Category Archives: Bribery and Blackmail

“Anything of Value” as bribery under the FCPA

One of the biggest questions asked by white collar criminal attorneys and corporate counsel in analyzing the Foreign Corrupt Practices Act to determine if their clients will be accused of bribery is – what constitutes “anything of value” for FCPA purposes?  The FCPA guidance recently issued by the DOJ and SEC clarifies this question in acknowledging that bribes don’t always consist of cash hidden in an envelope.

Specifically, the FCPA prohibits the corrupt offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of “anything of value” to a foreign official.

In determining what is meant by “anything of value”, the guidance indicates that the term is closely tied to “corrupt intent.”  In other words, in determining whether to prosecute a company based on a gift or payment to a foreign official, the DOJ and SEC will look at the specific item provided the foreign official.  If it is of very little value to the foreign official, then corrupt intent necessary to suggest bribery will be difficult to glean from this transaction.  Examples given by the DOJ include “cups of coffee, taxi fare, or company promotional items of nominal value.”  The guidance continued by warning that even these “small payments or gifts, when they comprise part of a systemic or long standing course of conduct that evidences a scheme to corruptly pay foreign officials to obtain or retain business” can be used to substantiate bribery.  In other words, even small gifts, if they are repeated over and over, can evidence corrupt intent, and subject a company to prosecution for bribery under the FCPA.

The DOJ and SEC recognize that giving a gift is a courteous way that people in business show admiration or respect for each other.  In these instances, such gifts are not considered bribes.  These gifts are less suspicious when they are given openly and not secretively, when they are recorded in the giver’s books and records as a gift to the beneficiary, when the gift is only to reflect “esteem or gratitude”, and most importantly when the gift is permitted under local law.   The guidance suggests that the bigger and more expensive the gift, the more likely it was provided corruptly – i.e. fur coats, expensive cars, country club membership dues, and limousine services.

Payment of entertainment and travel expenses of a foreign official by a domestic company has been held to be a “thing of value” in violation of the FCPA.  The guidance cites two specific examples where flight and hotel expenses were paid for foreign officials to visit popular tourist destinations in the United States.  The companies in question said these trips were made for legitimate training purposes, but the government was able to show that now training was taking place, and these travel and entertainment costs were illicit benefits to gain a competitive advantage.

The FCPA guidance also addresses when charitable contributions are considered “anything of value” for bribery purposes.  It is common for businesses to give to charities as part of community outreach.  Such activity is not illegal.  The DOJ and SEC will, however, scrutinize such giving to ensure these payments are not disguised bribes to government officials.

In making this determination, the DOJ and SEC are likely to see who is involved in the charity.  If a government official, or someone connected to a government official, that is responsible for making some determination that could affect the company’s business, the contribution is more likely to be scrutinized.  Enforcement officials would also look at the size of the donation in relation to the total charitable giving budget of the company, and also what percentage of revenue of the charity the gift comprises.

The guidance clearly suggests that companies institute a due diligence procedure for charitable gift giving, particularly when such a gift has been solicited.  Among the due diligence checklist suggested are the following items:

 

1.         Requiring the recipient to certify compliance with FCPA

2.         Confirmation that none of the recipient’s officers are foreign officials at issue

3.         Requiring the recipient’s audited financials

4.         A written agreement from the recipient restricting the use of funds

5.         Ensuring the funds are sent to a legitimate bank account

6.         Confirmation charitable commitments are met prior to sending funds

7.         Continued monitoring of the charitable program

 

Instituting such a due diligence program should be considered a requirement for any company engaged is significant charitable giving in a foreign country as even charitable contributions can constitute a “thing of value” in violation of the FCPA.

What does “Willfully” mean under the FCPA

The Foreign Corrupt Practices Act (FCPA) is legislation intended to prevent American companies from bribing foreign officials to gain a competitive advantage.  Recently, the Department of Justice and the Securities Exchange Commission issued guidance to attempt to clarify the FCPA and set forth their enforcement priorities to enlighten white collar criminal attorneys and their clients what constitutes illegal bribery.  One of the issues addressed in this guidance is to attempt to clarify the meaning of the term “willfully” as used in the FCPA.

For an individual to be successfully prosecuted criminally under the Foreign Corrupt Practices Act (FCPA), they must be proven to have acted “willfully.”  The recent guidance on the FCPA issued by the Department of Justice and the Securities and Exchange Commission attempted to clarify what is meant by the term “willfully.”

While this “willful” requirement applies to individual employees, it is important for a companies general counsel to realize that proof that conduct was engaged in “willfully” is not required to establish corporate civil liability or even to support a criminal prosecution.  However, in all corporate prosecutions under the FCPA, whether civil or criminal, proof of corrupt intent on behalf of a corporate actor is required.

