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CHAPTER XXVIII CHAPTER XXVIII FOREIGN CORRUPT PRACTICES FOREIGN CORRUPT PRACTICES

ACT & ANTIBOYCOTT LAWSACT & ANTIBOYCOTT LAWS

Foreign Corrupt Practices Act Foreign Corrupt Practices Act (FCPA) (FCPA)

Antiboycott LawAntiboycott Law

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Foreign Corrupt Practices Act (Foreign Corrupt Practices Act (FCPA))

Prohibits bribery of a foreign government official, a Prohibits bribery of a foreign government official, a foreign political party or a candidate for political foreign political party or a candidate for political office in order to obtain or retain a businessoffice in order to obtain or retain a business

Omnibus Trade and Competitiveness Act of 1988 Omnibus Trade and Competitiveness Act of 1988 changed responsibility of corporate officers from changed responsibility of corporate officers from "having reason to know" to "know of or authorize" "having reason to know" to "know of or authorize" illegal payments.illegal payments.

In mid-1970s, Lockheed Corporation’s bribery to In mid-1970s, Lockheed Corporation’s bribery to Kakuei Tanaka, then prime minister of Japan, to sell Kakuei Tanaka, then prime minister of Japan, to sell airplanes to Japan Airlines.airplanes to Japan Airlines.

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Foreign Corrupt Practices Act Foreign Corrupt Practices Act Five ElementsFive Elements

1)1) WhoWho: : U.S. firms. employees, directors, stockholders, U.S. firms. employees, directors, stockholders,

and foreign agents of U.S. firmsand foreign agents of U.S. firms

2)2) Corrupt IntentCorrupt Intent: : An intent to wrongfully influence recipient to An intent to wrongfully influence recipient to

benefit payer, whether succeeded or notbenefit payer, whether succeeded or not

3)3) PaymentPayment: : Offering, paying, promising to pay or Offering, paying, promising to pay or

authorizing to offer or to pay money or anything authorizing to offer or to pay money or anything of valueof value

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Foreign Corrupt Practices Act Foreign Corrupt Practices Act Five ElementsFive Elements

4)4) RecipientRecipient:: Foreign official, political party, party Foreign official, political party, party

official, candidate for political officeofficial, candidate for political office Not only those of foreign governments & Not only those of foreign governments &

public international organizations, but public international organizations, but also foreign government-controlled also foreign government-controlled entitiesentities

5)5) Business PurposeBusiness Purpose: : To assist the firm in obtaining or To assist the firm in obtaining or

retaining businessretaining business

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Foreign Corrupt Practices Act Foreign Corrupt Practices Act PenaltiesPenalties

Criminal penalties: For a firm, max. $2 million and for a individual, 5 years imprisonment or $100,000 or both per violation

Civil penalties for a firm and an individual: $10,000 per violation

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Foreign Corrupt Practices Act Foreign Corrupt Practices Act PenaltiesPenalties

Stock Exchange Commission(SEC)'s FinesStock Exchange Commission(SEC)'s Fines: : Greater of gross amount of pecuniary gain or Greater of gross amount of pecuniary gain or

specified dollar limitation, $5,000 to $100,000 for specified dollar limitation, $5,000 to $100,000 for individual and $50,000 to $500,000 for corporationindividual and $50,000 to $500,000 for corporation

Barred from doing business with Federal Barred from doing business with Federal GovernmentGovernment

Ineligible to receive export licensesIneligible to receive export licenses

Illegal payments are not tax-deductible Illegal payments are not tax-deductible expensesexpenses

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Foreign Corrupt Practices Act Foreign Corrupt Practices Act Facilitating PaymentFacilitating Payment

““Grease or Lubrication Payment”Grease or Lubrication Payment”Allowed, if the payment is:Allowed, if the payment is:

(1)(1) Permitted under the written laws of the host Permitted under the written laws of the host country or for demonstrating a product or country or for demonstrating a product or performing a contractual obligationperforming a contractual obligation

