One of the biggest concerns faced by American companies that do business in other countries is the issue of bribery. Even the imputation of graft can ruin a company's reputation and lead to harsh penalties.
In fact, enforcement of the Foreign Corrupt Practices Act (FCPA), a key anti-bribery law, is increasing, and the U.S. government has stepped up its demands on businesses when it comes to monetary settlements.
“The trend has been up tremendously over the last seven, eight years,” Richard Beckler, a partner in Bracewell and Guiliani's white-collar defense practice and head of its litigation practice in Washington, D.C., told InsideCounsel.
A former chief of the Criminal Fraud Section of the U.S. Department of Justice (DOJ), he headed a task force on foreign payments in the 1970s and notes that the federal government has begun investigating corruption charges against foreign companies. The FCPA was originally developed to focus on major contracts, explains Beckler.
In addition, instead of just going after companies or overall sectors, the DOJ is now focusing more on individuals and holding them accountable for corrupt acts.
Traditionally, FCPA cases are handled by the Fraud Section of the DOJ and the Securities and Exchange Commission (SEC). There are about 60 attorneys now working on FCPA enforcement between the SEC and DOJ, explains Michael Diamant, a partner in the Washington, D.C., office of Gibson, Dunn & Crutcher.
Getting a settlement or conviction is still another matter. “A lot of these cases are not brought to trial,” Beckler said. “It's not easy to get testimony from people overseas.”
A global standard
Also, there are more anti-corruption efforts outside of the United States, further complicating matters for U.S. companies. For instance, Brazil recently enacted its own anti-corruption law. Other nations have also enacted local anti-corruption laws, too, such as the United Kingdom, Poland, South Korea and Italy.
“There has been a global standard that is evolving,” David Simon, a partner at Foley Lardner, said. “I think that has been positive… it really reinforces the message.”
In response to the increased enforcement, major multinational companies, along with some smaller-sized companies, have developed robust compliance programs.
“Most sophisticated companies have [the FCPA] on their radar right now as a top compliance priority,” says David Resnicoff of Miller & Chevalier, a former assistant U.S. attorney who also worked for two global companies. Among the reasons for increased attention given to the law by boards, audit committees and CEOs is the amount companies are paying in fines and on internal investigations.
“Given all of the prosecutions, most lawyers, at least, realize that paying bribes overseas can result in significant penalties,” Diamant explains.
In addition, both the DOJ and the SEC have announced that enforcement of anti-corruption laws is a top priority. It seems that the DOJ and SEC like companies to voluntarily disclose suspected violations of the FCPA and then self-investigate the allegations.
“[The] Justice [Department] doesn't have the wherewithal to conduct investigations worldwide,” Beckler says, which means it wants the companies to do their own potentially expensive investigations.
An added advantage for businesses that undertake their own investigations is that they can do so through an attorney, which provides them with attorney-client privilege, Simon said.
Also, companies that disclose problems and cooperate with the government may get a better deal than those which leave something uninvestigated and undisclosed.
Yet, a company may suffer an internal conflict about whether to self-disclose corrupt practices under the FCPA. Self-disclosure is more common with the FCPA than with many other federal laws, but if a company self-discloses, it is practically guaranteed a fine.
Remember, too, that the DOJ and SEC can withhold settlement agreements until they are satisfied with the outcomes. Under their policies, the DOJ can select which cases to enforce.
Among the foreign nations most known for FCPA violations are China, Brazil, Mexico and India, as well as Russia and the other nations that formed the former Soviet Union.
Kelly Kramer, a partner in Mayer Brown's Washington, D.C. office and co-leader of the firm's white collar defense and compliance practice, says that when it comes to Russia, the current geopolitical situation—with the government pressing the sovereignty of Ukraine—has an impact on possible prosecutions of the FCPA.
Without cooperation of the Russian Ministry of Justice, the DOJ's ability to obtain business records and prosecute cases is “constrained,” Kramer points out.
“I don't know how you are going to get evidence out of Russia,” Beckler adds. “It's not that easy.”
That differs from Brazil, where Kramer predicts the U.S. “will continue to see relatively steady enforcement activity” and cooperation between that nation and the U.S. is “pretty strong.”
On the other hand, India is a nation marked by “petty” and “low-grade” corruption in a highly regulated economy, Simon says.
In many FCPA cases, a company acquires another company through mergers or acquisitions, acquiring an FCPA problem “often unknowingly,” Kramer says. What makes the situation worse is that “remedial work can be quite expensive” after an acquisition. Kramer recommends dealing with the issues at the front end.
“It becomes a hard thing to disentangle after a couple of years,” Resnicoff agrees about FCPA issues that emerge after an acquisition.
When it comes to companies getting basic information on the FCPA, a 2012 guide authored by the DOJ and SEC is well regarded.
The guide is a “first stop” for understanding the act and compliance, and the government did a “wonderful job” putting it together, Diamant says.
In addition, Resnicoff urges companies to conduct “compliance assessments” to see whether compliance programs match their risk profiles. “These are high-level reviews that identify the nature and extent of foreign government interaction and controls to mitigate and respond to potential corrupt activities,” Resnicoff explains.
The assessments look at issues like regulatory approvals, interactions with tax authorities, contract terms and third party due diligence. The assessments also keep an eye out for “red flags” such as payments to offshore accounts, supplemental payments made in the course of a contract, payments without any written agreements or payments to third parties that do not add value, Resnicoff says.
“They are much less costly than an investigation, and we have found that an ounce of medicine in the form of a compliance assessment is worth a pound of cure in the form of a settlement or plea with the federal government,” he adds.
As far as advice to companies that argue that everyone who takes part in business in certain locations need to pay off officials, Simon says it has become a “very common refrain” of which he is “skeptical.” A few years ago, the U.S. Chamber of Commerce tried to change the FCPA to make it more business-friendly, but after the DOJ guide was published, the momentum for changes in Congress seemed to wither. It is likely to remain in place.
“I don't see any real momentum for change,” Simon says, “I don't think there is much likelihood of any legislative changes any time soon.”