Committing Bribery Without Knowing It
In today’s globalized economy, more and more U.S. businesses operate overseas. As such, they fall under the strictures of the U.S. Foreign Corrupt Practices Act, or FCPA, which forbids payments to "foreign officials" -- the idea being to prevent bribes.
U.S. companies should not be permitted to bribe foreign officials, but U.S. prosecutors have pursued ever more expansive theories to bring conduct within the statute’s ambit, while resolving most cases with settlements that preclude judicial review. The result is an uncertain landscape for U.S. businesses.
As I note in a new report published by the Manhattan Institute, the Justice Department calls the last decade a "new era in FCPA enforcement," in which the number of investigations and enforcement actions has ballooned and criminal penalties have skyrocketed.
This is not always a good thing. For example, corrupt low-level bureaucrats soliciting payments for ministerial acts (permits, licenses, customs clearances, etc.) are a fact of life in many countries. The FCPA addresses this reality by forbidding only payments made "to obtain or retain business," and with an express exemption for "facilitating payments." These statutory components draw a line between small payments to low-level officials to "expedite or secure the performance of a routine governmental action" and quid pro quo payments made to influence the award of government contracts. That line, however, has been blurred by agency interpretation of the statute to include payments intended to obtain licenses or permits, lower taxes, and so on.
DOJ and the Securities and Exchange Commission (the two agencies that enforce the FCPA) have also interpreted the act’s jurisdiction aggressively. In addition to U.S. citizens and companies (as well as foreign companies listed on U.S. stock exchanges), the FCPA applies to anyone (American or foreign) who acts within U.S. territory "in furtherance" of a bribe. DOJ and SEC interpret this "territorial jurisdiction" very broadly. For example, when foreign corporations engage in dollar-denominated transactions, their banks transfer funds through "correspondent" banks in the United States. Although a foreign corporation may be entirely unaware of the "correspondent" bank, U.S. regulators take the position that these transactions provide jurisdiction under the FCPA. In 2011, the statute’s reach was further expanded when DOJ took the position that emails transmitted by a foreign corporation’s employees through U.S.-based servers, or stored there, were acts taken within the U.S. "in furtherance" of a bribery scheme. Neither of these broad jurisdictional theories has been tested in court.
Finally, the FCPA defines "foreign official" to include officers and employees of a foreign government, including any "instrumentality thereof." DOJ views enterprises owned, directly or indirectly, by a foreign state as "instrumentalities" of foreign governments within the FCPA’s reach. This interpretation of the statute makes "foreign officials" out of countless thousands of individuals in countries like China, where many enterprises are state-owned.
These aggressive interpretations of the FCPA by DOJ and SEC have led to an explosion in enforcement, but they have received little judicial oversight, because few FCPA cases go to trial. Most end in negotiated "deferred prosecution agreements" or "non-prosecution agreements" in which a company agrees to comply with a set of terms for a specific period in exchange for an agreement not to prosecute. The terms may require the company to pay monetary penalties, enhance its compliance procedures and even hire an independent monitor to oversee compliance and internal controls. These agreements allow a company to come clean while avoiding financial catastrophe but give DOJ the ability to prosecute a recalcitrant corporation. However, these agreements -- and the underlying expansive theories -- receive little, if any, judicial oversight. As a result, the FCPA has become extraordinarily malleable.
The FCPA will continue to be an enforcement priority, and the agencies will remain aggressive in their interpretation of the statute. However, U.S. companies cannot afford to withdraw from the global market. There is a movement to reform the FCPA through legislation, but until reform comes, U.S. companies operating overseas must protect themselves by adopting robust compliance programs, training their personnel and, if potential FCPA violations are discovered, making careful and informed decisions about voluntary disclosure to, and cooperation with, authorities.
This piece originally appeared in Washington Examiner
This piece originally appeared in Washington Examiner