Anti-Corruption: Foreign Corrupt Practices Act

Copyright © IntegTree
(2014)
www.IntegTree.com
Anti-Corruption:
The Foreign Corrupt Practices Act
Dr. Nitish Singh & Thomas J. Bussen (J.D./MBA)
E-mail: bussent@integtree.com

(2014)
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Introduction
• This presentation covers the following topics:
– The Foreign Corrupt Practices Act anti-bribery
provisions, and areas of risk including :
• Gift Giving
• Charitable and Political Contributions
• Third Party Risks
• Additionally, we discuss warning signs and other steps
organizations can take to mitigate their risks.

(2014)
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An FCPA Overview
• The Foreign Corrupt Practices Act (FCPA)
prohibits the bribery of a Foreign Official.
• Enforcement of the FCPA is up, way up. This
includes not only fines, but also jail sentences.
• FCPA violations may be brought concurrently
with other claims.
• Understanding how the FCPA is interpreted
and applies in practice is therefore essential.

(2014)
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Additional Resources
• This presentation summarizes the Three Part
Series on the FCPA released by The Ethics &
Compliance Professors.
• View the first paper by clicking here. To access
Parts Two and Three, join our complementary
subscribers list by clicking here.

(2014)
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Prominent FCPA Cases
Selected Settlements in overseas bribery
cases since 2008:
– Siemens A.G. fined $1.2 billion by US and EU
– Kellogg, Brown and Root LLC fined $579 million
– BAE fined $400 million
– Alcoa fined $384 million in 2014

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Who is Subject to the FCPA
• The anti-bribery provisions apply to “issuers”,
“domestic concerns”, and any “person” that
bribes a foreign official.
– Issuers: Companies registered with the SEC or foreign
companies with shares on the US stock exchange.
– Domestic concerns: Virtually any business operating in
the United States.
– Persons: Anybody, including foreign corporate
concerns, whose corrupt act occurs, in any part,
within the United States.
• Cases are regularly brought against U.S. & foreign
corporations and individuals

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When is a Payment a “Bribe”?
• The FCPA applies only to payments intended to
induce or influence a foreign official to
improperly use her position “to assist ... in
obtaining or retaining business for or with, or
directing business to, any person.”
• The corrupt act need not actually succeed, so
long as the requisite intent is present.
• And executives who authorize others to do their
bidding – a “pay whoever you need to, but don’t
tell me about it” mentality– may be liable even if
such a bribe is not paid.

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What is a “Foreign Official”
• A foreign official includes any employee of a
foreign government or department thereof.
But it also includes “instrumentalities” of a
foreign government.
– Instrumentalities: Many states own or control
companies within the country either wholly or in
part. Where the state exercises control over the
company, employees thereof are foreign officials.

(2014)
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Exceptions to the FCPA
• The “Facilitating payment” defense: Grease
payments, as they’re also known, facilitate the
performance of a routine governmental action by
a foreign official.
– This “narrow exception” only applies to non-
discretionary acts such as obtaining permits,
telephone service, water or power.
– Erroneously relying on the facilitating payment
exception is a prominent danger to companies.
• A payment made in response to a threat to one’s
physical safety is not considered a FCPA violation

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Actions Subject to Additional Scrutiny:
Gift Giving
• A gift is, by definition, provided without expectation for
reciprocal treatment.
– But if the “gift” is intended to improperly influence a
governmental official, it is a bribe.
• This is true regardless of the size of the gift
• An area of particular risk is in those countries where
corruption and a culture of gift giving are both present.
• Consider requiring that employees receive express
consent from an authorized individual prior to
providing a gift on behalf of your organization

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Charitable Giving & Due Diligence
• Charitable giving is permissible as long as it is not done with
intent to improperly influence a government official.
• In some cases, individuals abroad may set up sham
charities to funnel money for their own purposes.
– Companies may engage in due diligence to ascertain the
legitimacy of the charity to which contributions are made.
– Due diligence investigations may include a review of the
organization’s ownership, management structure and
operations.
• Identify whether any owners or managers are governmental officials,
or close friends or family of officials, such that there may be an
improper relationship.
• Consider requesting key corporate documents, including access to
books and records.

