DOJ & SEC Release FCPA Resource Guide

November 1st, 2012

On November 14, 2012, the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) released a resource guide on the Foreign Corrupt Practices Act (FCPA)[1] to provide examination information and operational guidance related to the statute’s anti-bribery and accounting provisions.

The guidance was released, in part, in response to the Organization for Economic Cooperation and Development’s (OCED) Anti-Bribery Working Group’s suggestions that the U.S. improve its anti-bribery efforts by merging public information and increasing FCPA awareness for small and medium-sized companies.

A brief history of FCPA and descriptions of the agencies’ respective enforcement authorities is provided.  The guide also describes collaborative inter-agency relationships and international arrangements used to combat foreign bribery.

In addition to outlining the anti-bribery provisions of FCPA, the guide clarifies ambiguous statutory language. The statutory definition of payments made “corruptly” is reaffirmed. Criminal liability requires an individual or company to act “willfully.”  FCPA does not define this term, but the guide explains that “willfully” has typically been interpreted by the courts as “an act committed voluntarily and purposefully and with a bad purpose.”[2]

FCPA prohibits of the transfer of “anything of value,” and the guide goes into a discussion of the standards applied to cash, gifts, and charitable contributions, noting that DOJ and SEC have not typically pursued gifts of little nominal value, but instead, investigations normally originate in response to singular large gifts or patterns of small gift giving.

The statute and the guide offer a broad definition of potential bribes, but the guide does provide a description of what the agencies consider to be the “hallmarks of appropriate gift-giving.”[3] The guide also provides the DOJ’s approved due diligence measures and recommends five questions to consider when making charitable payments in a foreign country.

The anti-bribery provisions of the statute apply to payments made to “any” foreign officials. The definition of foreign official includes employees of state-owned or controlled entities, the guide explains. The guide also cautions companies engaging with third parties and intermediaries and outlines common “red flags” for these relationships. FCPA provides a narrow exemption for facilitating and expediting payments made to foreign officials.  Examples for acceptable facilitating payments are listed in the guide.

The guide also provides insight into DOJ and SEC treatment of predecessor and successor companies in investigations. The nuances of the statutes of limitations for civil and criminal cases are explained as well.

FCPA also governs the accounting practices of public companies.  Generally, the statute requires that companies maintain detailed, accurate and fair records and accounting and establish internal accounting controls. The guide provides a list of how bribes have been historically mischaracterized in company accounting. FCPA does not specify specific internal control requirements, but the guide clarifies that generally, internal controls “must take into account the operational realities and risk attendant to [a] company’s business.”[4]

The factors that drive DOJ and SEC investigations are summarized. The guide also explains how the agencies evaluate self-reporting and remedial efforts, and discusses the role of corporate compliance programs.  Although the agencies do not have specific requirements for compliance programs, the guide lists the basic questions the agencies apply in evaluating compliance programs. The guide provides insight into what features the agencies identify as the “hallmarks” of successful compliance programs. Other references for compliance guidance and best practices are cited.

Sarbanes-Oxley Act[5] and, more recently, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)[6] amended whistleblower provisions pertaining to the FCPA. These provisions are summarized in the guide. The guide also includes descriptions of other U.S. laws related to the enforcement of FCPA, penalty, sanction and remedy details, and DOJ opinion guidance.

As the existing SEC and DOJ regimes embark on a second term under the Obama Administration, the guide represents the consolidation of enforcement outcomes over the past years from cases across various industries, including the financial services, energy, pharmaceutical, pharmaceutical device and advanced technology industries. The discussion of precedents, standards and definitions provides helpful insights into FCPA enforcement procedures and priorities, which industry experts expect to expand over the next four years.