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November 21st, 2012
New FCPA Guidance for US Companies Doing Business Overseas
The Foreign Corrupt Practices Act ("FCPA") was enacted by Congress in 1977 in response to "revelations of widespread global corruption", including allegations that numerous U.S. companies had paid hundreds of millions of dollars to bribe foreign government officials to obtain or retain overseas business. The FCPA includes substantial criminal penalties for both businesses and individuals found to have made prohibited payments, and also gives both the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") the authority to pursue civil enforcement actions.
On November 14, 2012, the DOJ and the SEC released a "Resource Guide" to the FCPA. The Resource Guide provides guidance both as to the statutory requirements of the FCPA and to the enforcement practices and priorities of the DOJ and the SEC. It is described as a resource for U.S. businesses to avoid FCPA problems given the increased attention both in the U.S. and other countries to the issue of bribery and corruption. The release of this Resource Guide is intended by the Government to reinforce its commitment to enforce the FCPA aggressively.
The Resource Guide offers an assessment of key provisions of the FCPA, hypothetical scenarios and "best practices" for corporate compliance programs. In doing so, the Resource Guide provides key insights into the views and focus of the regulators.
As to certain key issues under the FCPA, the Resource Guide provides the following guidance:
Definition of Foreign Officials and Foreign Instrumentality: The Guide explains that the FCPA''s definition of "foreign official" includes officers or employees of an "instrumentality of a foreign government" and provides a non-exhaustive list of factors to be considered in determining whether a particular entity constitutes an "instrumentality."
Proper versus Improper Gifts, Travel and Entertainment Expenses: The Resource Guide reiterates the regulators'' focus on instances of "extravagant gift-giving (such as sports cars, fur coats, and other luxury items)" as opposed to payments of cab fare and "reasonable" meals. The Resource Guide recommends that companies have "clear and easily accessible guidelines" in place for gift-giving by directors, officers, employees and agents, which include "clear monetary thresholds for gifts along with annual limitations."
Exception for Facilitating and Expediting Payments: The Resource Guide explains that the FCPA''s narrow exception for "facilitating or expediting payments" is only intended to apply when a payment is made to further "routine government action" that involves non-discretionary acts. The Resource Guide provides a number of examples of permissible facilitating payments, including obtaining permits or licenses, processing visas, scheduling inspections, and loading and unloading cargo. However, it warns that facilitating payments may still violate local law in the countries where the company is operating.
Successor Liability in the Mergers and Acquisitions Context: The Resource Guide notes that the DOJ and the SEC have only taken action against successor companies in "limited circumstances", generally in cases involving egregious and sustained violations, or where the successor company directly participated in the violations or failed to stop the misconduct post-acquisition. Importantly, the Resource Guide states that voluntary disclosure, due diligence and implementation of an effective compliance program may decrease the likelihood of an enforcement action.
Accounting: The Resource Guide lists common accounting entries that have been used to conceal bribes and reiterates the importance of strong internal controls for companies to protect themselves against allegations of covering up illegal payments.
Matters Not Pursued: The Resource Guide contains six anonymized examples of matters the DOJ and the SEC have declined to pursue, including a discussion of the factors the DOJ and the SEC considered when choosing to decline these particular matters.
The Resource Guide urges companies to take a proactive approach to FCPA compliance, especially given the increased cooperation of the DOJ and the SEC in investigating allegations of FCPA violations. In light of the Government''s expressed intention to intensify its enforcement of the FCPA, companies will be well advised to review their current FCPA compliance programs and to consult counsel to ensure compliance.
The Resource Guide is available online at www.justice.gov/criminal/fraud/fcpa and at www.sec.gov/spotlight/fcpa.shtml.
If you have any questions about the Foreign Corrupt Practices Act, or about any other white collar defense or securities law matters, contact Brian Maas at (212) 705 4836 or email@example.com; Caren Lerner at (212) 705 4833 or firstname.lastname@example.org; or any other member of the Frankfurt Kurnit Securities Fraud and White Collar Defense Group.
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