Guidance on Bribery Law Leaves ‘Gray Areas’

SEC and Justice Department issue a 120-page guide to FCPA.

Lisa Rickard, US Chamber of CommerceThe Securities and Exchange Commission and the U.S. Justice Department have finally released a long-awaited guide to the controversial Foreign Corrupt Practices Act (FCPA), but the volume has landed with a dull thud in corporate America’s legal departments and risk management offices.

The 120-page guide offers interpretations and clarifications of various aspects of the law, including real-life examples of cases (with company names deleted) in which the SEC or the Justice Department prosecuted a company for violating the act or decided some company action was not a violation or didn’t warrant bringing a case.

The U.S. Chamber of Commerce, which has been lobbying Congress to amend the act to protect companies from prosecution, for example by prosecuting only cases involving substantial bribes or long histories of bribery, expressed mild approval. Lisa A. Rickard, president of the Chamber’s Institute for Legal Reform, at right, calls the guide “an important step forward in an ongoing process of providing much-needed clarity and certainty” a not-so-veiled hint that the organization plans to continue its lobbying to change the law.

“They really haven’t solved the problem with this guide,” says John Carney, a partner at BakerHostetler who specializes in FCPA law and was a federal prosecutor for 15 years. “That will have to be done by Congress.”

The FCPA was passed in 1977 during the era of post-Watergate reforms, but the SEC has ramped up enforcement in recent years, even setting up a special FCPA unit in 2010. In 2011 that unit brought 20 cases, up 25% from the year before, and it has brought 15 so far in 2012, including a bribery case against Pfizer, which agreed to pay a $45 million settlement.

Critics hoped the guidance would provide some kind of “safe harbor,” under which companies that established a strong anti-bribery culture and set of rules that were rigorously enforced would be free of liability for bribery activity by their employees and executives. Critics also hoped the guidance would establish some minimum level of “facilitation payments,” or bribes, below which the SEC and Justice Department would not prosecute. They got neither. Nor has guidance cleared up the ambiguity about important issues such as who is a foreign official, and what constitutes a bribe.

The definitions of these terms might seem obvious, but in many countries, such as China, Japan and Korea, for example, giving gifts to counterparties in business and government is a long-established cultural tradition. Such gifts, like a bottle of cognac to another executive in a business deal, are often not perceived locally as bribes, but as an expected tokens that cement a relationship. Meanwhile many developing countries, and even some developed ones, have state-owned or partially state-owned enterprises, such as the U.S. Postal Service and Army Corps of Engineers. Are the executives and employees of those enterprises government officials?  The answers to these questions can be the difference between prosecution or no prosecution under the FCPA, which bars bribes to “foreign officials.”

Michelle Shapiro, partner, SNR DentonThe FCPA defines a foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.”

By way of clarification, the guidance adds: “The term ‘instrumentality’ is broad and can include state-owned or state-controlled entities. Whether a particular entity constitutes an ‘instrumentality’ under the FCPA requires a fact-specific analysis of an entity’s ownership, control, status, and function.” It goes on to list 11 issues to consider in determining whether a state enterprise is a government instrumentality, such as the degree of state ownership and whether it has “official or governmental functions.”

Similarly, the guide quotes the FCPA as defining a bribe as any payment made to a foreign official “in order to obtaining or retaining business for or with or directing business to, any person.”  The guide notes that this payment must be made “with corrupt intent,” and adds that to be a bribe, a gift to an official must have been made “willfully,” which it defines as “voluntarily” and “with a bad purpose.”

If all this leaves you scratching your head, you aren’t alone.

“The guide makes it clear that the FCPA statute is all about intent,” says Michelle Shapiro, a partner at SNR Denton with substantial FCPA experience, who's pictured above. “It’s nice to know they’re doing that instead of just looking at the fact that a gift was given to an official, but it still leaves a lot of grey areas.”

Says a corporate attorney with a background in FPCA enforcement, speaking on background, “Any hope that there’d be a watering down of the FPCA in this guidance is gone.” 

BakerHostetler’s Carney says one thing the guide does do, by stressing the importance of companies having strong compliance rules about bribing of foreign officials, is “give more strength to corporate compliance officials.”

Bill Pollard, a partner in the FCPA consulting practice of Deloitte Financial Advisory Services, adds, “Companies have their anti-corruption New Year’s resolutions cut out for them.” Pollard says the new guidance shows the SEC and Justice Department “expect companies to take a risk-based approach to employing technology to support their FCPA programs.”


See the full guide here. For more coverage of this issue, see Many Firms Loath to Report Bribery, Wal-Mart Said Subject of U.S. Probe and Hunting Foreign Bribes.




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