SEC And DOJ Issue Long Anticipated FCPA Guidance

Posted On Friday, November 16, 2012
By: James W. Kraus

On November 14, 2012, the DOJ and SEC announced the release of a 120 page guide on the FCPA – A Resource Guide to the U.S. Foreign Corrupt Practices Act. The FCPA Guide contains a detailed analysis of the U.S. Foreign Corrupt Practices Act (FCPA), as well as an examination of the DOJ and SEC approach to the enforcement of the FCPA.  The Guide is offered as a tool to be used to provide both large and small businesses with information on a variety of topics, including who and what is covered by the FCPA, the definition of a “foreign official”, what constitutes proper and improper gifts, and the hallmarks of an effective FCPA compliance program.

The Guide employs hypothetical scenarios as well as historical examples in instances where DOJ and SEC declined to pursue enforcement actions.  In discussing the “business purpose” test used by the government in FCPA enforcement, the guide lists “Examples of Actions Taken to Obtain or Retain Business,” including the following:

  • Winning a contract
  • Influencing the procurement process
  • Circumventing the rules for importation of products
  • Gaining access to non-public bid tender information
  • Evading taxes or penalties
  • Influencing the adjudication of lawsuits or enforcement actions
  • Obtaining exceptions to regulations
  • Avoiding contract termination

The Guide also discusses the government’s working definitions for the often controversial terms “corruptly”  and “anything of value,” as those terms fall within the enforcement framework.  In referring to the FCPA’s requirement that actions such as offers, promises or payments much be made “corruptly,” the guide restates the principle that the actions must be intended to induce the recipient to misuse his official position.  It further explains:

Where corrupt intent is present, the FCPA prohibits paying, offering, or promising to pay money or anything of value (or authorizing the payment or offer).  By focus­ing on intent, the FCPA does not require that a corrupt act succeed in its purpose.  Nor must the foreign official actually solicit, accept, or receive the corrupt payment for the bribe payor to be liable.  For example, in one case, a specialty chemical company promised Iraqi government officials approximately $850,000 in bribes for an upcoming contract. Although the company did not, in the end, make the payment (the scheme was thwarted by the U.S. govern­ment’s investigation), the company still violated the FCPA and was held accountable.

Also, as long as the offer, promise, authorization, or payment is made corruptly, the actor need not know the identity of the recipient; the attempt is sufficient. Thus, an 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.

The Guide outlines the government’s broad working definition of “anything of value,” explaining that:

Bribes can come in many shapes and sizes—a broad range of unfair benefits—and so the statute 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.  An improper benefit can take many forms. While cases often involve payments of cash (sometimes in the guise of “consulting fees” or “commissions” given through intermediaries), others have involved travel expenses and expensive gifts. Like the domestic bribery statute, the FCPA does not contain a minimum threshold amount for corrupt gifts or payments. Indeed, what might be considered a modest payment in the United States could be a larger and much more significant amount in a foreign country.

The past two years have witnessed significant developments in FCPA enforcement.  DOJ set records in 2010 and 2011 for the number of cases resolved, and for the length of prison sentences achieved in criminal prosecutions under the Act. In 2011, however, there was a rise in the number of FCPA matters taken to trial, a trend that is expected to continue.   It is estimated that 87 companies are currently under investigation for FCPA violations.  While the largest settlements to date have been with foreign companies, most of the companies currently under investigation are believed to be American companies, including Eli Lilly, Medtronic, Pfizer,  Alcoa, Goldman Sachs and Wal-Mart.

Three FCPA cases that went to trial in 2011 and 2012 gained headlines for the acquittals or dismissal of charges that ended each of the cases.  In United States v. Goncalves, No. 09-335 (D. D.C.) (SHOT Show/African Sting), DOJ filed a series of indictments in the U.S. District Court for the District of Columbia.  The “SHOT Show” moniker was derived from the fact that 21 of the 22 defendants were arrested at SHOT Show law enforcement industry convention in Las Vegas.  The defendants were charged with engaging in a scheme to pay bribes to the Minister of Defense for the African nation of Gabon.  In fact, the scheme was part of an undercover operation, with no involvement from any official from Gabon or any other nation.  As part of the sting, the defendants allegedly agreed to pay a 20% “commission” to a sales agent that the defendants believed represented the Minister of Defense for Gabon in order to win a portion of the $15 million contract to outfit the country’s presidential guard. 

At the time it announced the indictments in the SHOT Show case, DOJ stated that “this ongoing investigation is the first large scale use of undercover law enforcement techniques to uncover FCPA violations” and the “largest action ever undertaken by the Justice Department against individuals for FCPA violations.”  After two trials resulted in acquittals for three defendants, hung juries as to seven others and no convictions, the United States gave up on the case.  On February 21, 2012, the government filed a motion to dismiss, with prejudice, the indictments of all remaining defendants (including those not yet brought to trial and those who had been granted a mistrial).

In U.S. v. Aguilar, No. 10-1031 (C.D. Cal.) (Lindsey Manufacturing), Lindsey Manufacturing and several individuals including Lindsey’s CEO, Keith Lindsey, and CFO, Steven Lee, were indicted for violations of the FCPA in the U.S. District Court for the Central District of California.  The charges were based on allegations regarding “commission payments” to be used to pay bribes to Mexican officials in exchange for contracts with a state-owned utility Comisión Federal de Electricidad (CFE).  On May 10, 2011, after a 5 week trial, Lindsey Manufacturing, Lindsey and Lee were convicted of one count of conspiring to violate the FCPA and 5 counts of FCPA violations.  In December of 2011, the trial judge presiding over the trial, granted a motion to dismiss, vacating the convictions of Lindsey Manufacturing Co., Lindsey and Lee.

The court found that there was prosecutorial misconduct throughout the course of the prosecution, including falsehoods made in search and seizure warrant affidavits, unauthorized and warrantless searches, false or misleading testimony by government witnesses in the grand jury, failure to produce questioned grand jury testimony and misconduct in the delivery of closing argument. 

In  U.S. v. O’Shea, No. 09-629 (S.D. Tex.), the government indicted John O’Shea, manager of ABB Network Management, a subsidiary of ABB, Inc., accusing him of authorizing bribes of $1.9 million to CFE employees (the same Mexican government entity as in Lindsey Manufacturing) in exchange for contracts.   O’Shea was also accused of hiring Fernando Maya Basurto, a Mexican citizen, who allegedly acted as a middleman in the scheme and who had already entered a plea of pleaded guilty to conspiracy to violate the FCPA, money laundering, and falsifying records in a federal investigation.   On January 16, 2012, however, at the close of the government’s case-in-chief, the trial court granted O’Shea’s motion to dismiss 12 FCPA counts and one conspiracy count, finding that Basurto’s testimony failed to tie O’Shea to the alleged bribery.

Like other significant enforcement guidance documents, including DOJ’s Principles of Federal Prosecution of Business Organizations, the new FCPA Guide offers additional insight to the thinking on the enforcement side of the fence, while at the same time leaving most of the critical determinations to the prosecutorial discretion of the government on a case-by-case basis.  The Guide should be used by corporations to the greatest extent possible in designing and revamping corporate compliance programs.  The substance of the Guide can also be used when companies find themselves under investigation in FCPA matters.  Specifically, whether negotiating or making requests for deferred prosecution on behalf of individuals or corporations, it is critical to integrate the guide and its specific examples into  the treatment of the facts in your particular case.  Again, while this guidance opens the door a bit on the government’s thought process, it does not specifically dictate charging decisions. 

The Guide is available here:  http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf

James W. Kraus and John A. Schwab Contributed content to this Post