Demystifying the U.S. Foreign Corrupt Practices Act (Part II)

FCPA enforcement actions frequently are costly and time consuming, but they can be avoided with care

In Part I of this article, we discussed the Foreign Corrupt Practices Act (FCPA) and the resource guide that accompanies it (“the Guide”). The Guide aims to define the terms of the FCPA and help clarify what exactly is and isn’t covered by its parameters. However, as we addressed, these terms are subject to ambiguity due to the cultural and linguistic variables associated with certain concepts and phrases, which can put the parties involved on very different pages of the same book. The second part of our article will explore some of the circumstances in which these variables often have a complicating effect, as well as look at what international businesses can do to sidestep these challenges.

Linguistic variables and real-world scenarios

Perhaps nowhere are these concerns more relevant than when a company has foreign subsidiaries, or where the company plans to merge with another company that has foreign operations. This is because the Guide makes clear that a company may find itself subject to an FCPA enforcement action even if it was not “directly responsible” for the violation. This “indirect” liability arises primarily in two contexts: (1) when a parent company is deemed responsible for the violations of one of its subsidiaries (“parent/subsidiary liability”), or (2) when a company acquires or merges with another company, which violates or previously violated the FCPA (“successor liability”).

In accordance to the FCPA, a parent company can be held liable for the violations of its subsidiary if it “participated sufficiently” in the violation, or it may be held liable under “traditional agency principles.” Under traditional agency principles, often referred to as the doctrine of respondeat superior, a parent company “is liable for bribery committed by the subsidiary’s employees.” Indirect liability incentivizes parent companies to develop effective compliance programs that are communicated to and followed by their subsidiaries. The Guide points out that parent companies are also wise to create sufficient risk-detecting and remedial measures, as well as adequate processes for self-reporting the discovery of questionable conduct. Similarly, in the mergers and acquisitions context, the surviving entity acquires the liabilities of the extinguished entity. As such, the Guide encourages companies to “conduct preacquisition due diligence and improve compliance programs and internal controls after acquisition.”

In both the parent/subsidiary context, as well as the mergers and acquisitions context, a company’s efforts to comply with the Guide’s recommendations to avoid enforcement actions can be undercut by cultural and linguistic variables. Cultural and linguistic differences between a parent and its subsidiary, or between an acquirer and its target, can lead to incomplete or incorrect sharing of information. This problem is only exacerbated by the fact that a company’s subsidiaries or potential acquisitions might operate in some of the world’s riskiest areas for corruption. If unaddressed, or improperly addressed, cultural and linguistic variables may lead to insufficient transactional due diligence or inadequate training and monitoring of subsidiary operations. They may also diminish the effectiveness of efforts made to create, revise, or implement an effective compliance program. All of these issues may lead to less predictability about whether the company is likely to be subject to an enforcement action. And worse yet, they might make it more likely that the company will be subject to an enforcement action.

Dealing with FCPA issues raised by cultural and linguistic variables

When faced with cultural or linguistic variables, a company’s first inclination might be to enlist their own in-house or in-country resources to help overcome these challenges. As an in-house solution, companies may lean on bilingual employees, even when ordinarily those employees are not tasked with mediating cultural barriers or translating compliance-related documents. These decisions may be based upon a well-intentioned, but ultimately shortsighted notion about soft costs. Given what is at stake with regard to FCPA enforcement actions, and the potential for ambiguity when interpreting the FCPA, it is risky (and ultimately may be more costly) to rely solely on a bilingual assistant or bilingual paralegal in your office to fill such an important and uncharacteristic role.

One prudent alternative is to work with legal counsel to engage a sophisticated language service provider (LSP); especially an LSP that has experience assisting companies and law firms with the FCPA. Some of these LSPs have linguists who are former legal professionals and have dedicated their lives to providing translation support in this area. Similarly, if the LSP has experience assisting with due diligence reviews, creating and implementing compliance programs, translating compliance training materials, and assisting with formal DOJ or SEC investigations, that LSP can further help limit concern stemming from cultural and linguistic variables.

While all LSPs are adroit providers of translation services, the sophisticated LSPs are capable of doing more than simply translating documents. Some LSPs provide a range of services, each of which can help to ensure the effectiveness of the implementation of policies and procedures designed to accord with the Guide’s recommendations. A sophisticated LSP can also consult on the most efficient ways to deliver a uniform training presentation so that the messages refined by the company’s legal department or outside counsel are delivered accurately and uniformly across all operations, regardless of location or native language. They should also be able to provide seasoned interpreters to assist with explanatory meetings and training sessions as well as remote interpretation in the form of whistle-blower tip lines to help companies vet possible breaches of FCPA policy.

LSPs can also provide helpful assistance during FCPA investigations. First, LSPs can help establish something that using in-house counsel cannot: impartiality. Through the use of LSPs, a company can demonstrate integrity and lack of bias when engaging in translation. Second, where a regulator is involved, utilizing an LSP can help ensure that translations are accurate. Here, where there is so much at stake, companies are wise to take every measure possible to ensure that there are no translation mistakes or misunderstandings.

Finally, LSPs may offer services that provide the opportunity for cost savings. For instance, some LSPs offer technology mechanisms that can help a company build an efficient library of content over time, which that company can continue to leverage as it builds and revises its policies and training programs. These cost savings are in addition to what a company can save when LSPs help implement policies, procedures, and training effectively, and the company positions itself to avoid the costs of defending costly FCPA enforcement actions.

Conclusions

FCPA enforcement actions frequently are costly and time consuming. Companies are wise to take appropriate measures to avoid FCPA enforcement actions. Reviewing and attempting to accord with the Guide is a good place to start. The Guide does not provide all the answers, but it does provide some basic guidelines for avoiding an FCPA enforcement action. However, those guidelines are only valuable insofar as a company is capable of interpreting the Guide and implementing its recommendations effectively. As noted throughout, cultural and linguistic variables represent potential pitfalls to companies who are trying earnestly to accord with the Guide’s recommendations. Given the LSP’s ability to help promulgate a uniform, accurate, and appropriately-tailored message in a cost-efficient manner, and to act as a knowledgeable, independent liaison, they represent a solid investment that can significantly bolster a company’s FCPA posture.

Contributing Author

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Barry M. Sabin

Barry Sabin is a partner in the Washington, D.C. office of Latham & Watkins, where his practice is focused on white collar criminal investigations and...

Additional Contributors: Jason S. Perkins, Joseph Bargnesi

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