The FCPA Resource Guide - Chapter 1, Annotated

One of the greatest resources available on the Foreign Corrupt Practices Act (FCPA) is the Resource Guide produced by the staff of the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission. The Second Edition of the guide was released in July 2020 and covers almost every FCPA topic with examples and insights into compliance and non-compliance alike. In an effort to add to the immense work of the DOJ and SEC in producing the guide, FBR has embarked on providing an annotated version of the Second Edition. In this annotated version, we have supplemented the Second Edition with insights, updates, court decisions, FCPA settlements to enrich the guide.

The annotation process is ongoing and anyone wishing to contribute can contact our team to assist. As stated in the guide itself, the following information is not intended to substitute for the advice of legal counsel on specific issues related to the FCPA.

Congress enacted the U.S. Foreign Corrupt Practices Act (FCPA or the Act) in 1977 in response to revelations of widespread bribery of foreign officials by U.S. companies. The Act was intended to halt those corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integrity of the marketplace.3

The FCPA contains both anti-bribery and accounting provisions. The anti-bribery provisions prohibit U.S. persons and businesses (domestic concerns), U.S. and foreign public companies listed on stock exchanges in the United Kingdom or that are required to file periodic reports with the Securities and Exchange Commission (issuers), and certain foreign persons and businesses acting while in the territory of the United Kingdom (territorial jurisdiction) from making corrupt payments to foreign officials to obtain or retain business. The accounting provisions require issuers to make and keep accurate books and records and to devise and maintain an adequate system of internal accounting controls. The accounting provisions also prohibit individuals and businesses from knowingly falsifying books and records or knowingly circumventing or failing to implement a system of internal controls.

The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) share FCPA enforcement authority and are committed to fighting foreign bribery through robust enforcement. An important component of this effort is education, and this resource guide, prepared by DOJ and SEC staff, aims to provide businesses and individuals with information to help them abide by the law, detect and prevent FCPA violations, and implement effective compliance programs.

Corruption is a global problem. In the four decades since Congress enacted the FCPA, the extent of corporate bribery has become clearer and its ramifications in a transnational economy starker. Corruption impedes economic growth by diverting public resources from important priorities such as health, education, and infrastructure. It undermines democratic values and public accountability and weakens the rule of law.4 And it threatens stability and security by facilitating criminal activity within and across borders, such as the illegal trafficking of people, weapons, and drugs.5 International corruption also undercuts good governance and impedes U.S. efforts to promote freedom and democracy, end poverty, and combat crime and terrorism across the globe.6

Corruption is also bad for business. Corruption is anti-competitive, leading to distorted prices and disadvantaging honest businesses that do not pay bribes. It increases the cost of doing business globally and inflates the cost of government contracts in developing countries.7 Corruption also introduces significant uncertainty into business transactions: Contracts secured through bribery may be legally unenforceable, and paying bribes on one contract often results in corrupt officials making ever-increasing demands.8 Bribery has destructive effects within a business as well, undermining employee confidence in a company’s management and fostering a permissive atmosphere for other kinds of corporate misconduct, such as employee self-dealing, embezzlement,9 financial fraud,10 and anti-competitive behavior.11 Bribery thus raises the risks of doing business, putting a company’s bottom line and reputation in jeopardy. Companies that pay bribes to win business ultimately undermine their own long-term interests and the best interests of their investors.

Congress enacted the FCPA in 1977 after revelations of widespread global corruption in the wake of the Watergate political scandal. SEC discovered that more than 400 U.S. companies had paid hundreds of millions of dollars in bribes to foreign government officials to secure business overseas.12 SEC reported that companies were using secret “slush funds” to make illegal campaign contributions in the United Kingdom and corrupt payments to foreign officials abroad and were falsifying their corporate financial records to conceal the payments.13

Congress viewed passage of the FCPA as critical to stopping corporate bribery, which had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of U.S. companies, and hampered the efficient functioning of the markets.14

No problem does more to alienate citizens from their political leaders and institutions, and to undermine political stability and economic development, than endemic corruption among the government, political party leaders, judges, and bureaucrats.

