Foreign-reaching enforcement of the Foreign Corrupt Practices Act’s (FCPA) prohibitions on corrupt payments to foreign officials is alive and well. The prohibitions are intended to induce the recipient to wrongfully obtain or retain business for or with, or to direct business to, any person. The language of the United Kingdom’s Bribery Act, which recently celebrated its one-year anniversary, potentially makes the cross-border reach of the new law even greater than the FCPA in certain respects. However, there have been a limited number of cases resolved thereunder and there is much uncertainty regarding exactly how far U.K. law enforcement authorities can and will reach.
The Foreign Corrupt Practices Act
By the language of the FCPA, the books and records controls it imposes are limited to issuers of securities that have been registered in the U.S. or that are otherwise required to file periodic reports with the Securities and Exchange Commission (SEC) pursuant to its rules and regulations. The anti-bribery proscriptions, however, are not only applicable to issuers, but also more broadly applicable to domestic concerns. As the term applies to organizations, a domestic concern is any corporation, partnership, association, sole proprietorship or other organizational entity—regardless of whether it issues securities—which has its principal place of business or which is incorporated in the U.S. The anti-bribery provisions also apply to all U.S. citizens, nationals or residents, wherever they are located.
Coupled with the provisions of the act that make foreign companies and organizations culpable under the FCPA if they cause, directly or through an affiliate or agent, an act in the U.S. in furtherance of a corrupt payment, the FCPA has real reach outside U.S. borders. The distance that U.S. officials cast the enforcement net is demonstrated by cases in which U.S. securities listings or the conduct of either a U.S. or foreign agent was sufficient to ensnare foreign companies for conduct that happened almost entirely abroad.
For instance, in the December 2011 Magyar Telekom case, Hungarian and German telecommunications companies agreed to pay nearly $64 million in criminal penalties relating to the Hungarian company and its subsidiaries’ payment of bribes to Macedonian officials through various foreign agents for licensing and regulatory benefits. The trading of Magyar Telekom Plc’s and the German majority owner of Magyar Telekom’s American Depository Receipts (ADRs) on the New York Stock Exchange (NYSE) was enough to make the companies issuers under the FCPA. ADRs are the domestically registered and traded representative securities of foreign-traded stocks. Moreover, the secret agreement to make corrupt payments passed through and was stored on email servers located in the U.S.
Similarly, in a May 2011 enforcement action, Luxembourg Company Tenaris S.A. entered into the first-ever deferred prosecution agreement (DPA) with the SEC and agreed to pay $5.4 million in disgorgement and prejudgment interest for violating the FCPA in bribing Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas. Tenaris also agreed to pay a $3.5 million criminal penalty in a non-prosecution with the U.S. Department of Justice (DOJ). Jurisdiction in both cases was based on Tenaris’s listing of ADRs on the NYSE.
In another case, which was finally resolved in January, the DOJ entered a series of DPAs and guilty plea agreements beginning in 2008 in connection with a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts in connection with a project to build liquefied natural gas facilities on Bonny Island, Nigeria. The defendants included the foreign and domestic member companies of the four-company joint venture that sought to obtain the contracts, a Japanese trading company headquartered in Tokyo that acted as an agent for the joint venture to pay bribes—some of which were routed through U.S. bank accounts—on behalf of the joint venture, and several individuals who either served as foreign agents of the joint venture or were U.S. nationals. In reaching resolutions with the parties, the government relied on the “issuer” and “domestic concern” definitions in the act and the application of the agency language therein. The broad enforcement of the FCPA has been effective for enforcement authorities: The DOJ and other U.S. and internal enforcement authorities recovered more than $1.7 billion in penalties and forfeiture orders from the prosecution of the Bonny Island case.
The U.K. Bribery Act
The Bribery Act, enacted in the United Kingdom in April 2010, came into force on July 1. After a year on the books, few cases have been brought or resolved under the law. Similar to the FCPA, the anti-bribery provisions apply to U.K. companies, citizens and residents, regardless of where the bribery occurred. They also apply to individuals and companies, irrespective of nationality, when the violations occurred within the U.K. Unlike the FCPA, listing securities on a U.K. exchange or the transmission of a single wire in furtherance of a corrupt payment is not enough alone to subject a company to the jurisdiction of the Bribery Act. However, by its terms and pursuant to the guidance issued by law enforcement and the banking trade association, the reach of the U.K. Bribery Act is even broader than that of the FCPA in certain other respects.
Any international company which “carries on a business, or part of a business” in the U.K. can be subject to liability for failing to prevent bribery by persons associated with the organization. The term “carrying on a business or part of a business” is not defined in the act, is not more specifically defined in the published guidance and is, as of now, untested. Thus, the potential reach of this provision is far and its potential impact is significant. The uncertainty surrounding the interpretation that U.K. enforcement authorities will give to this provision leaves in-house counsel charged with ensuring compliance, defense counsel charged with advising companies and legal commentators with uncertainty surrounding such questions as:
- Is a foreign corporate parent with a wholly-owned U.K. subsidiary engaged in making corrupt payments in a foreign country subject to Bribery Act enforcement?
- Is that foreign parent subject to the Bribery Act through the corrupt payments of an agent that operates on behalf of the parent in the U.K.?
- Will the availability of a company’s website for ordering goods and services to be shipped to or provided in the U.K. be considered “doing business” in the U.K.?
The answer to any of these questions is potentially yes or potentially no, depending on how U.K. enforcement authorities determine to interpret and apply the term. Until such time as we are given more certainty, companies committed to doing business on the up-and-up and with any direct, affiliate or third-party relationship that touches the U.K. should ensure that they have adopted and implemented Bribery Act-compliant policies and training.