(2)(2) To speed up routine government actions To speed up routine government actions such as processing papers, stamping visas, such as processing papers, stamping visas, scheduling inspections, securing permits or scheduling inspections, securing permits or licenses and obtaining adequate police licenses and obtaining adequate police protectionprotection

Foreign Corrupt Practices Act Foreign Corrupt Practices Act International CooperationInternational Cooperation

• 1970s: Lockheed-Kakuei Tanaka• 1977: U.S. Foreign Corrupt Practice Act• In 1996, Organization of American States (OAS)

– Adopted Inter-American Convention Against Corruption by 35 member states

• In 1997, Organization for Economic Cooperation and Development (OECD)– Signed OECD Convention on Combating Bribery of Foreign

Public Officials in International Business Transactions by 34 member countries

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Foreign Corrupt Practices Act Foreign Corrupt Practices Act ViolatorsViolators

• In 1989, Goodyear Int’l Corp. paid $250,000 fine for In 1989, Goodyear Int’l Corp. paid $250,000 fine for bribing an official of Iraqi state-owned trading firm to get bribing an official of Iraqi state-owned trading firm to get the tire business with “commission.”the tire business with “commission.”

• In 1989, Napco International paid $1 million fine for In 1989, Napco International paid $1 million fine for bribing officials in Niger.bribing officials in Niger.

• In 1995, Lockheed Martin paid $24 million in fines, more In 1995, Lockheed Martin paid $24 million in fines, more than twice the profits for paying $1 million bribe to than twice the profits for paying $1 million bribe to Egyptian parliament.Egyptian parliament.

• In 2007, Baker Hughes Services International paid a $44 million fine for bribing officials of Kazakhstan’s national oil company to win an oil field services contract.

• In 2008, Siemens paid a $800 million fine ($450 M to In 2008, Siemens paid a $800 million fine ($450 M to USDJ & $350 M to the SEC) for many foreign briberies USDJ & $350 M to the SEC) for many foreign briberies from 2000 to 2006.from 2000 to 2006.

Foreign Corrupt Practices Act Foreign Corrupt Practices Act ViolatorsViolators

• In 2009, Control Components, Inc. paid a $18.2 M fine for In 2009, Control Components, Inc. paid a $18.2 M fine for bribing officials and employees of state-owned companies bribing officials and employees of state-owned companies in 30 countries’in 30 countries’

• In 2009, Avery Dennison Corp. paid $200,000 for bribing In 2009, Avery Dennison Corp. paid $200,000 for bribing Chinese officials.Chinese officials.

• In 2010, GE paid $23.4 m fine to the SEC for bribing Iraqi In 2010, GE paid $23.4 m fine to the SEC for bribing Iraqi officials under the U.N. oil-for-food program.officials under the U.N. oil-for-food program.

• On May 10, 2011, a jury convicted Lindsay Mfg Company, On May 10, 2011, a jury convicted Lindsay Mfg Company, two of its executives, a Mexican sales agent for bribing two of its executives, a Mexican sales agent for bribing officials of Mexican state-owned utilities company. First officials of Mexican state-owned utilities company. First conviction for 34-year history of the FCPA of 1977.conviction for 34-year history of the FCPA of 1977.

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Antiboycott LawsAntiboycott Laws

Two antiboycott lawsRibicoff Amendment to the 1976 Tax

Reform Act (TRA): Does not prohibit conduct but denies tax benefits-foreign tax credit: Not covered here

1977 Amendment to Export Administration Act (EAA): Does prohibit some conducts of exporters and facilitatorsOnly EAA Antiboycott laws are covered in the

chapter

Antiboycott LawsAntiboycott Laws

• EAA Antiboycott covers U.S. exports and imports, financing, forwarding and shipping, and banking

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Antiboycott LawsAntiboycott Laws

Prohibit U.S. exporters fromProhibit U.S. exporters from

Refusing or agreeing to refuse to do business Refusing or agreeing to refuse to do business with others because of unsanctioned foreign with others because of unsanctioned foreign boycottboycott