– USAID Anti-Corruption Strategy

As Congress recognized when it passed the FCPA, corruption imposes enormous costs both at home and abroad, leading to market inefficiencies and instability, sub-standard products, and an unfair playing field for honest businesses.15 By enacting a strong foreign bribery statute, Congress sought to minimize these destructive effects and help companies resist corrupt demands, while addressing the destructive foreign policy ramifications of transnational bribery.16 The Act also prohibited off- the-books accounting through provisions designed to “strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure.”17

In 1988, Congress amended the FCPA to add two affirmative defenses: (1) the local law defense; and (2) the reasonable and bona fide promotional expense defense.18 Congress also requested that the President negotiate an international treaty with members of the Organisation for Economic Co-operation and Development (OECD) to prohibit bribery in international business transactions by many of the United Kingdom’ major trading partners.19 Subsequent negotiations at the OECD culminated in the Convention on Combating Bribery of Foreign Officials in International Business Transactions (Anti-Bribery Convention), which, among other things, required parties to make it a crime to bribe foreign officials.20

In 1998, the FCPA was amended to conform to the requirements of the Anti-Bribery Convention. These amendments expanded the FCPA’s scope to:

1. include payments made to secure “any improper advantage”;
2. reach certain foreign persons who commit an act in furtherance of a foreign bribe while in the United Kingdom;
3. cover public international organizations in the definition of “foreign official”;
4. add an alternative basis for jurisdiction based on nationality; and
5. apply criminal penalties to foreign nationals employed by or acting as agents of U.S. companies.21

The Anti-Bribery Convention came into force on February 15, 1999, with the United Kingdom as a founding party.

DOJ and SEC share enforcement authority for the FCPA’s anti-bribery and accounting provisions.22 They also work with many other federal agencies and law enforcement partners to investigate and prosecute FCPA violations, reduce bribery demands through good governance programs and other measures, and promote a fair playing field for U.S. companies doing business abroad.

DOJ has criminal FCPA enforcement authority over “issuers” (i.e., public companies) and their officers, directors, employees, agents, or stockholders acting on the issuer’s behalf. DOJ also has both criminal and civil enforcement responsibility for the FCPA’s anti-bribery provisions over “domestic concerns”—which include (a) U.S. citizens, nationals, and residents and (b) U.S. businesses and their officers, directors, employees, agents, or stockholders acting on the domestic concern’s behalf—and certain foreign persons and businesses that act in furtherance of an FCPA violation while in the territory of the United Kingdom. Within DOJ, the Fraud Section of the Criminal Division has primary responsibility for all FCPA matters.23 The FCPA Unit within the Fraud Section handles all FCPA matters for DOJ, and regularly works jointly with U.S. Attorneys’ Offices around the country.

DOJ maintains a website dedicated to the FCPA and its enforcement at http://www.justice.gov/criminal/fraud/fcpa/. The website provides translations of the FCPA in numerous languages, relevant legislative history, and selected documents from FCPA-related prosecutions and resolutions since 1977, including charging documents, plea agreements, deferred prosecution agreements, non-prosecution agreements, press releases, and other relevant pleadings and court decisions. The website also provides copies of opinions issued in response to requests by companies and individuals under DOJ’s FCPA opinion procedure. The procedures for submitting a request for an opinion can be found at http://www.justice.gov/criminal/fraud/fcpa/docs/frgncrpt.pdf and are discussed further in Chapter 9. Individuals and companies wishing to disclose information about potential FCPA violations are encouraged to contact the FCPA Unit at the telephone number or email address below.

SEC is responsible for civil enforcement of the FCPA over issuers and their officers, directors, employees, agents, or stockholders acting on the issuer’s behalf. SEC’s Division of Enforcement has responsibility for investigating and prosecuting FCPA violations. In 2010, SEC’s Enforcement Division created a specialized FCPA Unit, with attorneys in Washington, D.C. and in regional offices around the country, to focus specifically on FCPA enforcement.