The guidance notes that the term “willfully” is not defined within the language of the FCPA.  However, as stated in the guidance, the term “willfully” has generally been interpreted by courts to indicate any act, which is committed voluntarily and purposefully with a bad purpose.  This has been held to require knowledge that the defendant was doing a “‘bad’ act under the general rules of law.” The Supreme Court of the United States stated in Bryan v. United States, “[a]s a general matter, when used in the criminal context, a ‘will­ful’ act is one undertaken with a ‘bad purpose.’ In other words, in order to establish a ‘willful’ violation of a statute, ‘the Government must prove that the defendant acted with knowledge that his conduct was unlawful.’”

However, despite this language from the United States Supreme Court, the guidance notes that both the Fifth and Second Circuit Courts of Appeals have found that the government does NOT have to prove the defendant was even aware of the FCPA in order to prosecute that defendant.  The only thing that must be proven is that the defendant generally knew what he was doing was unlawful.

Therefore, despite this recent guidance, it is still difficult to pinpoint what constitutes “willful” conduct under the FCPA considering both the language of the Supreme Court along with these holdings of the Fifth and Second Circuit.   This issue may be further litigated in the future.

Payment “corruptly” made as bribe under the FCPA

The Foreign Corrupt Practices Act (FCPA) was created to provide a level playing field for American businesses doing business overseas.  It prohibits “corrupt” payments (also known as bribes) to foreign officials.  However, there has been much discussion among the white collar criminal attorney community about the meaning of the word “corrupt”.  The recent guidance issued by the DOJ and the SEC provides some insight into their definition of corrupt in enforcing the FCPA to assist criminal bribery attorneys in advising their clients.

Prior to the issuance of the guidance, the United States Congress provided their reasoning for using the word “corruptly” in drafting the legislation by stating:

The word “corruptly” is used in order to make clear that the offer, payment, promise, or gift must be intended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payor or his client to obtain preferential legislation or regulations or to induce a foreign official to fail to perform an official function.

The FCPA guidance goes on to indicate that the word “corruptly” simply indicates the intent of the giver.  A basic requirement of the conviction of anyone of a criminal act, is that the defendant knowingly and intentionally commit the criminal act for which they are being prosecuted.  Similarly, it appears the guidance interprets the use of “corruptly” as requiring a corrupt (or criminal) intent.

The guidance also makes clear that simply offering such a corrupt payment (or bribe) is enough to violate the FCPA even if the payment is never made, and even if the actor does not even know the identity of the person to receive the payment.

The guidance, however, is unclear what specific “overt act” would be required to consummate a criminal act.  In other words, in the majority of criminal cases, to plan to commit a crime is not enough to be guilty of the crime – at least one of the conspirators must engage an “overt act” towards completing the crime.

However, the DOJ and SEC suggest otherwise in application of the FCPA in stating:

“ [A]n executive who authorizes others to pay ‘whoever you need to’ in a foreign government to obtain a contract has violated the FCPA – even if no bribe is ultimately offered or paid.”

This position of the DOJ and SEC should be concerning to the white collar criminal attorney in that it suggests a deviation from typical enforcement of such crimes requiring an “overt act.”  This statement suggests that an executive planning to bribe a foreign official is automatically guilty, even if they later change their mind and fail to act on this plan of bribery.  This position of the DOJ and SEC could be attacked by a skilled white collar practitioner in the event such a case were prosecuted.

In any event, the FCPA guidance clearly indicates the term “corruptly” as used in the FCPA is very similar to the term “criminal intent”, a much more familiar phrase to criminal attorneys.

Who is a “Foreign Official” under the FCPA?

Bribery attorneys practicing white collar criminal defense and Corporate General Counsel are often consulted with regard to the Federal anti-bribery laws as they relate to foreign officials. One of the questions often raised by criminal attorneys is – what constitutes a “foreign official?” It is considered bribery under the Foreign Corrupt Practices Act (FCPA) for American businesses to corruptly provide “anything of value” to a “foreign official”. More specifically, such payments cannot be made to:

1. Any foreign official;
2. Any foreign political party or official therof;
3. Any candidate for foreign political office; or
4. Any person, while knowing that all or a portion of the payment will be offered, given, or promised to an individual falling within one of these three categories.

Foreign official is further defined by the FCPA as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof or of a public international organization, or any per¬son acting in an official capacity for or on behalf of any such government or department, agency, or in¬strumentality, or for or on behalf of any such public international organization.” (emphasis added)

While these definitions are useful in determining what constitutes a foreign official for purposes of the FCPA, the DOJ and SEC recently issued FCPA guidance, which further addresses this issue in an attempt to provide additional clarity as many foreign countries are not organized in the same manner as the United States.

