FCPA

• What did congress learn that caused the law to pass?

Foreign corporate payments problem

Reasonable and bona fide expenses

You can give things of value to a foreign official to the extent that • They were reasonable and bona fide • Payment was directly related to promotion demonstration or explanation of products or services or the execution or performance of a contract with a foreign official. • This is a matter of degree

FCPA text third party provisions

"(A) A person's state of mind is "knowing" with respect to conduct, a circumstance, or a result if (i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur. • (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist."

U.S. v. Esquenazu - test

"An 'instrumentality' [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract. [...] [W]e do not purport to list all of the factors that might prove relevant to deciding whether an entity is an instrumentality of a foreign government. For today, we provide a list of some factors that may be relevant to deciding the issue.

Anything of value

"Bribes come in many shapes and sizes. And the FCPA is properly read to cover providing valuable favors to a foreign official, as well as providing cash, tangible gifts, travel or entertainment" There is no de minius monetary threshold

Routine government action

"The term "routine governmental action" means only an action which is ordinarily and commonly performed by a foreign official in (i) obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; (ii) processing governmental papers, such as visas and work orders; [...]; or (v) actions of a similar nature" • "The term "routine governmental action" does not include any decision by a foreign official ... to award new business to or continue business with a particular party, or any action taken by the foreign official involved in the decision-making process to encourage a decision to award new business to or continue business with a particular party"

Where is corrupt intent lacking?

(1) Health and safety of workers (2) To protect destruction of property/ assets (3) Generally does not include economic extortion (oh, you want the contract.. pay me)

Origins of FCPA scrutinty

(1) Voluntary Disclosure (2) Foreign Law Enforcement Investigations (3) Industry Sweeps (4)Undercover sting operations (5) unrelated government investigations (6) civil litigation (7) whistle blower

Control test

(1) foreign government's formal designation of that entity; (2) whether the government has a majority interest in the entity; (3) the government's ability to hire and fire the entity's principals; (4) the extent to which the entity's profits, if any, go directly into the governmental fisc, (5) and, by the same token, the extent to which the government funds the entity if it fails to break even; (6) and the length of time these indicia have existed.

Seldom, if ever, will any of the following be reasonable and bona fide and directly related to the business purposes identified in the FCPA

- First class airfare - Five star hotels - Expensive food and drink - Lavish entertainment - Per diem spending money - Spouses and children

What was congress' reason for passing the FCPA?

1. Foreign policy 2. Post water gate morality 3. to help business

Root causes of FCPA scrutinty

1. Respondeat Superior 2. Complicated business realities

Foreign official

Any officer or employee of a foreign government or any department, agency, or instrumentality thereof or a public international organization.

Function test- deciding if the entity performs a function the government treats as its own

Courts and juries should examine (1) whether the entity has a monopoly over the function it exists to carry out; (2) whether the government subsidizes the costs associated with the entity providing services; (3) whether the entity provides services to the public at large in the foreign country; (4) and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.

Respondeat Superior

Criminal acts of employees that are committed while exercising the authority delegated to him can be inputted onto the corporation.

Local law affirmative defense

If the payment, gift, offer or promise was made lawful under the written laws and regulations of the foreign officials country. This will basically get you nowhere.

Why has there been an increase in FCPA enforcement

Practical reasons: o More international business o More companies subject to FCPA (jurisdiction, foreign companies trading and US Nexis, extraterritorial jurisdiction. o NPAS/ DPAs o Sarbanes Oxley o Increased international resources and informational sharing o New & expansive enforcement theories (nurses, internship, hiring practices) o Increased monitoring and reporting by non- government organizations. Provocative Reasons o Cash Cow o FCPA INC- The where else question, world wide review of business operations There is a conflict of interest for lawyers representing FCPA clients

Obtain or retain business

The FCPA's anti-bribery provisions apply to payments or things of value to "foreign officials" for purposes of: (A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or (B) Inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality in order to assist ... in obtaining or retaining business for or with or directing to any person

Exception

The FCPA's anti-bribery provisions "shall not apply to any facilitating or expediting payment to a foreign official ... the purpose of which is to expedite or to secure the performance of a routine government action by a foreign official ...".

Demand side of bribery

The demand side is not regulated. Bribery involves two people. Law only focuses on supply side. Because of political reasons New trend- even though FCPA is supply side DOJ targets foreign officials receiving bribe payments

Anti bribery provisions prohibit-

the anti-bribery provisions prohibit the corrupt payment of money or "anything of value" to a "foreign official" in order to "obtain or retain business.