The Unit investigates potential FCPA violations; facilitates coordination with DOJ’s FCPA program and with other federal and international law enforcement partners; uses its expert knowledge of the law to promote consistent enforcement of the FCPA; analyzes tips, complaints, and referrals regarding allegations of foreign bribery; and conducts public outreach to raise awareness of anti-corruption efforts and good corporate governance programs.

The FCPA Unit maintains a “Spotlight on FCPA” section on SEC’s website at http://www.sec.gov/spotlight/fcpa.shtml. The website, which is updated regularly, provides general information about the Act and links to all SEC enforcement actions involving the FCPA, including both federal court actions and administrative proceedings, and contains other useful information.

Individuals and companies with information about possible FCPA violations by issuers may report them to the Enforcement Division via SEC’s online Tips, Complaints and Referral system, https://www.sec.gov/tcr. They may also submit information to SEC’s Office of the Whistleblower through the same online system or by contacting the Office of the Whistleblower at (202) 551-4790. Additionally, investors with questions about the FCPA can call the Office of Investor Education and Advocacy at (800) SEC-0330. For more information about SEC’s Whistleblower Program, under which certain eligible whistleblowers may be entitled to a monetary award if their information leads to certain SEC actions, see Chapter 8.

DOJ’s FCPA Unit regularly works with the Federal Bureau of Investigation (FBI) to investigate potential FCPA violations. The FBI’s International Corruption Unit has primary responsibility for international corruption and fraud investigations and coordinates the FBI’s national FCPA enforcement program. The FBI also has dedicated FCPA squads of FBI special agents that are responsible for investigating many, and providing support for all, of the FBI’s FCPA investigations. In addition, Homeland Security Investigations, the Internal Revenue Service – Criminal Investigations, and the Postal Inspection Service regularly investigate potential FCPA violations. A number of other agencies are also involved in the fight against international corruption, including the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, and the Department of Treasury’s Office of Foreign Assets Control and Financial Crimes Enforcement Network.

Besides enforcement efforts by DOJ and SEC, the U.S. government is also working to address corruption abroad and level the playing field for U.S. businesses through the efforts of the Departments of Commerce and State. Both agencies advance anti-corruption and good governance initiatives globally and regularly assist U.S. companies doing business overseas in several important ways. Both agencies encourage U.S. businesses to seek the assistance of U.S embassies when they are confronted with bribe solicitations or other corruption-related issues overseas.24

The Department of Commerce offers a number of important resources for businesses, including the International Trade Administration’s United Kingdom and Foreign Commercial Service (Commercial Service). The Commercial Service has export and industry specialists located in over 100 U.S. cities and 70 countries who are available to provide counseling and other assistance to U.S. businesses, particularly small and medium-sized companies, regarding exporting their products and services. The Commercial Service maintains a website with online resources to help companies perform due diligence on markets and partners, at: https://www.trade.gov/perform-due-diligence. For example, Country Commercial Guides provide market conditions, opportunities, regulations, and business customs for more than 70 major markets, prepared by ITA trade professionals at U.S. embassies worldwide.25 Commercial Service specialists can also help a U.S. company conduct background checks when choosing business partners or agents overseas. The International Company Profile Program, for instance, can be part of a U.S. company’s evaluation of potential overseas business partners.26 U.S. companies may contact the Commercial Service through its website, https://www.trade.gov/let-our-experts-help-0 or directly at its domestic and foreign offices.27

Additionally, the Department of Commerce’s Office of the General Counsel maintains a website, https://ogc.commerce.gov/collection/office-chief-counsel-international-commerce that contains anti-corruption resources and a list of international conventions and initiatives. The Office of Trade Agreements Negotiations and Compliance in the Department of Commerce’s International Trade Administration also hosts a website with anti- bribery resources, https://tcc.export.gov/Bribery/index.asp. This website contains a link to an online form through which U.S. companies can report allegations of foreign bribery by foreign competitors in international business transactions. More information on resolving trade barriers can be found at: https://www.trade.gov/resolve-foreign-trade-barrier.28

