The Foreign Corrupt Practices Act, UK Bribery Act, and Anti-Corruption Compliance

158 Pages·2013·1.81 MB·English

by  Paul Goatley

By in-house counsel, for in-house counsel.®
By in-house counsel, for in-house counsel.®

InfoPAKSM

The Foreign Corrupt Practices Act, UK
Bribery Act, and Anti-Corruption
Compliance

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Association of Corporate Counsel
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2 The Foreign Corrupt Practices Act, UK Bribery Act, and Anti-Corruption Compliance
The Foreign Corrupt Practices Act, UK Bribery
Act, and Anti-Corruption Compliance
Updated October 2013
Provided by the Association of Corporate Counsel
1025 Connecticut Avenue, NW, Suite 200
Washington, DC 20036 USA
tel [phone]
fax [phone]
www.acc.com
The purpose of this InfoPAK is to assist corporate counsel in understanding and making
decisions about the Foreign Corrupt Practices Act, the UK Bribery Act, and global anti-
corruption laws. Included is a summary of the laws, the role of the various government
agencies, enforcement trends, and a discussion of steps companies can take to mitigate risks
and fulfill their obligations under the anti-corruption laws.
The information in this InfoPAK should not be construed as legal advice or legal opinion on
specific facts, and should not be considered representative of the views of Morrison &
Foerster or of ACC or any of its lawyers, unless so stated. This InfoPAK is not intended as a
definitive statement on the subject but rather to serve as a resource providing practical
information for the reader.
This InfoPAK was prepared by Morrison & Foerster, the 2013 Co-Sponsor of the ACC
Litigation Committee.
This material was developed by the FCPA + Anti-Corruption Task Force of Morrison &
Foerster LLP. For more information on Morrison & Foerster, go to www.mofo.com or
see the “About the Author” Section of this document.
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Contents
I.
  Introduction ....................................................................................................................................... 8

A. Enforcement Trends ................................................................................................................................................................ 8
B. US Regulators Issue Resource Guide .................................................................................................................................. 9
II. FCPA Basics ..................................................................................................................................... 11
A. The Statute ............................................................................................................................................................................. 11
1. Anti-Bribery Provisions ..................................................................................................................................... 11
2. Jurisdiction ............................................................................................................................................................ 12
3. Intent Requirement ............................................................................................................................................ 13
4. “Anything of Value” ........................................................................................................................................... 15
5. “Foreign Official” ............................................................................................................................................... 15
6. Exceptions and Affirmative Defenses ............................................................................................................. 17
B. Accounting Provisions .......................................................................................................................................................... 20
1. Jurisdiction ............................................................................................................................................................ 21
2. Books and Records Provision .......................................................................................................................... 23
3. Internal Controls ................................................................................................................................................ 24
C. Enforcement ........................................................................................................................................................................... 26
1. Department of Justice ........................................................................................................................................ 26
2. Securities and Exchange Commission ............................................................................................................ 29
3. Penalties ................................................................................................................................................................ 34
III. Theories of Liability ........................................................................................................................ 35
A. Parent-Subsidiary Liability ................................................................................................................................................... 35
B. Successor Liability ................................................................................................................................................................. 36
C. Conspiracy and Aiding and Abetting ................................................................................................................................ 38
1. Conspiracy ............................................................................................................................................................ 38
2. Aiding and Abetting ............................................................................................................................................ 38
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4 The Foreign Corrupt Practices Act, UK Bribery Act, and Anti-Corruption Compliance
IV. Related Crimes and Commercial Bribery .................................................................................... 39
A. Recent Cases .......................................................................................................................................................................... 39
B. Commercial Bribery and the Travel Act ......................................................................................................................... 40
C. Intersection with Other Crimes ........................................................................................................................................ 41
D. Reaching the Corrupt Payment Recipient ....................................................................................................................... 42
V.
  The UK Bribery Act ........................................................................................................................ 42

