DOJ Says FCPA Covers Payments via Intermediaries, Successor Firms
In a Justice Department brochure to the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and other documents1, DOJ explains that liability for FCPA violations includes knowing payments made through intermediaries (which can include customs agents, sales representatives, etc.) to foreign officials. Liability can also attach to pre- and post-acquisition and merger conduct, or so-called "successor liability."
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(Another interesting feature of the FCPA is its exception for small payments made to government officials to facilitate or expedite performance of a "routine governmental action" that does not relate to obtaining or retaining business. Routine governmental actions include obtaining licenses, scheduling inspections related to transit of goods across country, processing governmental papers, etc. See ITT’s Online Archives or 05/10/11 news, 11051032, for BP summary of DOJ detailing this “facilitation payments” exception to the FCPA anti-bribery provisions.)
Intermediaries
FCPA Prohibits Corrupt Payments Through Intermediaries
DOJ states that the FCPA potentially applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. The FCPA prohibits corrupt payments through intermediaries. Therefore, individuals and firms may be penalized if they order, authorize, or assist someone else to violate the anti-bribery provisions or if they conspire to violate those provisions themselves.
Specifically, it is unlawful to make a payment to a third party, while knowing2 that all or a portion of the payment will go directly or indirectly to a foreign official. While the recipient of the corrupt payment normally applies to a foreign official, in this case, the "recipient" is the intermediary who is making the payment to the requisite "foreign official."
Intermediaries May Include Customs Agents, Joint Venture Partners
Intermediaries may include agents (such as customs agents) or joint venture partners. To avoid being held liable for corrupt third party payments, DOJ encourages U.S. companies to exercise due diligence and to take all necessary precautions to ensure that they have formed a business relationship with reputable and qualified partners and representatives.
Such due diligence may include investigating potential foreign representatives and joint venture partners to determine if they are in fact qualified for the position, whether they have personal or professional ties to the government, the number and reputation of their clientele, and their reputation with the U.S. Embassy or Consulate and with local bankers, clients, and other business associates.
(Note that DOJ has previously prosecuted companies and individuals for FCPA violations involving the use of intermediaries, such as customs agents and sales representatives, to make illegal payments to foreign officials. See below for several BP summaries regarding such prosecutions.3)
"Red Flags" Include History of Corruption in Country, Lack of Transparency, Etc.
In negotiating a business relationship, DOJ states that a U.S. firm should be aware of certain "red flags," such as: (i) unusual payment patterns or financial arrangements; (ii) a history of corruption in the country; (iii) a refusal by the foreign joint venture partner or representative to provide a certification that it will not take any action in furtherance of an unlawful offer, promise, or payment to a foreign public official and not take any act that would cause the U.S. firm to be in violation of the FCPA; (iv) unusually high commissions; (v) lack of transparency in expenses and accounting records; (vi) apparent lack of qualifications or resources to perform the services offered; and (vii) whether the joint venture partner or representative has been recommended by an official of the potential governmental customer.
Successors
Company Can Have Successor Liability for Pre/Post- Acquisition/Merger Conduct
DOJ also notes that a company may have successor liability for FCPA violations. Such violations may include conduct that occurred pre-acquisition/merger or conduct that continued after the acquisition/merger was completed.
According to DOJ, given the increase in companies held liable for FCPA violations pursuant to successor liability principles, more companies are implementing a robust pre-acquisition due diligence review of their intended merger partner or acquisition target, including: (i) assessing the corruption risks of the target company’s line of business and countries in which the target company operates; (ii) reviewing the use of third-party intermediaries and agents; (iii) conducting FCPA focused audits; (iv) reviewing the target company’s FCPA policies and procedures; and (v) evaluating the company’s handling of known compliance issues.
Compliance Program Integration, Prompt Reporting Considered in Resolutions
FCPA violations can also be detected during post-acquisition activities. Prompt reporting of FCPA violations discovered post-acquisition is a factor considered by U.S. authorities in reaching a resolution. In addition, steps taken to quickly and fully integrate the new entity into the acquiring company’s compliance program is also a factor considered by U.S. authorities.
Preventing Problems
DOJ Issues Opinions on FCPA’s Impact on Proposed Conduct
DOJ advises companies and/or individuals to seek the advice of counsel and consider utilizing DOJ's FCPA Opinion Procedure. Through this procedure, any U.S. company or national may request a statement on DOJ's present enforcement intentions under the FCPA anti-bribery provisions regarding any proposed business conduct. The Attorney General will issue an opinion in response to a specific inquiry within 30 days of the request. If DOJ issues an opinion stating that the conduct conforms with current enforcement policy, that conduct will be entitled to a presumption, in any subsequent enforcement action, of conformity with the FCPA.
1U.S. response to questions concerning the Organization for Economic Cooperation and Development (OECD) Working Group on Bribery, available here, and the International Chamber of Commerce Guidelines on Agents, Intermediaries, and Other Third Parties is available here.
2The term "knowing" includes conscious disregard and deliberate ignorance.
3See ITT's Online Archives or 05/11/11 news, 11051117, for BP summary of two executives of a U.S. company and its Mexican intermediary being convicted for violating the FCPA.
See ITT's Online Archives or 04/16/11 news, 11040619, for BP summary of Ball Corporation's charges of violating the FCPA for using a customs agent as an intermediary to obscure illegal payments to foreign officials.
See ITT's Online Archives or 10/04/10 news, 10100419, for BP summary of a Swiss corporation and two of its subsidiaries' charges relating to FCPA violations, which involved illegal payments made through various intermediaries, including a sales representative.
See ITT's Online Archives or 08/02/10 news, 10080110, for BP summary of a Miami businessman who was sentenced to prison for serving as an intermediary for three private companies, in violation of the FCPA.
DOJ's Lay-Person's Brochure to the Anti-Bribery Provisions of the FCPA is available here.
FCPA Opinion Procedure and contact information is available here.