“In 2010, the number of federal prosecutions for violation of the Foreign Corrupt Practices Act (FCPA) more than quadrupled. The Department of Justice (DOJ) set a new record for fines and penalties – collecting nearly $1B. The FBI has announced that FCPA investigations are one of its highest priorities, which means that these trends will only accelerate.

If you think your organization is safe from FCPA liability, you may need to think again. In a recently published article by CFO.com, a list of 5 commonly held misconceptions about the FCPA were identified.

1. Our foreign sales are too immaterial to create FCPA risk… 
2. Our foreign customers are not government departments / agencies…
3. Our employees never interact directly with anyone from foreign governments… 
4. We’re better off not knowing what our foreign personnel and agents do to get business done… 
5. Everybody else does it and never gets caught.” 

• “In the US, prosecutors can enter into DPAs with individuals whereas in the UK, only companies, partnerships and unincorporated associations can enter into DPAs.
• In the UK, the range of offences to which DPAs apply are limited to economic crimes which are essentially fraud, bribery and money laundering offences. In the US, prosecutors have used DPAs more broadly including for health and safety or environmental offences.
• In the UK, the Government has confirmed that an accused’s right to refuse to disclose information subject to legal professional privilege will continue to apply in its current form. In the US, companies were often finding themselves waiving legal privilege to demonstrate cooperation with an investigation. In 2006, the Department of Justice (the “DOJ”) put out guidance reminding prosecutors that they should seek waivers of privilege only in rare instances and only with approval from senior officials. The DOJ strengthened this guidance in 2008 and the Securities and Exchange Commission followed suit in 2010, but companies still sometimes waive privilege in an effort to show the fullness of their cooperation.
• Further to Lord Justice Thomas’ criticism of the plea agreement entered into with Innospec Ltd in 2010 for lack of judicial input, the Act anticipates an early and active role for the UK judiciary in the negotiation, approval and variation of DPAs. In the US, DPAs do not require judicial approval.
• The Act promotes transparency as it requires that the terms of the DPA, the declaration of the Court and the reasons set out at the preliminary and final hearings are publicly available. In the US, the DOJ has widely been criticised for a lack of transparency.”

“The use of intermediary third parties is the single most common source of corruption risk. That does not mean that companies cannot work with intermediaries. Access to business in many markets is possible only through local partners. Rather, it means that companies entering into these relationships must take steps to mitigate the risks, including conducting reasonable due diligence.

As the DOJ and SEC have made clear, ‘businesses may reduce the FCPA risks associated with third-party agents by implementing an effective compliance program, including due diligence of any prospective’ third-party intermediaries.”

“On one hand, the joint issuance of the Interpretation by China’s judicial and legislative entities signals intent to streamline and intensify enforcement of China’s Criminal Law against bribery. On the other hand, it remains to be seen whether the Interpretation—or the newly issued civilian and military regulations—will have a significant effect on the giving and receiving of bribes and the day-to-day conduct of government officials. One test will be whether judicial authorities independently act to enforce the Interpretation before an incident of corruption has been so widely reported and re-blogged at the grassroots level that it becomes politically charged. A second and more telling test would be the dismissal of a high level official revealed through enforcement of the Interpretation to have accepted bribes. Significantly, the Interpretation addresses the paying but not the receipt of bribes, which can be interpreted both as representing China’s intention to more vigorously pursue instances of bribery as well as an indication that private individuals may increasingly bear the brunt of the campaign against government graft.”

“On February 8, 2013, U.S. District Judge Richard Sullivan denied a motion to dismiss an SEC enforcement action for lack of jurisdiction. Judge Sullivan held that — although the defendants, who are Hungarian nationals, were never physically present in the United States in connection with the alleged scheme to bribe government officials in Macedonia — the SEC could proceed with a case against them for violating the FCPA… 

The defendants argued that, as they are foreign nationals and the alleged bribery took place in Macedonia to further the interests of a Hungarian company, the Court lacked jurisdiction over them. In addressing this argument, the Court recited the standard rule that, in order to establish personal jurisdiction over the defendants, the SEC must show that each defendant ‘purposefully availed himself of the privilege of doing business in the forum state and that the defendant could foresee being hauled into court there.’ The Court noted that a defendant’s physical absence from the forum is not, in and of itself, sufficient to defeat personal jurisdiction. For foreign defendants, their activity in relation to the United States must be ‘sufficiently extensive and regular to make [the] possibility [of litigation in the United States] a foreseeable risk of the business.’”

“On February 14, 2013, in United States v. Terry, the Sixth Circuit Court of Appeals upheld the conviction of an Ohio state judge on charges of honest-services fraud, holding that an otherwise legitimate campaign contribution can be deemed to be a bribe even if the prosecution is unable to tie the expectation of influence to a specific act.

Terry … [argued] that the Court should distinguish between elected public officials who are allowed to accept campaign contributions and appointed public officials who would have no way of accepting legal contributions. Terry argued that for the class of officials who are allowed to accept contributions, a bribe can only exist if the payment was made ‘in exchange for a specific official act or omission.’ The Court rejected this argument, noting that both Congress and the Supreme Court had refused to make such a distinction in the realm of extortion.”

“It is hard to avoid the conclusion that the PRC is fertile ground for corruption: many of its major industries are dominated by state-owned or -controlled companies.  A tradition of gift-giving and hospitality may blur the distinction between friendly gesture and kickback.  And the sheer volume of business transacted in the country makes policing illicit exchanges for business advantages a tall order for any enforcement agency…

China may be changing: the government recently released new guidance on its anti-bribery laws that could signal it is ready to address corruption head-on.  It is also possible, however, that China is simply seeking to punish foreign companies and distract attention from internal realities and practices that have made corruption endemic in the country.”

“When it comes to compliance, there is no one-size-fits-all program; however, the Guide does provide insight into the aspects of compliance programs that the DOJ and SEC assess, recognizing that companies may consider a variety of factors when making their own determination of what is appropriate for their specific business needs. 

Clearly Articulated Policy Against Corruption – the DOJ and SEC consider the commitment of corporate leaders to a “culture of compliance” and look to see if this high-level commitment is also reinforced and implemented by middle managers and employees at all levels of a business.

Code of Conduct – Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures.”

“[F]ailure to identify a significant corruption risk at a target company not only opens the possibility of regulatory risks, it can undermine the core value of the transaction itself. In this context, anti-corruption diligence has become an accepted component of transactional diligence and regulators have endorsed risk-based diligence as appropriate to mitigate risks. While thorough diligence is not guaranteed to identify specific acts of past misconduct, a thoughtful, well-planned and well-executed diligence process will identify structural risks and compliance weaknesses that can be addressed in transaction agreements and in post-closing compliance enhancements.”