A. Key Definitions ...................................................................................................................................................................... 43
B. General Offenses .................................................................................................................................................................. 43
1. Offering a Bribe ................................................................................................................................................... 43
2. Receiving a Bribe ................................................................................................................................................. 44
3. Bribery of a Foreign Official ............................................................................................................................. 45
4. Specific Issues for Commercial Organizations ............................................................................................. 46
5. Scope and Penalties ............................................................................................................................................ 46
6. Implications of the UK Bribery Act ................................................................................................................ 47
C. The Future of the Act .......................................................................................................................................................... 49
VI. Gifts, Travel, and Hospitality ......................................................................................................... 50
A. Permitted Gifts and Entertainment ................................................................................................................................... 51
1. Gifts ........................................................................................................................................................................ 51
2. Meals and Entertainment ................................................................................................................................... 51
B. “Bona Fide” Expenditures ................................................................................................................................................... 52
C. Risk Mitigation ....................................................................................................................................................................... 52
VII. Third Parties ................................................................................................................................... 54
A. Risks When Dealing with Third Parties ........................................................................................................................... 54
B. Risk Mitigation ....................................................................................................................................................................... 55
C. Consultants with Government Affiliations ...................................................................................................................... 56
VIII. M&A Due Diligence ........................................................................................................................ 57
A. Importance of Pre-Acquisition Due Diligence ............................................................................................................... 57
B. Timing and Adequacy of M&A Due Diligence ................................................................................................................ 59
C. Self-Reporting ......................................................................................................................................................................... 62
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IX. When an Issue Arises: Internal Investigations ............................................................................. 63
A. Conducting an Internal Investigation ................................................................................................................................ 63
1. Attorney-Client Privilege Considerations ..................................................................................................... 63
2. Considerations of Local Law ............................................................................................................................ 65
B. When to Engage Outside Counsel ................................................................................................................................... 67
1. Advantages of Retaining Outside Counsel .................................................................................................... 67
2. Disadvantages of Retaining Outside Counsel ............................................................................................... 68
3. Other Issues to Consider ................................................................................................................................. 68
C. Insurance Issues ..................................................................................................................................................................... 69
X.
  Considering Whether to Self-Report ............................................................................................ 70