Third party provisions

many countries require that foreign companies associate with third parties. 90% of FCPA cases involve third party conduct. o There is a knowledge element embedded into the third party provisions but this is very broad. It includes actual knowledge, constructive knowledge, or a high probability or firm belief, substantially likely. o Cannot be willfully blind or consciously disregard knowledge of third party conduct. o U.S. v. Bourke Look at red flags: Country at issue, business partners reputation, whether you voiced concerns

Complicated Business Realities

o Companies have a commitment to FCPA, but complicated business realities create FCPA risk o Companies subject to the FCPA that operate in foreign counties must navigate difficult and challenging business conditions and trade barriers. Import documentation, licensing & certification requirements, custom proceedings. Companies are often funneled into an arbitrary world of civil servants who supplement their job with payment condoned by the host country. o The more interactions companies have with foreign officials, the more a company's FCPA risk will be o Foreign bureaucracy creates interactions with foreign officials. o Trade and foreign business conditions can create environments in which harassment bribes flourish. o Engagement of foreign third parties is often required - this creates more FCPA risk.

How is the FCPA a limited Statute?

o Congress learned of a wide variety of payments to a wide variety of recipients. Congress knew that the statute would not reach every problematic payment o Limited by (1) Recipient category- must be a foreign official (2) Grease or facilitating payments- exception (3) Business purpose- to influence foreign officials discretion (to obtain or retain business)

Legislative proposals

o Disclosure- do not prohibit payments, but require to disclose payments. Then the public makes a decision of whether they do business with that company. o Criminalization/ prohibition o Ford thought that enforcement for criminalization is just a policy assertion that would be hard to enforce. o Congressional leaders believed that this was such a serious problem that only requiring disclosure would not be enough. o Carter was in line with the prohibition approach.

FCPA ripples

o Failure to comply does not just lead to settlement money o Investigation costs o Period of reporting o Merger and acquisition o Acquirer terminates planned merger because of target's FCPA scrutiny • Because of target's FCPA scrutiny, terms and conditions of the planned transaction are restructured o Post-closing acquirer learns of target's FCPA scrutiny and thus the expected financial benefits of the transactions are reduced o Stock price o Cost of capital o Lower credit rating may equal a smaller pool of potential investors resulting in higher interest rates • Impacts a company's ability to borrow money and certain institutional investors may be barred from owning non-investment grade bonds o Bond rating downgraded due to "expenses related to the ongoing investigation under the FCPA" o Borrowing money issues o Customers not wanting to do business. o Shareholder litigation (derivative actions, securities fraud actions)

Actors subject to FCPA scrutinty

o Issuers- SEC and DOJ o Privately help companies- DOJ o Others- DOJ (foreign companies, only subject to the FCPA if the jurisdictional element is met)

Corrupt intent

o Required for both business organizations and individuals to be found liable for anti-bribery violations. o Evil motive or purpose o Does not matter if the payment was proposed by the foreign official o Not necessary that the actor knows his conduct is illegal and he does not have to have specific intent to violate the FCPA.

What about the foreign corporate payments concerned congress?

o These payments concerned congress because if these leaders were against U.S. policy they do not want these foreign officials to be accountable to private companies rather than the U.S. Government.

Why is legislative history important?

o We can understand congressional intent o There are not a lot of judicial decisions in the space, but when the court does hear an FCPA case it will often find that the statute is ambiguous. Thus, the court will turn to the legislative history in order to determine the scope and meaning of the statute. o We can ask whether enforcement activity has gone off the rails when we understand congress' original intent.

State owned enterprises

profit seeking enterprises that have many attributes of private business (about 60% of enforcement actions are based on SOEs

What is Bribery

• Giving anything of value to a foreign official with corrupt intent trying to influence discretion. • Are Bribes always good or bad? Medical field, bridges... • Who decides what bribery is? Prosecutorial Common Law- the prosecutors who enforce the law determine what bribery is. They will use one company settling as fuel to say that an enforcement theory is a viable theory.

Questions to ask about thing of value

• Was the thing of value requested by the foreign official? • Does the company believe that providing the thing of value will advance a business interest? • Is providing the thing of value consistent with company policy? • Were normal company procedures followed in providing the thing of value?