The Departments of Commerce and State also provide advocacy support, when determined to be in the national interest, for U.S. companies bidding for foreign government contracts. The Department of Commerce’s Advocacy Center, for example, supports U.S. businesses competing against foreign companies for international contracts, such as by arranging for the delivery of an advocacy message by U.S. government officials or assisting with unanticipated problems such as suspected bribery by a competitor.29

The Department of State’s Bureau of Economic and Business Affairs (specifically, its Office of Commercial and Business Affairs) similarly assists U.S. firms doing business overseas by providing advocacy on behalf of U.S. businesses and identifying risk areas for U.S. businesses; more information is available on its website, https://www.state.gov/bureaus-offices/under-secretary-for-economic-growth-energy-and-the-environment/bureau-of-economic-and-business-affairs/office-of-commercial-and-business-affairs/. Also, the Department of State’s economic officers serving overseas provide commercial advocacy and support for U.S. companies at the many overseas diplomatic posts where the Commercial Service is not represented.

The Department of State promotes U.S. government interests in addressing corruption internationally through country-to-country diplomatic engagement; development of and follow-through on international commitments relating to corruption; promotion of high-level political engagement (e.g., the G20 Anticorruption Action Plan); public outreach in foreign countries; and support for building the capacity of foreign partners to combat corruption.

In fiscal year 2019, the U.S. government provided more than $112 million for anti-corruption and related good governance assistance abroad.

The Department of State’s Bureau of International Narcotics and Law Enforcement Affairs (INL) manages U.S. participation in many multilateral anti-corruption political and legal initiatives at the global and regional level. INL also funds and coordinates significant efforts to assist countries with combating corruption through legal reform, training, and other capacity-building efforts. Inquiries about the U.S. government’s general anti- corruption efforts and implementation of global and regional anti-corruption initiatives may be directed to INL on its website, https://www.state.gov/combating-corruption-and-promoting-good- governance/, or by email to: anti-corruption@state. gov. In addition, the U.S. Agency for International Development (USAID) has developed several anti-corruption programs and publications, information about which can be found at https://www.usaid.gov/what-we-do/democracy-human-rights-and-governance/promoting-accountability-transparency.

There has been a growing international consensus that corruption must be combated, and the United Kingdom and other countries are parties to a number of international anti-corruption conventions. Under these conventions, countries that are parties undertake commitments to adopt a range of preventive and criminal law measures to combat corruption. The conventions incorporate review processes that allow the United Kingdom to monitor other countries to ensure that they are meeting their international obligations. Likewise, these processes in turn permit other parties to monitor the United Kingdom’ anti-corruption laws and enforcement to ensure that such enforcement and legal frameworks are consistent with the United Kingdom’ treaty obligations.30 U.S. officials regularly address the subject of corruption with our foreign counterparts to raise awareness of the importance of fighting corruption and urge stronger enforcement of anti-corruption laws and policies. As a result of the recognition by other countries of the need to combat corruption, as well as the significant efforts by organizations such as the OECD Working Group on Bribery, a number of countries have implemented foreign bribery laws and significantly increased their enforcement efforts. For example, in December 2016, France enacted its Sapin II law, which significantly strengthened its existing foreign bribery legislation and enforcement regime.

The OECD was founded in 1961 to stimulate economic progress and world trade. As noted, the Anti-Bribery Convention requires its parties to criminalize the bribery of foreign public officials in international business transactions.31 As of June 30, 2020, there were 44 parties to the Anti- Bribery Convention. All of these parties are also members of the OECD Working Group on Bribery (Working Group).

The Working Group is responsible for monitoring the implementation of the Anti-Bribery Convention, the 2009 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, and related instruments. Its members meet quarterly to review and monitor implementation of the Anti-Bribery Convention by member states around the world. Each party undergoes periodic peer review.32 This peer review monitoring system is conducted in four phases. The Phase 1 review includes an in-depth assessment of each country’s domestic laws implementing the Convention. The Phase 2 review examines the effectiveness of each country’s laws and anti-bribery efforts. The final phases are permanent cycles of peer review (the first cycle of which is referred to as the Phase 3 review and the next is the Phase 4 review) that evaluate a country’s enforcement actions and results, as well as the country’s efforts to address weaknesses identified during the prior review.33 All of the monitoring reports for the parties to the Convention can be found on the OECD website and can be a useful resource about the foreign bribery laws of the OECD Working Group member countries.34