A. Avoiding or Mitigating Criminal and Civil Penalties ...................................................................................................... 71
B. Factors to Consider in Deciding Whether to Self-Report .......................................................................................... 71
1. Nature, Scope, and Severity of the Violation ............................................................................................... 71
2. Clarity of the FCPA Violation: ......................................................................................................................... 72
3. SEC Disclosure Requirements: ........................................................................................................................ 72
4. Likelihood of Discovery by the Government Agencies: ............................................................................ 72
5. Collateral Consequences of Self-Reporting: ................................................................................................. 72
6. Statute of Limitations: ........................................................................................................................................ 73
XI. Effective Compliance Programs and Risk Mitigation .................................................................. 73
A. Hallmarks of an Effective Compliance Program ............................................................................................................. 74
B. Case Studies: Best Practices for Compliance Programs .............................................................................................. 78
1. United States v. Panalpina .................................................................................................................................... 78
2. United States v. Pfizer ........................................................................................................................................... 78
XII. Suspension and Debarment of Government Contractors .......................................................... 79
A. Bases for Suspension and Debarment .............................................................................................................................. 79
B. Strategies and Procedures for Avoiding Suspension and Debarment ...................................................................... 80
XIII. Tag-along Civil Litigation ............................................................................................................... 80
A. Shareholder Class Actions .................................................................................................................................................. 81
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6 The Foreign Corrupt Practices Act, UK Bribery Act, and Anti-Corruption Compliance
1. Securities Exchange Act of 1934 Sections 10(b), 20(a), and SEC Rule 10b-5 ....................................... 81
2. Soliciting False or Misleading Proxy Statements — Securities Exchange Act,
Section 14(a) and SEC Rule 14a-9 .................................................................................................................. 82
B. Derivative Suits ...................................................................................................................................................................... 82
1. Breach of Fiduciary Duty ................................................................................................................................... 82
C. ERISA ....................................................................................................................................................................................... 83
D. Suits by Foreign Governments ........................................................................................................................................... 83
E. Suits by Business Partners ................................................................................................................................................... 84
F. Suits by Competitors ........................................................................................................................................................... 85
G. Whistleblower Suits ............................................................................................................................................................. 85
1. Retaliation and Wrongful Discharge .............................................................................................................. 86
2. RICO ...................................................................................................................................................................... 86
XIV. About the Authors .......................................................................................................................... 87
XV. Appendix A: Sample Forms ........................................................................................................... 89
A. Sample Anti-Corruption Representation for M&A Agreement ................................................................................. 89
B. Sample Contract Provisions for Agents/Distributors ................................................................................................... 91
C. Sample Anti-Corruption Compliance Certification for Agents .................................................................................. 93
D. Sample Anti-Corruption Compliance Certification for Employees ......................................................................... 95
XVI. Appendix B: Overview of International Anti-Corruption Efforts ............................................. 97
A. OECD Convention ............................................................................................................................................................... 97
B. Australia ................................................................................................................................................................................ 101
C. China ...................................................................................................................................................................................... 106
D. Hong Kong ............................................................................................................................................................................ 109
E. India ........................................................................................................................................................................................ 110
F. Indonesia ............................................................................................................................................................................... 114
G. Japan ....................................................................................................................................................................................... 116
H. Malaysia .................................................................................................................................................................................. 121
I. Mexico ................................................................................................................................................................................... 124
J. Russia ..................................................................................................................................................................................... 129
K. Singapore ............................................................................................................................................................................... 132
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L. Thailand ................................................................................................................................................................................. 136
XVII. Endnotes ......................................................................................................................................... 140
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8 The Foreign Corrupt Practices Act, UK Bribery Act, and Anti-Corruption Compliance
I. Introduction
The Foreign Corrupt Practices Act (“FCPA”)1 prohibits corrupt payments to foreign government
