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.
