Bribery of foreign officials

Extent of corruption

Although secrecy makes precise figures difficult -surveys, self-reports and government disclosures confirm that bribery, solicitation and extortion are massive and widespread problems: 40% of 2700 executives surveyed reported being solicited. 50-60% in high-risk developing countries & high-risk sectors. 20% of 1000 executives reported losing business to a bribe. Involves businesses both small and big. Even profitable and otherwise respected companies have been involved in international bribery scandals. Wal-Mart, Siemens, Johnson & Johnson, Lockheed Martin, T-Mobile affiliates, Pfizer, Shell, Tyson, JP Morgan.

FCPA Who is a "Foreign Official"?

Any person who works for any branch of a foreign government, at any level President, prime minister, mayor, legislator, judge, police officer Any member of a foreign political party or candidate for foreign office Any employee of an entity controlled or owned by a foreign state (like a state run telecommunications company)

Problem in international business

Bribery by persons and entities seeking to do business abroad is regrettably commonplace in today's world. So too are requests and demands for bribes by the foreign officials that control access to these international markets.

Problems linked to corruption

Economic Problems Corruption costs the global public $1 trillion/year. Deprives honest competitors of business. Misallocates resources; overcharges taxpayers. Social Problems More corruption = Less investment = More poverty Political Problems Props up dictatorships Mistrust of western businesses & governments. Social unrest, instability and conflict

FCPA Grease payment exceptions

FCPA does not cover (i.e., allows) payments to foreign officials that are made expedite or secure the performance of routine and ordinary non-discretionary duties. Processing governmental papers, such as visas; Obtaining police protection, utilities, or mail service; Obtaining faster inspections or transport for perishables Usually, these are VERY small payments, but this does not mean that every small payment is allowed. The exception depends on the recipient's job/power

The Business Purpose Test

FCPA prohibits offers, promises or payments of anything of value to "obtain or retain business" A "business purpose" has been found where actions are designed to help your business directly or indirectly: Getting a contract or avoiding contract termination Circumventing importation rules Gaining access to non-public bid tender information Evading taxes or penalties Influencing lawsuits or enforcement actions Obtaining exceptions to regulations See US v. Kay (payment to foreign customs official to reduce import taxes counts as payment to obtain or retain business)

FCPA

In 1977, the U.S. became the first country to pass a law banning the bribery of foreign public officials. The Foreign Corrupt Practices Act (FCPA) is a two-part statute focusing on the supply side of bribery transactions: the bribe givers. Anti-bribery provisions Accounting provisions

FCPA What Constitutes Acting "Corruptly"?

Interpreted very broadly! Corrupt = Acting with intent or desire to wrongly influence recipient to take virtually any official act: Pay official to swing her decision your way when you don't deserve it Pay official to prevent her from unfairly denying you an economic benefit E.g., Pay in response to: "Pay up or your bid will be ignored" But pay in response to "True Extortion" = Not Corrupt Pay in response to "Pay or I'll dynamite your oil rig"

FCPA who is covered

Issuers & their officers, directors, employees or agents Companies listed on a national U.S. securities exchange Companies whose stock trades over-the-counter in the U.S. and who must file periodic reports with the U.S. Securities & Exchange Commission. Domestic Concerns & their officers, directors, employees or agents All U.S. citizens and residents Companies incorporated or that have principal place of business in US. US or Foreign Persons working for US companies No matter where they act! Foreign persons conducting any part of the corrupt transaction while in the territory of the United States Foreign companies that use their U.S. bank account to pay bribes Foreign people attending a meeting about the bribery in the U.S.

FCPA what acts get you in trouble

Making or authorizing corrupt payments to foreign officials, or intermediaries while knowing that the payment will be given to a foreign official. Includes authorizing an employee "pay whoever you need to pay" in order to win a deal (Willful Blindness) But also... Promising to make a corrupt payment later, even if it's not ultimately made! Offering a corrupt payment, even if it's not accepted!

FCPA Accounting provisions

Some members of Congress recognized that to prevent bribery, it must be brought out of the shadows. Others were reluctant to require disclosure of bribes and wanted instead simply to criminalize bribery. Congress thus adopted a compromise position requiring issuers to: "Make and keep" books and records that accurately reflect its transactions Devise and maintain a system of internal accounting controls. Basically, this means: (1) if bribe is paid, it must be recorded as a bribe, not a "consulting fee" (2) management must have policies to control, track and audit assets. Notably, law does not require public disclosure of payments in many cases. Legal duty to disclose turns on whether the act and consequences would be considered "material" to investors. However, ethics often demands more than law requires and less than it allows Failure to disclose information necessary to correct a misimpression that you have given investors is akin to lying.

FCPA what is prohibited

The FCPA prohibits the persons to whom it applies from: using any part of interstate commerce (e.g., email, phone, plane) in furtherance of a corrupt promise, offer or payment of anything of value to any foreign official for purposes of influencing any official act in order to obtain or retain business for the payer or a 3rd party.

Bribery

The payment of something of value to a person in a position of trust and power that is intended by the payer to wrongly influence the recipient or induce the recipient to breach his/her duties. The essence of bribery is an improper quid pro quo: "I'll give you this; in exchange you do that for me."

FCPA affirmative defenses

There are two "affirmative defenses" that can make an otherwise unlawful payment permissible: (1) Payments that are lawful under written laws of the foreign country. But, no country expressly permits bribery. (2) Bona Fide expenses related to the promotion, demonstration or explanation of products/services: E.g., travel & lodging expenses to show a foreign official your factory.

What is anything of value

VIRTUALLY ANYTHING!! REALLY. Cash Real or Personal Property (e.g., houses, jewelry) Stock, even if it turns out worthless. Vacations Future Employment Sex