officials for the purpose of obtaining or keeping business or to secure an improper business
advantage. It also requires companies with securities registered on US stock exchanges or that
have certain Securities Exchange Act reporting obligations to maintain accurate books and records
and to implement adequate internal controls.
Companies doing business in foreign markets, and companies with agents and business partners
in foreign markets, must be familiar with the FCPA and actively work to ensure compliance with
it. The stakes are high: fines and penalties have run to the tens or hundreds of millions of dollars,
individuals have gone to prison, and companies have undergone expensive and time-consuming
investigations and follow-on civil suits.
In addition to the FCPA, global companies are now working to ensure that their compliance
policies and procedures address the UK Bribery Act, which came into force more than two years
ago, in July of 2011.2 The UK Bribery Act (“Bribery Act”) was designed to bolster and complement
existing criminal laws. At the time it was passed, the new law was described as some of the most
far-reaching anti-corruption legislation in the world. The passage of the Bribery Act made many
global corporations rethink their anti-corruption and anti-bribery policies, as the Bribery Act is in
many ways much broader in scope than the FCPA, prohibiting, among other things, accepting a
bribe as well as making a bribe, and applying to both public and commercial corruption. The
Bribery Act provides UK authorities with extensive powers to counter corrupt practices, both in
the United Kingdom and throughout the world.
Companies doing business around the world must also be mindful of other countries’ anti-
corruption laws that may apply to their activities.
This InfoPAK is designed to help you understand and navigate an active and nuanced
enforcement environment by providing practical guidance on a number of key issues that arise
under the FCPA, the UK Bribery Act, and other anti-corruption laws.
A. Enforcement Trends
The past few years have seen increased enforcement of existing anti-corruption laws, enactment of
significant new laws around the world, eye-popping sanctions for violations, and the prospect of
disruptive and costly internal investigations. Headlines trumpet the latest enforcement actions,
and company executives face extradition and jail time. As a result, the growing body of anti-
corruption laws is receiving unprecedented attention by companies that conduct business around
the globe, causing considerable anxiety for many.
The Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) are the
US governmental agencies responsible for FCPA enforcement. The Office of General Counsel of
the Department of Commerce also answers general questions from US exporters about basic FCPA
requirements. After years of relatively light enforcement, FCPA prosecutions rose steeply in the
last decade. When the last edition of this InfoPAK was published in 2010, DOJ and the SEC had
Copyright © 2013 Morrison & Foerster LLP & Association of Corporate Counsel
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collected a total of $1.8 billion in financial penalties since the FCPA was enacted in 1977.3 In the
last two and a half years alone, DOJ and the SEC collected an additional $1.23 billion in penalties
for violations of the FCPA.4 The number of prosecutions declined somewhat during 2011 – 2012,
but the number remains historically high, and DOJ and SEC officials have repeatedly reiterated an
unwavering commitment to vigorous enforcement of the FCPA.
While the anti-bribery prohibition of the FCPA may, at first blush, appear to be straightforward—
after all, everyone knows that bribery is wrong—application of the FCPA can be more difficult and
nuanced in practice. For example, is a business contact at a state-owned enterprise or public
hospital a “foreign official?” What is the relevance of local customs and practices? When do
ordinary business courtesies and hospitality cross the line? To what extent does the FCPA apply to
conduct outside of the United States? Are companies responsible for the conduct of their business
partners? And what steps can companies take to make sure they stay out of trouble?
Judicial decisions interpreting the language of the statute are few and far between, as most
companies choose to settle FCPA enforcement actions with the government. Indeed, many FCPA
cases begin as voluntary disclosures, prompted by the requirements of the Sarbanes-Oxley Act
(“SOX”)5 that executives attest to the accuracy of financial statements and by the prospect of more-
lenient treatment by DOJ and the SEC for companies that self-report potential or suspected FCPA
violations. As a result, the government’s interpretations of the FCPA are largely untested in the
courts, the latest settlement can become the baseline for subsequent enforcement actions, and the
meaning of the statute (or, at least, what the government believes the statute means) must be
gleaned from enforcement trends and agency pronouncements.
In recent years, the government has put more priority on the prosecution of individuals to increase
the deterrent effect of the FCPA, and the number of individuals prosecuted under the FCPA has
correspondingly risen sharply. Because individuals facing potential jail time have different
incentives to litigate than corporations, they are more likely to challenge the government’s
interpretations of key provisions of the FCPA. Accordingly, courts are beginning to address key
provisions of the FCPA, a trend that is likely to continue. Notwithstanding this development, for
the foreseeable future, experience, custom, and practice will continue to play an unusually large
role in assessing compliance with the FCPA.
With regard to the UK Bribery Act, it is too early to detect any enforcement trends. Until August
2013, the UK Serious Fraud Office (“SFO”) had not prosecuted anyone under the Bribery Act.
Other agencies in the United Kingdom had prosecuted three cases under the Bribery Act, but those
cases did not involve the corporate bribery that the Bribery Act was expected, and largely
intended, to deter and punish. While the delay in enforcement is not surprising given that the
Bribery Act has no retroactive effect, and only applies to conduct that occurred after July 1, 2011,
the lack of enforcement actions to date leaves global companies wondering just how rigorously the
Bribery Act will be enforced, as well as how broadly the regulators and courts will interpret the
scope of jurisdiction under the UK Bribery Act.
B. US Regulators Issue Resource Guide
One major development since the 2010 edition of this InfoPAK was DOJ and the SEC’s November
2012 release of their much-anticipated guidance on FCPA compliance and enforcement issues, in
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10 The Foreign Corrupt Practices Act, UK Bribery Act, and Anti-Corruption Compliance
the form of the 120-page A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Resource
Guide” or “Guide”).6
The Resource Guide did not provide as much clarity as many had hoped or advocated;
nevertheless, it is a valuable, if not a one-stop, resource. The Resource Guide provides a
compilation of information and distillation of principles, including illustrative scenarios. The
Resource Guide is not binding authority, but is a useful collection of the regulators’ views on
commonly encountered issues. Without creating guaranteed safe harbors, the Guide also clarifies
some circumstances that do not pose significant danger of FCPA liability.
Of particular interest, and as will be discussed in the relevant sections, are statements in the
Resource Guide regarding:

■ Who is a “foreign official” and what is a “foreign instrumentality” (see Section II.A.5);
■ Gifts and hospitality (see Section VI);
■ Facilitating/expediting payments (see Section II);
■ Corporate vs. individual liability (see Section III);
■ Parent and subsidiary liability (see Section III);
■ Successor liability after a merger or an acquisition (see Section VIII);
■ Designing and implementing compliance programs (see Section XI);
■ Self-reporting (see Section X); and
■ Prosecutorial declinations (see Section XI).

In the months leading up to the release of the Resource Guide, senior officials at DOJ and the SEC
stated several times that the guidance would not represent a retrenchment from aggressive
enforcement. The Resource Guide delivers on that promise, calling FCPA enforcement a
“continuing priority” of both agencies and promising “robust enforcement.”7

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