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DOJ offers opinion on former employee-turned-official FCPA problem

The DOJ noted that the act does not explicitly limit business relationships with foreign officials

The general concept of the Foreign Corrupt Practices Act (FCPA) is simple: Don’t bribe foreign officials in exchange for preferential treatment, and you’re probably safe. But what if that foreign official is the ex-CEO of a subsidiary, and what if he still holds current company stock? Then, your situation just got a bit trickier.

In an opinion released on March 17, the Department of Justice (DOJ) tackled the case of one financial services company who was feeling these pressures. The unnamed firm received a request from the ex-employee to buy him out, at a better price than his original contract since the stock’s fortunes had improved. Before doing so, however, the company wanted to check to make sure they weren’t running afoul of the FCPA.

The DOJ ruled that the company followed proper protocols, and due to internal measures taken to prevent a conflict of interest, would not be subject to FCPA enforcement. While the FCPA prohibits bribing of foreign officials, the DOJ noted that the act does not explicitly limit business relationships with foreign officials.

The DOJ cited a 2010 opinion on the subject, which states, “The Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.”

In this case, said the DOJ, since the ex-CEO completely removed himself from the company and was only a “passive shareholder,” the financial services firm would not be subject to regulation. In addition, hiring an independent, well-known accounting firm to give the new stock value both allowed the company remove bias and prevent a potential lawsuit from an unfairly-compensated ex-employee.

So what does this mean for in-house counsel? While the opinion is not binding in every case, and the facts of each individual case may vary, the DOJ does not see payments to foreign officials in black and white. If a company can demonstrate specific reasons why it is making certain payments, as well as instituting internal controls to prevent corruption, then the DOJ will be more willing to work with the company.


For more on FCPA issues, check out these InsideCounsel articles:

Japanese trading company pays second FCPA penalty in three years

Chinese Premier outlines new anti-corruption strategy

Compliance programs require a team effort

Mead Johnson investigating potential FCPA violations

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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