Dont Try and Mess With US Anti-Corruption Act
Soft Landing Consulting
Have you ever heard of the U.S. Foreign Corrupt Practices Act, or "FCPA?" I first did in 1977 when I worked for an American bank in Seoul. That was the year when the FCPA was enacted by the US. Congress. We Americans working for American companies abroad were urgently advised about what this meant for our operations. Since then, the FCPA jurisdiction has grown by design and precedence so that even non-Americans can face significant liabilities while doing business outside and even inside of the United States.
Much of this was brought home by Mr. Patrick M. Norton, Partner of Steptoe & Johnson, LLP during last month's Legal Affairs Committee luncheon of AmCham Korea. While most of the audience comprised of attorneys and legal counsels, the messages from this presentation were of significant importance to American- and non-American - business professionals working in this country.
While FCPA consists of two sections ― anti-bribery provisions and accounting & record-keeping provisions, Mr Norton had barely enough time to touch on the former, which was of course the most interesting portion.
Mr. Norton reported that since FCPA's passage, the US Government has been successful in "leveling the playing field" for American companies working abroad by pressuring several other countries to adopt similar foreign anti-corruption laws, including gaining Korea's endorsement in 2001. Specifically, the purpose of these diplomatic initiatives was to improve laws and practices regarding transparency and administrative ethics, improve corporate governance standards, while adding teeth to these laws though enforcement capacities and intergovernmental coordination.
Of course, all of this has taken time ― from the onset of US diplomatic initiatives; to the passage of similar laws around the world; to the actual enforcement of these new laws internationally. So, just recently, business people are waking up to non-American companies facing significant penalties for condoning corruption in their overseas operations. At the same time, back in the United States, prosecutions have greatly increased. For example, there have been more prosecutions of American companies during the past five years than the prior twenty-five years combined.
Today, there are 80 FCPA investigations pending at the US Department of Justice. Last November, the New York Times reported that the FCPA is a bigger problem for US companies than Sarbanes-Oxley. Mr. Norton gave brief case studies of the last two years where companies have been fined between $16 and $44 million for bribery and kickbacks in their business dealings ranging from Nigeria to Korea.
American executives ― both US citizens and green card holders - have been sentenced to jail terms often longer than three years and, in one case, longer than five years. So the interesting question is who is covered by the FCPA's anti-bribery provisions? The answer may surprise you: in addition to all U.S. businesses, all individual U.S. citizens and permanent U.S. residents anywhere in world, regardless of employer, are in jeopardy. In the cases of foreign nationals, however, their liabilities are limited to only when they take action in the United States in furtherance of a bribe elsewhere.
So one may think one knows what constitutes a bribe, but legally speaking, it can be a bit different than expectations. For example, FCPA considers a transaction to be bribe if giving anything of value, directly or indirectly, to any foreign official or employee of a state-owned company in a corrupt manner in order to obtain business or an "advantage."
Got it? But that's not all. A bribe can also mean offers and promises - not just actual payments. And illegal payments are not limited to cash. Bribes can be considered if your company offers children's tuition, bogus "business" or "training" trips, which incidentally include fun-filled, expenses-paid weekends in places such as Las Vegas, etc. Also excessive or lavish wining and dining of foreign officials can eventually earn you special, adrenalin-rich sessions with your legal counsel.
Okay, if you think about it, the above may make a lot of sense. But how about your partners and sales channels? Well, there is some bad news. The FCPA also prohibits indirect corrupt payments through third party intermediaries, such as agents, distributors, consultants, independent contractors, representatives, provided your company authorized payments or "knew" of illicit payment possibly being made by a third party intermediary.
And guess what? The "don't ask, don't tell" strategy won't cut it as a legal defense if it is discovered that your local distributor was routinely bribing and not bothering to report it to you, since you had made it a practice not to pay attention. That is, "the head in the sand" approach to corruption avoidance is just about guaranteed to be thrown out of the window by the US Department of Justice ― particularly if there was a reasonable chance that you were aware of a high probability of money being passed under the table, in white envelopes, etc. and entering foreign officials' pockets.
Still a legal defense can be built around a lack of corrupt intent. For example, giving money at an official's wedding or funeral is not likely to raise suspicions, so long as the amount is in keeping with local traditions and there is no intent to get business as a result of that donation. On the other hand, giving or promising money, etc. with the intent of getting business - well, that can land you in jail.
So, you might think, "the above is well and good for those poor chumps who have to deal with government officials, but it's not my concern since I deal only in the private sector." Well, my friend, dream on. While indeed the genesis of the FCPA may have focused on those companies dealing with foreign governments, thanks to creative interpretations of the U.S. Travel Act by the US Department Of Justice (DOJ), any bribe that is technically illegal by local governments can enable the US Feds to go after you.
But, the same thinking can actually work as your defense. For example, if a payment is specifically permitted by local law, then you are off the hook regardless if you are dealing with a private or public sector transaction. And, here is some other good news: the FCPA specifically permits payment to officials to facilitate payments so long as other anti-bribery provisions are not violated. Also, if your payment meets all the criteria for a violation of the anti-bribery provisions, but was a "reasonable and bona fide business expense, you may have a solid legal defense.
Anyway, there is not enough space in a newspaper to properly cover this topic. But I hope I have given you some insight as to how complicated this matter can become and how your company could be unknowingly be walking in a major, legal mine field. Legal compliance, of course, requires a great deal more than just reading newspaper columns. So, if your operation does not already have in place policies and procedures dealing with FCPA or home country and Korean anti-corruption legal compliance, it may be past due for you to spend the time and money to invest in some solid legal counsel.
AmCham's Legal Affairs Committee did the community a good service by sponsoring July's luncheon. But it's obviously up to each company to ensure ongoing compliance. The FCPA (and like laws) have become more far-reaching and are now more punitive than ever.