The guidance acknowledges that many foreign countries operate through state-owned and controlled “businesses”, especially in industries such as defense contracting, aerospace, healthcare, banking, energy, public transportation, and telecommunication. As such, even low level employees of these industries in foreign countries can be considered “foreign officials” under the standard set forth in the FCPA.

The issue is often whether the business is considered an “instrumentality” of a foreign government. The guidance sets forth a number of factors to consider in determining whether such a business is really a government entity which include:

1. The circumstances around the creation of the entity;
2. The entity’s purpose;
3. The amount of the foreign country’s ownership of the entity;
4. The characterization of the entity by the foreign country;
5. The foreign country’s amount of control over the entity;
6. The amount of financial support for the entity by the foreign country;
7. The services provided by the entity to the foreign country’s residents;
8. The entity’s requirements and benefits under the foreign country’s law;
9. The power of the entity to administer its own services; and
10. The general perception of whether the entity is engaged in governmental functions.

This list can be summarized as an analysis of the control, status, ownership, and function of an entity to decide if it is an “instrumentality” of a foreign country. The DOJ and SEC suggest that out of this list, no one is more important than the other. However, they further simplify the analysis by stating that a foreign entity will probably not qualify as an “instrumentality” if the government or someone who is clearly a government official doesn’t own a majority of its shares. There are limited exceptions to this general rule, such as when an entity is not “owned” by the government or a government official, but the government exercises substantial control over the entity despite the lack of majority ownership.

The guidance distinguishes between foreign officials and foreign governments, indicating that it is permissible under the FCPA for a company to make payments to a foreign government. However, it further explains that in the event payments are contemplated to foreign governments, there should be due diligence in place to ensure such payments are not ultimately used for corrupt reasons like for the personal benefit of someone that is clearly a government official. In other words, any payments to a foreign government that is simply a disguised payment to a government official will likely violate the anti-bribery provisions of the FCPA. The guidance also warns that even if a payment doesn’t fall within the anti-bribery provisions of the FCPA, it could still be found to be illegal under the money laundering laws, and other federal or foreign laws.

Finally, the FCPA includes employees and representatives of public international organizations in its definition of “foreign officials.” Such public international organizations include the International Monetary Fund, the World Trade Organization, the Organization of American States, the World Bank, the OECD, and the World Intellectual Property Organization. A complete list of these organizations that constitute “foreign officials” as public international organizations under the FCPA is provided in 22 U.S.C. §288.

Foreign Corrupt Practices Act guidance on bribery

After much anticipation, the Criminal Division of the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) released guidance to their enforcement of the Foreign Corrupt Practices Act (FCPA). (This resource can be viewed by clicking this link – FCPA Guidance.) This should clarify for white collar criminal attorneys in advising what companies cannot do when dealing with foreign officials and providing them things of value in exchange for overseas work and makes more clear what is considered a bribe.

In issuing this guidance, the DOJ and SEC noted:

“When business is won or lost based on how much a company is willing to pay in bribes rather than on the quality of its products and services, law-abiding companies are placed at a com¬petitive disadvantage—and consumers lose. For these and other reasons, enforcing the FCPA is a continuing priority at the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).”

General Counsel and bribery defense attorneys across the country have been anxiously awaiting this release for over a year and a since the Department of Justice announced they were working to clarify their position. This Guide is an attempt by the DOJ and SEC to be more business friendly, and to clearly set forth their position on the enforcement of the FCPA. A review of the Guide advises company attorneys what the DOJ and SEC see as criminal bribery activity they seek to prosecute if uncovered. This guide should be considered a “must read” by any corporation, particularly those doing business across international borders.

Traditionally, attorneys specializing in bribery cases have and company general counsel have been forced to guess what the DOJ and SEC’s position would be on various activity, often too scared to request a formal opinion for fear of prosecution. Now, this guide answers many of the more common questions.

Questions most often raised and now addressed in the guide include:

1. Who is a foreign official?
2. What does “Corruptly” mean as used in the FCPA?
3. What does “Willfully” mean as used in the FCPA?
4. What does “Anything of value” mean as used in the FCPA?

Additionally, the guide discusses affirmative defenses to providing things of value to a foreign official such as “The ‘local law’ defense” and “Reasonable and bona fide expenditures.”

This guide should be a starting point to attempt to determine what type of activity will land a company in hot water, at least under this administration. This FCPA guide is the only comprehensive document providing insight from the FCPA’s enforcement authorities, and while probably not enforceable should certainly be taken seriously.