Furnishing information about business Furnishing information about business relationships with boycotted countries and relationships with boycotted countries and blacklisted companies (prohibited information)blacklisted companies (prohibited information)

Prohibit Banks from Implementing letters of Prohibit Banks from Implementing letters of credit which contain prohibited boycott credit which contain prohibited boycott terms and conditionsterms and conditions

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Antiboycott LawsAntiboycott LawsRequired to report receipt of boycott Required to report receipt of boycott

requests to the, Office of Antiboycott requests to the, Office of Antiboycott Compliance (Compliance (OAC) Bureau of Industry and ) Bureau of Industry and Security (BIS), USDC on a quarterly basisSecurity (BIS), USDC on a quarterly basis

The scope of the EAR is limited to actions The scope of the EAR is limited to actions taken with intent to comply with, further, or taken with intent to comply with, further, or support an unsanctioned foreign boycottsupport an unsanctioned foreign boycott

Also illegal to include any statement "comply Also illegal to include any statement "comply with or support an unsanctioned foreign with or support an unsanctioned foreign boycott" in commercial invoice or in any boycott" in commercial invoice or in any document.document.

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Antiboycott LawsAntiboycott Laws

Example of Prohibited StatementExample of Prohibited Statement

"We are neither blacklisted by the Arab boycott of "We are neither blacklisted by the Arab boycott of Israel, nor are we a boycotted company, no Israel Israel, nor are we a boycotted company, no Israel capital is invested in our firm, no company capital capital is invested in our firm, no company capital or capital of its owners is invested in any Israel or capital of its owners is invested in any Israel company, our products are not of Israel origin and company, our products are not of Israel origin and do not contain Israel raw material or labor."do not contain Israel raw material or labor."

   Most members of Arab League, except Egypt and Most members of Arab League, except Egypt and

Jordan, boycott goods and service from Israel.Jordan, boycott goods and service from Israel.

Antiboycott LawsAntiboycott Laws

• Voluntary Self-Disclosure of Antiboycott Violations– Voluntary Self Disclosure of violations of the

antiboycott provisions of the Export Administration Regulations (EAR)

– To the Office of Antiboycott Compliance (OAC), Bureau of Industry and Security, U.S. Dept of Commerce (www.bis.doc.gov) according to the procedures provided for in Part 764.8 of the Regulations.

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Antiboycott LawsAntiboycott LawsPenaltiesPenalties

Violations of EAA AntiboycottViolations of EAA Antiboycott Administrative (Civil) penalty: Administrative (Civil) penalty:

• Denial or suspension of export privilegesDenial or suspension of export privileges

• Fines of up to $11,000 per violation, and/orFines of up to $11,000 per violation, and/or

• Exclusion from practiceExclusion from practice

Criminal penalty: Criminal penalty: • Up to $50,000 or 5 times the value of exports Up to $50,000 or 5 times the value of exports

involved, which is greaterinvolved, which is greater

• 5 years imprisonment or both5 years imprisonment or both

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Antiboycott Laws Antiboycott Laws ViolatorsViolators

• Rosement, Inc.: Fined $10,000Rosement, Inc.: Fined $10,000• Brooks Instruments: Fined $7,000Brooks Instruments: Fined $7,000• Panalpina,Inc.: Fined $20,000Panalpina,Inc.: Fined $20,000• BDP Int’l: Fined $4,000BDP Int’l: Fined $4,000• Best Power Technology: Fined $4,000Best Power Technology: Fined $4,000• Itochu Project Management: Fine $4,000Itochu Project Management: Fine $4,000• Kenclaire Electrical Agencies, Inc.: Fine Kenclaire Electrical Agencies, Inc.: Fine

$104,000$104,000• Bailey Int’l, Inc.: Fine $4,000Bailey Int’l, Inc.: Fine $4,000• GM Daewoo Auto: $88,000 fine for 59 GM Daewoo Auto: $88,000 fine for 59

violations 2000-2006violations 2000-2006