© sheppard, mullin, richter & hampton llp 2007 foreign corrupt practices act

© Sheppard, Mullin, Richter & Hampton LLP 2007

FOREIGN CORRUPT PRACTICES ACT

WHAT IS THE FCPA?1. A Federal Law that: Prohibits the offer or payment of anything of value to

“foreign officials” to “obtain or retain business” Imposes certain recordkeeping requirements on issuers

and subsidiaries:– Books and records must, in reasonable detail,

accurately reflect the transaction– Internal controls must provide reasonable assurances

that transactions are authorized, and assets are kept track of and protected

2. These components are referred to as the bribery and accounting provisions

WHO IS COVERED?IssuersDomestic concerns

Foreign firms and nationals that directly or indirectly cause an act in furtherance of the bribe to take place in the U.S.Anyone acting as an intermediary for a covered personAccounting provisions apply only to issuers and entities they control

Coverage Extends to Conduct Within and

Outside the U.S.

“DOMESTIC CONCERN”

U.S. citizens, nationals and residents, any U.S. corporation, or any other legal entity having its principal place of business in the U.S.

“FOREIGN OFFICIALS” Government officials Agencies and state owned or state controlled

entities and their employees, e.g., hospitals, communications firms, steel firms

Public international organizations, e.g., UN, IMF, Red Cross

Relatives/advisors/consultants/candidates/ political parties

Joint ventures in which “foreign officials” participate

BUSINESS NEXUS(“obtaining or retaining business”)

Broadly interpreted Can include a reduction of taxes, custom

duties, sales taxes Lower costs of doing business enough to

have a sufficient nexus to garner business– “American Rice” case, United States v. Kay, 359

F.3d 738 (5th Cir. 2004)

EXAMPLES Schering-Plough – Its Polish subsidiary made

payments to a Polish charitable organization whose head was the director of a Polish governmental body that provided funds to, and influenced the purchase of drugs by, Polish hospitals.

EDS – Two firms partially owned by the Indian Government retained a second-level Indian subsidiary of EDS for management consulting services. The subsidiary paid bribes to employees of the partially owned Indian companies to retain the business.

EXCEPTIONS / DEFENSES “Grease Payments” – for routine government

actions – licenses, permits Payment is legal under written law of foreign

country – statutes, regulations, written decisional law

Reasonable and bona fide expenditure relating to promotion of products or services or the execution or performance of contract

CONSEQUENCES Incarceration – up to 5 years Fines Disgorgement of benefits Debarment Independent Monitors – Compliance Programs Employees, officers and directors may not be

indemnified Successor liability SEC / IRS issues SOX Issues – 302 and 404

RISK AREAS Foreign business High risk countries Business contacts with entities in which relatives or

political associates of Government officials are employed or have an ownership interest

Negative background information High commissions / consulting payments Cash payments Convoluted payments

DOJ EXPECTATIONS Covered firms should have compliance

programs– Training– Audits of risk areas– Clearly announced policy including disciplinary

measures– Due diligence re consultants, agents, business

partners acting outside U.S.– Self-reporting

AVAILABLE RESOURCES DOJ Opinions – advisory opinions from DOJ within

30 days of request Transparency.org – web site offers information re

current FCPA issues and risk regions and industries

OECD – multinational organization that prompted the 1998 amendments to the FCPA and publishes information concerning FCPA topics

Trace International – offers FCPA-related training, audit and compliance programs

Compliance Programs