FOREIGN CORRUPT PRACTICES ACT (FCPA) AN OVERVIEW Brazil – May, 2013 Rebekah J. Poston Partner +1 305.577.7022 rebekah.poston@squiresanders.com 39 Offices in 19 Countries
UNDERSTANDING THE FCPA • The FCPA has two components that address international corruption and bribery, they are the: � Anti-bribery provisions � Accounting provisions which address record keeping and internal controls • The DOJ and SEC enforce the FCPA and broadly construe many of its terms • Anti-Bribery Provisions The FCPA’s anti-bribery provisions prohibit: � Paying or offering to pay “ anything of value ” � Directly or indirectly � To a “ foreign official ,” or to any other person while knowing that all or part of the thing of value will be paid or offered to a foreign official � Corruptly � For the purpose of influencing the official in some official act or to secure any improper advantage � In order to “ obtain or retain business ” 3
UNDERSTANDING THE FCPA • “Anything of Value” � Gifts, meals, entertainment expenditures, travel expenses � Commissions, honorariums � Referrals, use of medical equipment or facilities � Loans, services � Charitable donations � Jobs to Foreign Officials’ children � Rebates and discounts • “Foreign Official” � “[A]ny officer or employee of a foreign government or any department agency or instrumentality thereof ... or any person acting in an official capacity for or on behalf of any such government, department, agency, or instrumentality...” � Employees of SOE (all SOE employees are Foreign Officials, regardless of rank or title) � One-half (1/2) of corporate FCPA enforcement actions in 2012 involved foreign healthcare providers (doctors, nurses, mid-wives, laboratory personnel) as the Foreign Officials � Judges, lawyers � Political parties, candidates � Officers and employees of a public international organization 4
UNDERSTANDING THE FCPA • “Obtain or Retain Business” � Improper payment to Foreign Official does not need to lead to a government contract � Promotional or other payments made to, or for the benefit of physicians to incentivize referrals, or use certain products � Influencing a procurement process � Circumventing import rules � Avoiding contract termination � Payments to obtain special tax treatment � Payments to obtain government licenses or permits � Securing an improper advantage over competitors � Steering testing to certain laboratories 5
UNDERSTANDING THE FCPA Broad Applicability • The anti-bribery provisions apply to various types of companies and individuals, including: Issuers (companies registered on national exchanges or that are � required to file reports with the SEC) � Domestic Concerns − All U.S. companies and any company that has its principal place of business in the U.S. − All U.S. nationals, citizens, or residents � Non-U.S. companies and individuals who cause an act in furtherance of a corrupt payment in the U.S. while within U.S. territory � Foreign companies whose ADRs (American Depository Receipts) are traded on a U.S. exchange � Officers, directors, employees, agents and shareholders acting on behalf of all of the above 6
UNDERSTANDING THE FCPA • The FCPA does not just prohibit direct transactions. It also prohibits corrupt payments through intermediaries • It is unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official • Third parties are one of the highest risk areas for FCPA violations 7
UNDERSTANDING THE FCPA Who are the typical intermediaries? Sales Subsidiaries and Consultants Representatives/ Affiliates Distributers Joint Venture Subcontractors Franchises Partners Lawyers Accountants Agents 8
UNDERSTANDING THE FCPA • FCPA Risks Posed by Partners, Agents, and other Third Parties � U.S. partner can be held liable for corrupt payments made by its other partner(s) on behalf of the JV � The majority of recent enforcement actions have involved improper payments through third parties � No need for DOJ to prove third party acted on company’s direct order � No need to prove company actually new the third party engaged in prohibited conduct � Failure to investigate suspicious circumstances or turning a blind eye can be sufficient to establish knowledge under the FCPA 9
UNDERSTANDING THE FCPA • Limited Exception for Certain Meals, Entertainment, and Other Business Courtesies � Payments made for expenses to benefit Foreign Officials directly related to the promotion or demonstration of the company’s products or services or to the negotiation, execution, or performance of a contract – Travel and expenses relating to visiting a company facility, for training, or for meeting with a legitimate business purpose – Expenses must be necessary and transparent � Costs should be paid for directly to vendors and accurate records kept of all such payments • Facilitation payments allowed � Small, one-time payment made to a low-level foreign official to expedite a process to which payor is lawfully entitled � Prohibited by UKBA; OECD Convention; most non-U.S. countries 10
UNDERSTANDING THE FCPA • FCPA – Anti-Bribery Provision Penalties: � Companies: – Criminal fines up to $2M per violation – Civil penalties up to $16K per violation – Other civil remedies generally available to SEC (injunctions, cease and desist orders, accounting/disgorgement) � Individuals: – Criminal fines up to $250K per violation – Imprisonment for up to 5 years – Civil penalties up to $16K per violation – Other civil remedies generally available to SEC � Alternative Fines Act – Allows a criminal fine to be up to twice the gross gain or gross loss associated with the conduct 11
UNDERSTANDING THE FCPA • Books and Records/Internal Controls Provisions Apply To: 1. Issuers 2. An officer, director, or employee can also be charged with aiding and abetting or causing a company’s violation of the accounting provisions of the FCPA 3. Foreign subsidiaries, joint ventures or affiliates owned and controlled (more than 50%) by the issuer 12
UNDERSTANDING THE FCPA • FCPA – Books & Records Provisions: � Record keeping violations normally involve (three) 3 types of offenses: – Records that simply fail to record improper transactions, e.g., off-the- books transactions such as bribes and kickbacks – Records that are falsified to disguise aspects of improper transactions – Records that correctly set forth the quantitative aspects of transactions, but fail to record the qualitative aspects of the transactions that would have revealed their illegality or impropriety, such as the true purpose of particular payments to agents, distributors or customers • “Good Faith” Defense: � An issuer with 50% or less of the voting power of a foreign or domestic firm need only attempt in good faith to use its influence to cause the firm's compliance with the accounting provisions (books and records and internal controls) of the FCPA � “Good faith” relevant factors include: – Issuer’s degree of ownership & control – The laws and practices governing the business operations of the country in which such firm is located – (See 15 U.S.C §§ 78m(2)-(6) & 78ff; Rules 13B2-1 & 13A-15) 13
UNDERSTANDING THE FCPA • FCPA – Books & Records Provisions Penalties: � Companies: – Criminal fine up to $25 million per violation – Civil fine up to $725,000 per violation – Other civil remedies generally available to SEC (injunctions, cease and desist orders, accounting/disgorgement) � Individuals: – Criminal fine up to $5 million per violation – Up to 20 years imprisonment – Civil fines up to $150,000 per violation and remedies generally available to SEC � Alternative Fines Act – Allows a criminal fine to be up to twice the gross gain or gross loss associated with the conduct 14
UNDERSTANDING THE FCPA • Anticorruption is a growth sector of the legal services industry • A handful of companies each reported spending well beyond $100 million in FCPA-related investigation costs alone pertaining to multinational probes: � Avon ($339.7m in “professional and related fees”; $92.4m FY2012)\ � Walmart ($157m in fees FY2012) � News Corp. ($179m in fees; $191 in costs on related civil settlements) � Weatherford ($125m FY 2012) • Anticorruption is also a growth industry worldwide � Brazil, China, France, Germany, India, Italy, Mexico, Russia, UK – In 2012, all of the above nations either stepped up enforcement of existing anticorruption laws or expanded the scope of their anticorruption laws – In short, foreign regulators have taken note of the FCPA’s success in deterring criminal conduct and in generating government revenue and are getting in on the act 15
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