Foreign Corrupt Practices Act (FCPA)

OVERVIEW

The Foreign Corrupt Practices Act is a law that makes United States companies and their executives personally liable for the conduct of foreigners in foreign countries and that liability can be both monetary and criminal and it doesn’t matter if its lawful or not to bribe an official in that country.

REASON

Most countries require that foreign companies have an in-country company through which they may conduct business, in which they own 49 → 51% ownership.

WHAT IT SAYS

The FCPA prohibits offering or giving anything of value to a foreign official or to any person knowing that it will be offered or given to a foreign official for purposes of obtaining business or retaining business or securing some advantage.  (not just bribing for business, it could be getting a prime terminal location, a preferred flight schedule, or favorable customs treatment)

The FCPA has two (2) main provisions:

1.  Substantive:    Prohibits bribing foreign officials.

2.  Procedural:      Record-keeping, compliance standards, internal controls, and it imposes SEC level reporting obligations on every company.

EFFECT

1)      Forces companies to be self-regulating and to perform investigations, audits and record keeping.

2)      PROHIBITS “willful blindness and conscious indifference” – example: Ken Lay & Jeff Skilling of ENRON

RED FLAGS  -------► Raise suspicion

-      Unsupported monetary movements or payments – You must audit your own records and match payments with supporting documentation

-         Commissions paid before delivery

-         Payments to third parties

They Must Be Documented, Investigated Reported & the Records Preserved

THE MOST COMMON VIOLATORS

-         Sales agents

-         Resellers

-         Brokers

-         Distributors

-         Consultants

-         Expeditors

-         Anyone in the supply chain

-         Licensed consultants

PROSECUTIONS

1. September 2010 – Enrique & Angel Angular were criminally indicted in Houston.  They got 30% commissions from a California company as sales agents for sales to a Mexican power company.  The California supplier raised its equipment charges by 30% to cover the bribes.

2. April 2010 – Daimler bribed officials in 22 countries and got caught by the SEC and got $93.6 million in criminal fines and penalties and paid the SEC $91 million to settle.

3. March 2010 – BAE Systems was a tobacco co-marketing advisors and were fined $400 million in criminal finds for false statements regarding FCPA.  Their defense was that they had to bribe to do business in these countries.

4.  February 2009 – Halliburton KBR were consultants that were fined $400 million in fines and paid $177 million in settlement.  They made payments into a Swiss bank account to get Nigerian oil and construction contracts.

OBJECTIVE of the TALK

·  First (1^st) scenario – You’re sitting in a meeting when your boss Grazelda says: “Good news – we just retained a freight forwarder in Malaysia to expedite our cargo.”

You say:     “Have they filed out a questionnaire?”

Grazelda says: “Zeek, what do you mean?

You say:     “It’s my understanding that we need to make sure our company isn’t contracting with an official or an affiliate of an official in that country to get business or to give us an advantage.  At a minimum we need to have some documents that shows we have investigated to show that to the best of our knowledge, our new agent is not an official or affiliates with an official.  So that is why they should have them complete a questionnaire, so that we have a record of our efforts if it turns out that they are an official.”

Grazelda says: “Zeek gets an all-expense paid trip to the Clute Mosquito Festival”. 

·   Second (2^nd) scenario – You’re sitting in a big meeting when your boss and Thurgood announces:  “We are setting up a series of joint ventures in China to expand the sales and distribution of our product.”

You raise your hand and say: “Before we start negotiating with potential partners, have we prepared our Foreign Corrupt Practice Act Compliance Policy and given them to the people who are looking for foreign partners?”

Thurgood replies:    “Gertrude, you’ve never been out of Cut-N-Shoot.  How could you know that?”

You respond: “I’m a member of the Houston Air Cargo Association.”

Thurgood says:    “Gertrude, that would be a lot of work and we want to get started.”

You say:     “Well sir, if we do not have a Compliance Policy in place and completed questionnaires in our files and it turns out that one of our partners bribes an official, it will be a legal presumption in a federal trial that we intended to violate the Foreign Corrupt Practices Act, no matter how innocent we really were and intentional violations justify punitive damages and imprisonment officers and employees.”

Thurgood responds:      “Gertrude, we’re moving you out of Cut-N-Shoot.”

HIRING & OPERATIONAL PROCEDURES

Due Diligence Procedures (DD).  The government’s posture is “if you have not done DD you have an intent to commit bribery.  The more DD, the less the sentence.  This applies to a company who is acquiring another company.

Published Compliance Policies

Questionnaire  (Attached is a sample copy of the type of questionnaire that you should have filled out and keep on hand)

Hiring Standards

You should require a way to allow yourself to audit the books and bank records.

You must have FCPA training for your recruiters and employees.

Document any RED FLAGS for management to investigate.

Keep your documents on-site and off-site

Compliance Officers:   Investigate & oversee all of the foregoing, control the records and respond to requests and investigations.  New Yorkers call it the DFG (designated fall guy)

OTHER COUNTRIES  &  ENFORCEMENT ORGANIZATIONS

Organization for Economic Cooperation & Development

United Kingdom – Anti-Bribery Law of 2010

United Nations Convention of 2006

Inter-American Convention Against Corruption of 1996

US has Mutual Legal Assistance Treaties with 72 countries – 56 of them with extradition treaties and new ones coming out all the time

United States has placed Resident Legal Advisors in 37 countries to assist in prosecution

Indonesia and other countries have laws that not only prohibit bribing government officials but also company officials as well.

HOW YOU WILL GET CAUGHT

1)      Your agent shows up at the local Starbucks in his new Lotus dripping in bling

2)      Your agent will brag about being able to pay officials to get more business

3)      Your competitors will report you

4)      The bribing agent will tell if you don’t stop giving them money

5)      A U.S. Resident Legal Advisor in one of the 37 countries will challenge your reports or call for an audit

REPORT TO YOUR COMPANY  -  Let the bosses handle it!!!**************

1)      Do not take one for the Giffer.  Do not be a DFG

2)      File reports of anything suspicious, send e-mails, ask for direction - Print and keep all documentation at home as well as in the office (Lindsey Mfg Co. Case companion case to Enrique & Angela Aguilar case)