As the US government seeks to curtail bribery and corruption, the Foreign Corrupt Practices Act (FCPA) law is important to US and non-US companies so they may avoid engaging in actions that could lead to prosecution, an expert said.
In a webinar, “Anti-Corruption Compliance and Internal Investigations: What Non-Attorneys Need to Know,” held by the SPE Projects, Facilities, and Construction study group, Tracy LeRoy discussed the inner workings of internal and government-driven investigations under the FCPA. She is a partner at the Sidley Austin law firm.
An FCPA investigation covers a person or entity who offers or gives something of value to a foreign official in order to obtain or retain business with knowledge and corrupt intent. A covered person or entity is either an issuer of registered securities in the US or a domestic concern, meaning a US citizen, resident, or an employee of a foreign branch of a US company. A foreign company or person who commits a corrupt act in the US is also subjected to the FCPA.
Value may be cash or a cash equivalent in the form of travel, entertainment, a charitable or political donation, or a nonmonetary gift. LeRoy said an offer or a promise of a gift is sufficient ground for prosecution and there is no di minimis exception, meaning that the US government may pursue legal action even if the gift in question is of a low monetary value.
Payments made in at least one of the following situations are a violation of the FCPA:
Payments do not have to be related to a specific business opportunity or be made directly to a foreign government. Bribes that produce any tangible benefit for a person or entity violate the FCPA.
Company negligence is insufficient ground for an investigation under the FCPA. Willful blindness, or the conscious disregard or deliberate ignorance of known circumstances that suggest a violation, is sufficient ground for an investigation. The law states that companies may be held responsible for the improper conduct of their agents, consultants, distributors, and joint venture partners.
“If you are consciously disregarding the risks of operating in a certain venue, if you are consciously disregarding the treatment that people on your staff or on your team are giving government officials in a foreign country, that can be enough,” LeRoy said. “It shows that you were closing your ears and eyes hoping to make things happen.”
The FCPA requires a follow-up on red flags, which are warning signs about potential illicit activity. They can form in a variety of contexts. LeRoy said the biggest context that raises concern in an investigation is when a company does business in a country with a low corruption perception index (CPI) score. In the latest CPI report released last year, the countries with the five worst scores were South Sudan, Afghanistan, Sudan, North Korea, and Somalia.
“If you are doing business in a country where it is known that there’s a corrupt government, and you probably have to do certain things to get past customs, that is in and of itself a red flag,” she said.
Other red flags include frequent third-party mediation with government officials, frequent social interactions with government officials, excessive charitable contributions, and questionable bookkeeping.
Companies are expected to respond to all known red flags in an appropriate manner. However, the standard for knowledge under the FCPA is unclear, LeRoy said. Knowledge includes an awareness of the probability that improper actions are taking place. Because there is no concrete definition under the law, the US Department of Justice and the US Securities and Exchange Commission presume the knowledge of an activity if a company fails to follow up on a red flag.