DOJ and SEC Jointly Publish A Resource Guide to the U.S. Foreign Corrupt Practices Act
On November 14, 2012, the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) jointly published A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Guide”) (located at http://www.justice.gov/criminal/fraud/fcpa/). DOJ officials announced nearly a year ago that the Guide was forthcoming, and its recent publication is welcome news. The 120-page Guide is significantly more detailed than its predecessor, The Lay Person’s Guide to the FCPA, and while it does not adopt the far-reaching reforms to the U.S. Foreign Corrupt Practices Act (“FCPA”) advocated by the U.S. Chamber of Commerce, it does go a long way in providing some much needed guidance in FCPA practice.
The Guide contains extensive hypotheticals and clear statements about U.S. government analysis and legal positions. While not “groundbreaking,” the Guide will provide assistance to practitioners and companies as a compendium of previously available information, and it does serve to provide a few fresh policy and enforcement statements that should be welcome to FCPA practitioners and companies hoping to manage FCPA risk. This advisory highlights those policy and enforcement statements and areas where compiled examples or hypotheticals may be especially helpful.
Definition of “Foreign Official”
The Guide reaffirms the position of the DOJ and SEC that a multi-elemental analysis regarding whether an entity is an instrumentality of a foreign government is utilized.
The Guide provides useful direction when it states that the focus of analysis will be whether a foreign government has majority ownership of a subject entity. While the Guide does provide some historical examples where foreign government minority ownership still resulted in “instrumentality” status, the new statements provided in the Guide may signal that a foreign government’s minority stake-holder position in an entity in and of itself will not result in the entity being classified as an “instrumentality” of a foreign government.
The Guide maintains the U.S. current position allowing facilitation payments; the U.K. Bribery Act, OECD and most national legal regimes prohibit facilitation payments. However, it does recognize that the U.S. “discourages” such payments as required by OECD convention.
The Guide provides that the U.S. will not prosecute for “duress” payments. Many companies have struggled with the treatment of illicit payments provided by employees under threat to life and limb. The Guide’s treatment of duress payments should go a long way to encourage companies to expressly allow duress payments as part of compliance program while moving toward elimination of facilitation payments under compliance programs.
The Guide expressly states that the U.S. will not prosecute for historical conduct committed by a previously acquired entity if that entity was not independently subject to FCPA jurisdiction at the time of such historical conduct. From a legal perspective, this pronouncement is completely logical and will provide much needed market certainty in a merger and acquisition context.
The Guide does strongly encourage robust merger and acquisition due diligence and explains why such due diligence benefits companies from an economic, as well as a legal, standpoint.
The Guide also provides extensive hypotheticals from various merger and acquisition scenarios which companies should find useful when contemplating a transaction with potential FCPA implications.
While the Guide declines to recognize a compliance defense, it does go to great effort to explain that a robust and effective compliance program may result in declination even if FCPA violations are identified. While the existence of a compliance program has always been considered a factor in deciding punishment, this is the first time that the DOJ and/or SEC have stated that a robust compliance program may be the sole reason for a declination.
Over ten pages of the Guide are devoted to providing a road map for an effective compliance program. This is no accident. While not providing a compliance defense – vis a vis the U.K. Bribery Act – there is little question that the DOJ and SEC will now focus on the existence and operation of an effective compliance program as part of their review process.
The DOJ and SEC have historically struggled to publicize declinations while not officially disclosing actual parties. The Guide has solved this problem by providing various examples of declinations that should give at least some direction to the marketplace.
Self-Reporting of FCPA Violations
The Guide reemphasizes the level of focus and importance that the DOJ and SEC place on self-reporting. In the recent past, many FCPA practitioners have suggested that any decision to self-report potential FCPA violations should be made with extreme caution. The Guide emphasizes that self-reporting is more important than ever because of the advent of the Dodd-Frank whistleblower process and increased referrals from foreign counterparts.
In the compliance context, companies subject to the FCPA should review the Guide with their legal counsel and consider how their compliance programs should be. Companies in the merger and acquisition market should consult the Guide to determine how best to approach the due diligence and integration process to reflect the latest standards articulated by the DOJ and SEC.
Matthew J. Feeley