Foreign Corrupt Practices Act (FCPA)

Alas, the Dodd-Frank whistleblower protections cover informants overseas.

The United States Court of Appeals for the Fifth Circuit, recently, held that the Dodd-Frank whistleblower protections cover informants that report to the SEC information about FCPA violations.  The court, citing that the plain language of the act, indicated that such individuals were covered.  This is an intriguing development given the recent issues relating to extraterritorial jurisdiction that the United States Supreme Court has even considered.

As such, companies must be aware of these issues going forward and consider the proper precautions.

Incredibly over the last several years, both the DOJ and SEC have been relentless in their aggressive enforcement of the Foreign Corrupt Practices Act.  As part of this pursuit, the FCPA’s facilitation payment exception might not be as viable as it once was, thereby, defending these actions has gotten that much more complicated.

Many are suggesting that this exception is no longer a complete defense because there is no objective standard as to  what qualifies as a facilitating payment or a routine government action.  The FCPA does not apply to such things as payments facilitating or performance easing relating to routine government actions, including, among other things, the issuing of licenses,  permits, or processing paperwork.  In particular, the SEC does not even consider the facilitation payment exception an affirmative defense. The SEC focuses on what you are paying for, not the verbiage.  Further, larger payments make it less likely for anyone to believe it is a facilitating payment, however, not all licenses are the same, some may be more expensive than others.  Essentially, confusion reigns.

Nonetheless, companies must have appropriate internal controls to police these types of payments.  One aspect of internal controls must be adequate record keeping, ensuring that transactions are properly recorded.  As such, companies must be prepared to respond when these inquiries arise.

That may be the only real defense the company may have.

Despite recent changes to the SEC’s no admit/no deny settlement policy, FCPA defense attorneys still have options. 

As many know, the SEC will no longer allow settling defendants either to admit nor deny the SEC’s allegations when convicted on parallel criminal charges or where facts were admitted in a criminal proceeding.  In particular, defense attorneys could differentiate the SEC and DOJ actions as well as consider having a subsidiary take the fall.  Sometimes the SEC will just omit the no admit/no deny language.  One needs to proceed cautiously in negotiating these agreements. 

In short, defense attorneys need to stay alert, and prepare for the worst.

Companies that acquire or invest in offshore entities or in entities that conduct business overseas may inherit FCPA risks.

Clearly, the DOJ and the SEC are viewing these transactions and the resulting combinations with a jaundiced eye.  These regulators, most likely, will begin investigations, and, possibly, commence actions.  In fact, there have been recent FCPA actions that would fall under this category.

Consequently, acquirers must identify potential FCPA problems during the due diligence process so as to avoid these predicaments.  If identified, the acquiring company may be able to restructure the transaction to avoid assuming that liability.  Possibly, the parties may also submit an FCPA “opinion procedure request” to the DOJ seeking ways to mitigate the potential liability.

Essentially, it is critical that the due diligence process uncover these problems, and the parties address them before the closing.