News Column

DOJ, SEC Release Overseas Bribery Guidelines

Nov. 15, 2012

Charlie Savage


The government issued clarifications, as a recent surge in enforcement has unnerved big businesses worried about breaking the rules and paying big fines.

With billions of dollars in potential fines and foreign investment in the balance, the U.S. Justice Department and the Securities and Exchange Commission have released long-awaited guidelines on how prosecutors interpret and enforce an anti- corruption law that bans American businesses from bribing officials overseas.

The 120-page "resource guide" to the Foreign Corrupt Practices Act lays out the government's understanding of and standard practices for the 1977 law. The statute sat largely dormant for decades, but a recent rush of enforcement has brought anxiety to corporate boardrooms, leading to large fees for compliance lawyers and enormous fines and settlements paid to the government.

The detailed guidance -- including numerous case studies illustrating what would and would not be considered violation of the law -- is particularly important because cases of foreign corrupt practices rarely get adjudicated. Corporations are generally inclined to settle potential cases without trial, because being indicted can cripple a business.

As a result, judges rarely weigh in on whether prosecutors' interpretations of the statute in ambiguous situations -- for instance, when an employee of a state-owned enterprise, like a utility, should be considered a "foreign official," and therefore covered by the law -- is accurate.

The guidance -- signed by Lanny A. Breuer, the assistant attorney general for the Justice Department's criminal division, and Robert S. Khuzami, the S.E.C.'s director of enforcement -- lays out a series of factors in considering who counts as a foreign official. Among them, for example, is whether a foreign government controls an entity, like a utility, or has only a minority stake.

It also discusses gift-giving at length, and addresses the question of when gifts to an overseas charity -- or travel and entertainment provided to foreign officials who may be considering issuing a contract to a business -- amount to bribes.

For example, the guidance says that it would not violate the statute if a company provided foreign officials, like employees of a state-owned electricity commission, promotional T-shirts at a trade show, picked up a bar bill or bought "a moderately priced crystal vase" as a wedding gift. There would also be no violation if the company paid for the foreign visitors' travel to a city in the United States where it has facilities, including taking them to a baseball game or the theater.

However, the guide says, paying for foreign officials and their spouses to travel to a city like Las Vegas or Paris, if the company has no significant facilities there, would violate the law. That would display a "corrupt intent" to curry favor with the officials because "the trip does not appear to be designed for any legitimate business purpose."

"The fight against corruption is a law enforcement priority of the United States," Mr. Breuer said in a statement. Enforcement of the statute "is critical to protecting the integrity of markets for American companies doing business abroad, and we will continue to make clear that bribing foreign officials is not an acceptable shortcut."

Mr. Khuzami added: "Investors must have faith that the economic performance of public companies reflects lawful considerations of markets, price and product rather than a mirage resulting from bribery and corruption."

Paul E. Pelletier, a former Justice Department prosecutor who worked on Foreign Corrupt Practices Act investigations, said that in terms of "providing bright lines that don't already exist," the guidance was unlikely to be groundbreaking for lawyers who already specialize in the law, but would be important and useful for in- house lawyers at companies.

"I think it's important because people want it and it provides one-stop shopping," he said. "It's going to give us good boundaries as to what the government's present view is as to certain issues, and that's always good and helpful. And it's going to raise the profile of the Foreign Corrupt Practices Act even more."

Congress passed the act as part of a series of overhauls after the Watergate scandal. For its first few decades, prosecutors rarely invoked the statute. But in recent years, enforcement has soared to 48 actions in 2010, from just two in 2004.

The change dates to the collapse of Enron a decade ago. It led to tougher financial laws, like those requiring top executives at publicly traded companies to certify that their firms' books are accurate, which in turn forced them to pay closer attention to payments made overseas. The 2010 Dodd-Frank law further heightened pressure by giving corporate whistle-blowers a financial incentive to report violations.

Against that backdrop, Justice Department prosecutors, starting in the George W. Bush administration, began developing more expansive theories about the type of graft that the statute covered.

The department, and the S.E.C., also began increasing fines by requiring companies to disgorge profits as a condition of settling cases without indictments. That drove fines up to record levels, including $800 million paid by Siemens in 2008.

Businesses have called for greater clarity, complaining that the law is being stretched beyond its intent and that it is not clear what conduct is now considered off limits. The guidance is expected to be closely analyzed by corporate lawyers who help companies comply with the law and respond when a violation is uncovered.

One of the business groups that has criticized the way the Foreign Corrupt Practices Act has been enforced is the Chamber of Commerce's Institute for Legal Reform. Its president, Lisa A. Rickard, praised the guidance Wednesday as "an important step forward in an ongoing process of providing much-needed clarity and certainty to the business community." She cited several "areas of concern" that she particularly supported.

"While guidance by definition can never provide the same certainty as an affirmative statute, we're hopeful that this document will help companies seeking to comply with the law in good faith and prosecutors charged with enforcing it," she said in a statement.

Source: (C) 2012 International Herald Tribune

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