine of respondeat superior, a corporation may be held
criminally liable for the illegal acts of its directors, officers,
employees, and agents. To hold a corporation liable for these
actions, the government must establish that the corporate agent's
actions (I) were within the scope of his duties and (ii) were
intended, at least in part, to benefit the corporation. In all
cases involving wrongdoing by corporate agents, prosecutors should
not limit their focus solely to individuals or the corporation,
but should consider both as potential targets.
Agents may act for mixed reasons—both for
self-aggrandizement (both direct and indirect) and for the benefit
of the corporation, and a corporation may be held liable as long
as one motivation of its agent is to benefit the corporation.
See United States v. Potter, 463 F.3d 9, 25 (1st
Cir. 2006) (stating that the test to determine whether an agent
is acting within the scope of employment is "whether the
agent is performing acts of the kind which he is authorized to
perform, and those acts are motivated, at least in part, by an
intent to benefit the corporation."). In United States
v. Automated Medical Laboratories, Inc., 110 F.2d 399 (4th
Cir. 1985), for example, the Fourth Circuit affirmed a corporation's
conviction for the actions of a subsidiary's employee despite
the corporation's claim that the employee was acting for his own
benefit, namely his "ambitious nature and his desire to ascend
the corporate ladder." Id at 407. The court stated, "Partucci
was clearly acting in part to benefit AML since his advancement
within the corporation depended on AML's well-being and its lack
of difficulties with the FDA." Id; see also United States
v. Cincotta, 689 F.2d 238, 241-42 (1st Cir. 1982)
(upholding a corporation's conviction, notwithstanding the substantial
personal benefit reaped by its miscreant agents, because the fraudulent
scheme required money to pass through the corporation's treasury
and the fraudulently obtained goods were resold to the corporation's
customers in the corporation's name).
Moreover, the corporation need not even necessarily
profit from its agent's actions for it to be held liable. In Automated
Medical Laboratories, the Fourth Circuit stated: "[B]enefit
is not a "touchstone of criminal corporate liability; benefit
at best is an evidential, not an operative, fact." Thus,
whether the agent's actions ultimately redounded to the benefit
of the corporation is less significant than whether the agent
acted with the intent to benefit the corporation. The basic purpose
of requiring that an agent have acted with the intent to benefit
the corporation, however, is to insulate the corporation from
criminal liability for actions of its agents which may be inimical
to the interests of the corporation or which may have been undertaken
solely to advance the interests of that agent or of a party other
than the corporation.
770 F.2d at 407 (internal citation
omitted) (quoting Old Monastery Co. v. United States, 147 F.2d
905, 908 (4th Cir. 1945)).
SELF-REPORTING
14. DOJ encourages companies to self-report
possible violations of the FCPA. Some companies do self-report.
The reasons for self-reporting vary depending on the particular
circumstances. In some cases, companies self-report in the hope
of receiving some tangible benefit, although exactly what that
benefit will be varies from case to case. It may be that a company
that self-reports a violation is sanctioned through civil but
not criminal charges. Or it may be that a criminal enforcement
action is deemed appropriate, but that the company is permitted
to enter into a deferred prosecution agreement or a non-prosecution
agreement, or that some other benefits are conferred in reaching
a resolution.
The United States Sentencing Guidelines do provide
that a company is only eligible for the maximum deduction (5 points)
off its Culpability Score if "the organization (A) prior
to an imminent threat of disclosure or government investigation;
and (B) within a reasonably prompt time after becoming aware of
the offense, reported the offense to appropriate governmental
authorities, fully cooperated in the investigation, and clearly
demonstrated recognition and affirmative acceptance of responsibility
for its criminal conduct." U.S.S.G. §8C2.5(g)(1). Companies
that self-report are not guaranteed any particular outcome, such
as civil rather than criminal enforcement.
SUSPENSION AND
DEBARMENT
15. Under guidelines issued by the Office
of Management and Budget (OMB), 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. Guidance for agency
suspension and debarment activities is provided by Executive Order
12549, "Debarment and Suspension," and Executive Order
12689, with the same title. Pertinent regulations appear at Federal
Acquisitions Regulations (FAR) Subpart 9.4, "Debarment, Suspension
and Ineligibility." Suspension and debarment determinations
are made by the Suspending Official of the relevant government
agency and not by DOJ prosecutors, although DOJ prosecutors may
be consulted regarding a company's cooperation, acceptance of
responsibility, remediation efforts, or other pertinent issues.
FAR Subpart 9's Policy provision explains that
suspension and debarment are neither punitive nor automatic:
9.402 Policy.
(a) Agencies shall solicit offers from, award
contracts to, and consent to subcontracts with responsible contractors
only. Debarment and suspension are discretionary actions that,
taken in accordance with this subpart, are appropriate means to
effectuate this policy.
(b) The serious nature of debarment and suspension
requires that these sanctions be imposed only in the public interest
for the Government's protection and not for purposes of punishment.
Agencies shall impose debarment or suspension to protect the Government's
interest and only for the causes and in accordance with the procedures
set forth in this subpart.
DOJ GUIDANCE REGARDING
THE FCPA
16. In the Omnibus Trade and Competitiveness
Act of 1988, Congress directed the Attorney General to provide
guidance concerning the Department of Justice's enforcement policy
with respect to the FCPA 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 and to general explanations of compliance responsibilities
and potential liabilities under the FCPA. A brochure entitled
"The Layperson's Guide to the FCPA" constitutes the
Department of Justice's general explanation of the FCPA. See http://www.usdoj.gov/criminal/fraud/docs/dojdocb.html
17. The Layperson's Guide expressly provides:
"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". 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. The Commerce Department has also
had the FCPA translated into Arabic, Spanish, Chinese and Russian
in order to increase general awareness of the FCPA by U.S. exporters
and their trading partners. See http://www.ogc.doc.gov/trans_anti_bribery.html.
18. The Department of Justice has established
a Foreign Corrupt Practices Act Opinion Procedure by which any
issuer or domestic concern 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 such 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.
19. Requests for opinions are typically
received at a rate of fewer than five per year. DOJ does not calculate
how expensive it is to operate this procedure. Businesses or individuals
requesting opinions do not contribute to DOJ's costs of providing
the advice.
FACILITATION PAYMENTS
20. DOJ believes that the U.S. government's
overall FCPA enforcement efforts, including DOJ and SEC's enforcement
of the accounting provisions, as well as its efforts to promote
effective antibribery policies, compliance systems, and procedures
in companies, and its significant efforts to promote the rule
of law and good corporate governance have helped reduce the phenomenon
of facilitation payments.
COMPETITIVENESS
21. Critics persist in arguing that vigorous
enforcement of the FCPA undermines the competitiveness of U.S.
businesses. DOJ is firmly of the view that high antibribery standards,
good corporate governance, and robust compliance systems and procedures
strengthen U.S. businesses and provide them a competitive advantage.
Through the OECD monitoring process and other efforts, the U.S.
seeks to ensure that other parties to the OECD Antibribery Convention
diligently enforce their foreign bribery laws. In this way, the
U.S. strives to achieve a level global playing field and to raise
anticorruption standards globally and allow competition in international
business on the merits.
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