articles

August 17, 2015

Rate This Article
1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading...

Foreign Corrupt Practices Act A Judgemental Approach?


- Debolina Partap, General Counsel & Vice President - Head Legal [ Wockhardt ]
- Chinmay Vedak, Senior IP Executive [ Wockhardt ]

debolina_chinmay

Proceedings under the Foreign Corrupt Practices Act are indeed glamorous to readers but nightmares to companies that have to face these prosecutions...

Corruption & Bribery are not alien to any country. The matrix however differs in terms of quantity and gravity. Corporates are always on guard regarding issues which involve huge frauds that could sweep away their toplines. The average settlement for Foreign Corrupt Practices Act, 1977 (FCPA) cases in the year 2014 was the highest i.e. about $1.6 billion. The Department of Justice of the US in the year 2014 has imposed the second largest penalty for the four(4) FCPA cases amounting to $772 million which was settled for over $100 million each. FCPA proceedings are indeed glamorous to readers but nightmares to the companies who face these prosecutions. It is indeed interesting to note the following-

Anti-Bribery Provision Under FCPA

This provision of the FCPA prohibits any offer, payment, promise, or authorization to pay money or anything of value to any foreign official, foreign political party, or candidate for public office, intended to influence any act or decision in order to assist in obtaining or retaining business by gaining unfair advantage over the competitor by bribing the officials.

i) Bribes: The terminology of bribe would cover "anything of value" and may include, among other things, cash, computer equipment, medical supplies, and vehicles etc. which are obtained from the other individuals as gifts or offers for unfair practice for retaining the business or any related interest associated with the business.

ii) Foreign Officials: Under the terminology of "foreign official" includes any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or anyone acting on behalf of such government or department. For example, foreign officials would include foreign military officers in charge of procurement contracts, ministry-level officials, and officers and employees of government-owned or government-controlled entities.

iii) Knowing: has not been an executive of the company in the immediately preceding three financial years;

Exception Under FCPA

The FCPA has provided an exception i.e. "facilitating or expediting payment," the purpose of which is to expedite or secure the performance of a "routine governmental action."

Routine Government Actions can be as follows:

(a) Obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country;

(b) Processing governmental papers, such as visas and work orders;

(c) Providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country;

(d) Providing telephone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration;

(e) Actions of a similar nature.

Probable Affirmative Defenses Under The FCPA

The two affirmative defenses available under the FCPA provision are as follows:

(1) the payment, gift, offer, or promise of anything of value is lawful under the written laws and regulations of the foreign official's, political party's, party officials, or candidate's country;

(2) the payment, gift, offer, or promise of anything of value is a reasonable and bona fide expenditure, such as travel and lodging expenses, directly related to the promotion, demonstration, or explanation of products or services, or the execution or performance of a contract with a foreign government or agency thereof. Further, recent expenses on behalf of foreign government officials must have the appropriate internal controls and compliance procedures in place to provide that these expenses satisfy the "reasonable" and "bona fide" criteria of this affirmative defense and are properly approved and documented in the issuer's books and records.

However, with the growing rate of corruption and white collar crimes, with cases being of myriad complexities; these do not hold good more often, as such payments are seen as incidents and evidence of corruption.

Conclusive Trends

  • The FCPA authorities are currently increasing the focus on individual/s under FCPA actions and the Cooperations by Companies under FCPA investigations.
  • The DOJ suggests co-operation coupled with voluntary disclosures of FCPA violation leading to lower fines and non-prosecuting or deferred prosecution agreements.
  • The current trend is moving towards parties entering into Non-prosecution agreements with the Dept of Justice (DOJ) by way of voluntary disclosures and cooperation by the party. The benefits of FCPA with respect to co-operation with the FCPA authorities are unclear.
  • There is no mechanism for FCPA to evaluate and predict the value even on co-operating with the authorities.
  • The FCPA has not focussed on the points with respect to Reputational harm even when complying with the FCPA authorities, Employees getting exposed and Shareholders, competitors and foreign agencies still can take legal action against the party even after co-operation. These issues remain unanswered for unknown reasons from the Authorities and how can they be rectified without severe effect on the organization or its employees.
  • Role of the Companies exposed by FCPA inter alia:

(1) Conducting comprehensive internal investigation and implementing stringent compliance processes for avoiding or repetition of the default under FCPA.

(2) Strict implementation of the remedial measures e.g. taking strict actions against the responsible employees.

(3) Evaluating the pros and cons of the voluntary disclosures or co-operation with the authorities.

(4) Aiming at stringent training programmes for new employees with respect to the policies of the organization.

Some Major Corporate Fcpa Settlements In 2014

Company

Date

Prosecuting Entity

Main Resolution

Countries

Amount [Million $]

Alstom S. A. December 2014 DOJ Guilty plea to accounting provision Indonesia, Saudi Arabia, Egypt and other countries 772
Alcoa World Alumina LLC January 2014 DOJ & SEC Guilty plea to Anti-Bribery provision Bahrain 384
Avon Products (China) Co. December 2014 DOJ & SEC Guilty plea to accounting provision China 135
ZAO Hewlett-Packard A. O. April 2014 DOJ & SEC Guilty plea to Anti-Bribery provision Russia, Poland, Mexico 108
Marubeni Corp. March 2014 DOJ Guilty plea to Anti-Bribery provision Indonesia 88
Bio-Rad Laboratories Inc. November 2014 DOJ & SEC Non-Prosecution Agreement Russia, Vietnam, Thailand 55
Dallas Airmotive Inc. December 2014 DOJ Deferred Prosecution Agreement Brazil, Peru, Argentina 14
Layne Christensen Co. October 2014 SEC Settled Administrative Proceedings Several African Countries 5.1
Bruker Corp. December 2014 SEC Settled Administrative Proceedings China 2.4
Smith & Wesson Holding Corp. July 2014 SEC Settled Administrative Proceedings Pakistan, Indonesia and other countries 2.0

Conclusion

This brings us to the moot question - will there be a corruption-free world economy ever? It is an irony that even in "Ram Rajya", there existed corruption - so what next? As lawyers, we fight for our clients and companies to reduce penalties and save prosecutions. But we do have a larger role to play and that is to educate the masses that the "shortest way home is more often the longest way round".

Disclaimer - The views expressed here are those of the authors and not legal advice and the Wockhardt Group need not necessarily subscribe to this.

Related Post

wockhardt

follow us

Publication & Enquiries

phone icon  +91 8879635570/8879635571

mail icon   editor@legalera.in