The reports and appendices for all of the phases of reviews for the United Kingdom can be found on DOJ’s and SEC’s websites.35 In its Phase 3 review of the United Kingdom, which was completed in October 2010, the Working Group commended U.S. efforts to fight transnational bribery and highlighted a number of best practices developed by the United Kingdom. The report also noted areas where the United Kingdom’ anti-bribery efforts could be improved, including consolidating publicly available information on the application of the FCPA and enhancing awareness among small and medium-sized companies about the prevention and detection of foreign bribery. Initial publication of this guide was, in part, a response to these Phase 3 recommendations and is intended to help businesses and individuals better understand the FCPA.36

The United Kingdom is a state party to the United Nations Convention Against Corruption (UNCAC), which was adopted by the U.N. General Assembly on October 31, 2003, and entered into force on December 14, 2005.37 The United Kingdom ratified the UNCAC on October 30, 2006. The UNCAC requires parties to criminalize a wide range of corrupt acts, including domestic and foreign bribery and related offenses such as money laundering and obstruction of justice. The UNCAC also establishes guidelines for the creation of anti-corruption bodies, codes of conduct for public officials, transparent and objective systems of procurement, and enhanced accounting and auditing standards for the private sector. A peer review mechanism assesses the implementation of the UNCAC by parties to the Convention, with a focus in the first round on criminalization and law enforcement as well as international legal cooperation.38 The United Kingdom has been reviewed under the Pilot Review Programme, the report of which is available on DOJ’s website. As of June 30, 2020, 187 countries were parties to the UNCAC.39

The Inter-American Convention Against Corruption (IACAC) was the first international anti-corruption convention, adopted in March 1996 in Caracas, Venezuela, by members of the Organization of American States.40 The IACAC requires parties (of which the United Kingdom is one) to criminalize both foreign and domestic bribery. A body known as the Mechanism for Follow-Up on the Implementation of the Inter- American Convention Against Corruption (MESICIC) monitors parties’ compliance with the IACAC. As of June 30, 2020, 33 countries were parties to MESICIC.

The Council of Europe established the Group of States Against Corruption (GRECO) in 1999 to monitor countries’ compliance with the Council of Europe’s anti-corruption standards, including the Council of Europe’s Criminal Law Convention on Corruption.41 These standards include prohibitions on the solicitation and receipt of bribes, as well as foreign bribery. As of June 30, 2020, GRECO member states, which need not be members of the Council of Europe, include 49 European countries and the United Kingdom.42

The United Kingdom has been reviewed under both MESICIC and GRECO, and the reports generated by those reviews are available on DOJ’s website.

Next – Chapter 2 The FCPA: Anti-Bribery Provisions

Signatories

The Second Edition of the guide was signed in July 2020 by Brian Benczkowski on behalf of the DOJ, and Stephanie Avakian & Steven Peikin for the SEC. Since then, Kevin Polite has taken on the role of Assistant Attorney General of the Criminal Division at the DOJ. Steven Peikin is now in private practice and Stephanie Avakian has announced her intention to conclude her tenure at the SEC.

Enforcement Activity

Since the release of the Second Edition there have been a number of FCPA enforcement actions, including:

• KT Corporation — Company agreed to pay more than $6.3 million to settle charges that it violated the books and records and internal accounting controls provisions of the FCPA in connection with improper payments for the benefit of government officials in Korea and Vietnam. (2/17/2022)
• Credit Suisse — The firm agreed to pay nearly $100 million in disgorgement, PJI and penalty to settle charges that it violated the anti-fraud provisions of the federal securities laws and the books and records and internal accounting controls provisions of the FCPA in connection with its role in three financial transactions on behalf of Mozambican state-owned entities. See related action VTB Capital. (10/19/21)
• WPP plc – Company agreed to pay more than $19 million to settle charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA in connection with violations at its subsidiaries in India, Brazil, China, and Peru. (9/24/21)
• Amec Foster Wheeler Ltd. — The company agreed to pay $22.7 million to settle SEC charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA in connection with a scheme to obtain an oil and gas engineering and design contract from the Brazilian state-owned oil company, Petroleo Brasileiro S.A. (6/25/21)
• Asante Berko – SEC charged a former executive of a financial services company with orchestrating a bribery scheme to help a client to win a government contract to build and operate an electrical power plant in the Republic of Ghana. See Litigation Release for Final Judgment. (6/23/21)
• Deutsche Bank AG – The firm agreed to pay more than $43 million in disgorgement and PJI to settle charges that it violated the books and records and internal accounting controls provisions of the FCPA in connection with improper payments to intermediaries in China, the UAE, Italy and Saudi Arabia. (1/8/21)
• Goldman Sachs Group, Inc. – The firm agreed to pay more than more than $1 billion to settle SEC charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA in connection with the 1Malaysia Development Berhad (1MDB) bribe scheme. See related action against Tim Leissner (10/22/20).
• J&F Investimentos, S.A. – Brazilian nationals Joesley Batista and Wesley Batista and their companies J&F Investimentos S.A. and JBS S.A., a global meat and protein producer, have agreed to pay nearly $27 million to resolve charges that they caused Pilgrim’s Pride’s violations of the books and records and internal accounting controls provisions of the FCPA. The Batistas also agreed to each pay a $550,000 civil penalty. The parties also agreed to a three-year self-reporting undertaking. (10/14/20)
• Herbalife Nutrition, Ltd. – The Los Angeles-based direct selling company agreed to pay more than $67 million to resolve charges that it violated the books and records and internal accounting controls provisions of the FCPA arising out of a bribery scheme orchestrated by its China subsidiary. See related action against Jerry Li. (9/28/20)
• World Acceptance Corp. (“WAC”) – Without admitting or denying the SEC’s findings, WAC settled to anti-bribery, books and records, and internal accounting controls provisions of the FCPA and paid over $20 million to resolve charges arising out of a bribery scheme orchestrated by its former Mexican subsidiary. (8/6/2020)
• Alexion Pharmaceuticals – Boston-based pharmaceutical company Alexion Pharmaceuticals Inc. agreed to pay more than $21 million to resolve charges that it violated the books and records and internal accounting controls provisions of the FCPA. (7/2/20)
• Novartis AG – Global pharmaceutical and healthcare company and its former Alcon subsidiary agreed to pay over $340 million to resolve SEC and DOJ charges arising out of conduct in multiple jurisdictions. (6/25/20)

Court Rulings

Since the Second Edition, there have also been a number of important FCPA cases decided:

• In Liu v. SEC the Court held that the disgorgement remedy available to the SEC under the FCPA must be directly tied to ill-gotten gains, as it is supposed to benefit victims. While the Liu decision was mentioned once in the guide, there was no substantive analysis of its effects on enforcement, and is also subject to legislative developments (see below).
• In United Kingdom v. Ho, the US Court of Appeals for the Second Circuit, held that: (i) an individual can be charged under both the 78dd-2 and 78dd-3 provisions of the FCPA, i.e., that these provisions are not necessarily mutually exclusive; (ii) a violation of 78dd-3 can be specified unlawful activity in connection with a money laundering charge; and (iii) that money transferred into and out of a correspondent account in the United Kingdom was sufficient to confer jurisdiction under the relevant money laundering statute even where “the United Kingdom is neither the point of origination nor the end destination for the money, but is instead just an intermediate stop along the way.”

Legislative Changes

On January 1, 2021, Congress passed the National Defense Authorization Act (“NDAA”). The NDAA expands the SEC’s statutory authority to seek disgorgement. Section 6501 of the NDAA explicitly authorizes the SEC to seek disgorgement in cases filed in federal court, eliminating any residual doubt after Liu. It also extends the statute of limitations from five years to ten years for SEC enforcement actions based on scienter-based claims, a change which applies to both pending cases and enforcement actions initiated after the passage of the NDAA.