Compliance Roundup: “Instrumentality” under the FCPA, Corruption Due Diligence, & More

Two recent updates on corruption and bribery provide important perspective on the challenges for multinationals in complying with the US Foreign Corrupt Practices Act and the UK Bribery Act. 

From law firm Warner, Norcross & Judd, a warning for companies doing business outside the United States that US officials – and the courts – continue to take a broad view when they interpret terms of the Foreign Corrupt Practices Act:

“Two California district courts have recently upheld the government’s expansive definition of ‘instrumentality’ under the Foreign Corrupt Practices Act, holding that payments to state-owned enterprises for the purposes of securing business may subject the payor company to civil and criminal liability.

The Foreign Corrupt Practices Act (‘FCPA’) … defines ‘foreign official’ as including the officers and employees of any ‘instrumentality’ of a foreign government.  The Department of Justice and the Securities Exchange Commission, the two primary government enforcers of the FCPA, have always interpreted this broadly, taking the position that a state-owned or state-controlled enterprise can be an ‘instrumentality’ under the FCPA… Recently, district courts faced with this theory have agreed, subject to a factual analysis of the particular state-owned enterprise at issue.  With approximately half of recent FCPA enforcement actions based, in whole or in part, on this enforcement theory, and more than $2 billion in penalties applied under the FCPA in 2010 and 2011, these decisions are yet another reason why FCPA training and compliance programs must be a point of focus for business entities with an international presence.” (FCPA Update: Definition of “Instrumentality” of the State by Warner Norcross & Judd»

Writing of anti-corruption regulation in the context of energy industry M&A, law firm King & Spalding reminds purchasers that both US and UK officials hold acquiring companies liable for bribery committed by their targets:

“It is the [US Department of Justice’s] view that liability can attach to purchasers for pre-closing conduct of the target and has accordingly brought actions consistent with this view. In its Opinion Procedure Releases (notably in relation to Haliburton’s proposed purchase of a UK-based company), the DOJ advised that a purchaser can minimise its (or insulate itself from) liability for unlawful payments made by entities it acquires by performing adequate due diligence prior to acquisition, disclosing any pre-acquisition government, and implementing effective compliance procedures thereafter…

A principal offence [under the UK Bribery Act] will be committed if the purchaser knowingly joins with, encourages, or turns a blind eye to (by way of consent or connivance) the bribery activities of the target entity, and may occur where the diligence process has revealed bribery by the target and the purchaser continues with the bribery, or allows it to continue, post-closing. Likewise, if the purchaser knows of on-going bribery and deliberately fails to conduct diligence so that the deal closes, this conduct could be viewed as criminal intent to participate in on-going corruption.” (Transactions: Corporate/London: M&A: The Importance of Bribery and Corruption Due Diligence – A UK Perspective by King & Spalding) 

Other Recent Commentary and Analysis

Due Diligence Nuts and Bolts (Michael Volkov)

“The focus of a due diligence inquiry is “reasonable inquiries” to identify and assess the risks that a third party will engage in bribery.  Of course, the specific aspects of the inquiry will change depending on the particular facts surrounding the third party, the presence of red flags, and the country in which the third party will operate.” Read the full update»

Wynn Casinos and Charitable Donations under the FCPA (Thomas Fox)

“The recent events surrounding Wynn Casinos and its now former director, Kazuo Okada, have almost been breath-taking in their family feud nature… Wynn provided the opening salvo in this battle of titans by summarily booting Okada off the Wynn Casino Board of Directors and ‘forcibly cashed out’ his stake in the company, all for alleged violations of the Foreign Corrupt Practices Act.” Read the full update»

Sanctions, Export Controls and Supply Chain Due Diligence (Thompson Coburn LLP)

“The affirmative duties imposed by the sanctions and export control laws of the United States create intertwining compliance obligations among the intermediaries to an international transaction and the principals. While it is, perhaps, a tautology to state that each party is responsible for its own actions, in the international trade environment, each party is best served by exercising due diligence over its trading partners and formalizing coordination with their compliance systems.” Read the full update»

FCPA Reform and Corporate Leniency (Michael Volkov)

“As the calls for FCPA reform grow louder, I thought it would be timely to examine one of the more significant FCPA reform proposals: Robert W. Tarun and Peter P. Tomczak, Baker & Mckenzie partners authored ‘A Proposal for a United States Department of Justice Foreign Corrupt Practices Act Leniency Policy,’ in which they propose an FCPA Leniency Policy modeled on the Department of Justice’s Antitrust Leniency Policy. While at first glance, there are positive points to their proposal, their proposal fails any rational justification.” Read the full update»

How FATF Recommendations on Anti-Money Laundering Inform Your Compliance Program (Thomas Fox)

“The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. Its mandate is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system… FATF recently released a new document, entitled ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’.” Read the full update»

—- 

Find additional Criminal Law updates on JD Supra»