- Companies should be cognizant of the following “red flags” that signal potential corruption:
- Inflated or unusually large commissions or bonus payments.
- Requests for large amounts of payments in cash or in bearer instruments.
- Payments through a third party or to an account in an off-shore or unrelated third country.
- False invoices or over-invoicing.
- Lack of transparency in expenses and accounting records.
- A consultant, agent, or business partner whose qualification includes a personal relationship with government officials.
- Apparent lack of qualifications or resources, on the part of a joint venture partner or representative, to perform the services offered.
- Refusal by a consultant, agent, or business partner to enter into a written agreement containing anti-bribery provisions.
- Inadequate oversight over foreign subsidiaries and overseas personnel.
- A history of corruption in the country.
- Third Party Representatives.
- A company can be held liable for violations of the FCPA by third parties acting on its behalf. A company is responsible for the acts of its partners, consultants and other third-party representatives when the company makes a payment to the representative “knowing” that all or some of the funds will be paid either directly or indirectly to a foreign official. United States Department of Justice, Lay Person’s Guide to FCPA, (last visited July 4, 2007)
- As previously noted, under the FCPA, proof of actual knowledge is not required to constitute a violation of the law. The FCPA’s “knowledge” element is satisfied when a person is aware of a high probability that an illegal bribe will be offered or paid. See supra Section I.A.6.
- Aggressive prosecutors and regulators often have a very broad view of what a company “should have known” about potential corrupt actions of its third-party representatives. A government inquiry or investigation, or even the demand that an internal investigation be conducted, can be incredibly costly and distracting to the company, even if the company is ultimately vindicated.
- Practice Tip: Conducting appropriate due diligence on agents, consultants, and business partners is therefore crucial to prevent a company from entering into transactions that may result in FCPA violations.
- Gifts, Entertainment, Travel Expenses.
- The FCPA permits the payment of reasonable business expenses for the benefit of foreign officials that are directly related to a company’s business purpose. However, given that U.S. authorities construe the FCPA’s payment exceptions very narrowly, companies must be prudent with any expense or benefits extended to foreign officials.
- U.S. authorities will look beyond monetary payments and will interpret broadly the statutory term “anything of value” to include gifts, entertainment, and travel-related expenditures.
- For example, in 1999, the DOJ brought a civil action against Metcalf & Eddy for providing travel advances and hotel upgrades for trips to the U.S. and Europe by the chairman of an Egyptian municipal sanitation and drainage organization and his family. Metcalf & Eddy gave the advances and upgrades in exchange for his influence over the review of bids for a project with the U.S. Agency for International Development. United States v. Metcalf & Eddy, No. CV-99-12566 (D. Mass. 1999).
- Practice Tip: Expenditures should not be extravagant or overly frequent. They must have a valid business purpose and be properly documented in the company’s books and records.
- Charitable and Political Contributions.
- Charitable and political donations frequently raise FCPA concerns. For example, the SEC brought an FCPA enforcement action involving donations to a charity affiliated with a government official.
- In In re Matter of Schering-Plough Corp., SEC Admin. Proc. File No. 3-11517 (June 9, 2004), the SEC charged Schering-Plough with violations of the books-and-records and internal controls provisions of the FCPA. The Commission found that a wholly-owned subsidiary of Schering-Plough paid approximately $76,000 to a charitable organization that belonged to the director of a regional government health authority in Poland. The Commission alleged that these payments were made to induce the director to influence the health fund’s purchase of Schering-Plough’s pharmaceutical products. The SEC found that Schering-Plough’s policies and procedures were inadequate in that they did not require employees to conduct any due diligence prior to making promotional or charitable donations to determine whether any government officials were affiliated with proposed recipients. The Commission also found that Schering-Plough improperly recorded these payments in its books and records.
- Practice Tip: To avoid FCPA liability or the appearance of impropriety, donations by companies or company employees should be governed by clear corporate policies and be subject to the same approval requirement as any other payments to government officials.
Ch. 27 Foreign Corrupt Practices Act
V. Primary Areas of Exposure / Risk
* Not Yet Admitted