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Third Party Risks
• The vast majority of FCPA cases involve
conduct by third parties, including agents
operating on behalf of a company,
partners, and acquisition prospects

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Third Party Agents & Due Diligence
Areas of inquiry and red flags. Determine whether the third party agent:
• Has a history of improper payment practices, or a criminal history.
• Does not have in place an adequate compliance program or refuses to certify
compliance and/or allow audit clauses in contracts.
• Fails to provide verifiable information about its services or principles.
• Provides lavish gifts or hospitality to leads/contacts.
• Is in a different line of business than that for which it has been engaged, lacks
experience in the field or industry, or is inadequately staffed to perform the work.
• Provides a vague plan for performing the work or suggests a reliance on contacts or
relationships.
• Demands a fee, commission or volume discount which is unusually high compared to
the market rate, is based on a success fee or bonus, or the third party requests an
unusual advance payment.
• Offers to submit or submits inflated, inaccurate or suspicious invoices.
• Requests unusual payment structures, such as cash, cash equivalent or bearer
instrument payments, or payment to an offshore financial center, a third party
(including to a charity), or a shell company.

(2014)
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Foreign Company Acquisitions & Due Diligence
Consider the following prior to acquisition:
• Review company’s sales and financial data,
customer contracts, and third-party and
distributor agreements;
• Perform a risk-based analysis of customer base;
• Perform an audit of selected transactions
engaged in by company; and
• Ascertain compliance efforts and any corruption
issues that surfaced over the past 10 years.

(2014)
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Why Do You Care?
• The law is unsettled in many areas and enforcement is a
serious threat.
• The last five years have seen more cases brought under the
FCPA than in all previous years combined
• Companies face criminal and civil penalties, and private
lawsuits, as well as the loss of licensure to contract with the
Federal government, export products, and more.
• Companies may face lawsuits abroad if found liable under
the FCPA (as with Siemens A.G.). Corruption is illegal in
every country, and several countries have regulations similar
to the FCPA
• To be found liable under the FCPA, the corrupt act need not
actually succeed in its purpose. Mere intent will suffice.

(2014)
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What Can You Do to Comply?
• Put in place internal controls to monitor your
worldwide transactions
• Audit your organization's risk exposure based on
areas and industries of operation.
• Train your workforce to recognize and avoid FCPA
violations, and to report observed violations.
• Train your workforce on the intricacies of the
FCPA and the most commonly misunderstood
aspects, including the permissible exceptions to
payments of foreign officials.

(2014)
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About the Author
• Thomas (JD/MBA/Certified in Ethics and Compliance) is the VP of
IntegTree and Adjunct Faculty at St. Louis University's Cook School of
Business. He honed his skills working as a trial lawyer for an AV Rated law
firm. As Co-Instructor for St. Louis University’s Certificate in Compliance
and Ethics, Thomas works with lawyers and executives from around the
world. Look for his forthcoming book, co-authored with Dr. Nitish Singh,
Compliance Management: A How to Guide for Executives, Lawyers and
Other Compliance Professionals.
• IntegTreespecializes in the worldwide localization of ethics and
compliance programs, regulatory and ethical training, and psychometric
testing to provide deep insights to improve existing compliance programs.

(2014)
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For More Information
• This presentation summarizes the Three Part
Series on the FCPA released by The Ethics &
Compliance Professors.
• View the first paper by clicking here. To access
Parts Two and Three, join our complementary
subscribers list by clicking here.
• Contact us at - bussent@integtree.com

(2014)
www.IntegTree.com
Disclaimer:
• This material is confidential and proprietary to IntegTree LLC and may not be
reproduced, published or disclosed to others without the express authorization of
IntegTree LLC. IntegTree LLC is not a law firm and is not engaged in providing legal
or other similar professional advice or services. In providing our services,
IntegTree LLC attempts to provide its clients with “effective practices” in light of
then-current laws and/or regulations. IntegTree’s services should not replace
advice from your in-house or outside counsel or their opinions concerning
company practices.

Anti-Corruption: Foreign Corrupt Practices Act

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Anti-Corruption: Foreign Corrupt Practices Act