To download a copy of this white paper, click here.
U.S. companies doing business internationally must conduct their business in compliance with the laws of the United States and the foreign countries in which they do business. It is therefore important that your employees, agents, and business partners understand and comply with the Foreign Corrupt Practices Act.
What exactly is the Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act (“FCPA”) prohibits any U.S. company or person from paying bribes, or offering or authorizing payment of anything of value to a foreign government official, political party official or candidate in order to:
- Influence any official act of a government official;
- Induce any government official to act or omit to act in violation of his or her lawful duty; or
- Induce such official to use his or her influence with a foreign government to affect or influence any act of the government in order to obtain or retain business for the payor.
“U.S. Company or person” is defined under the law very broadly and would include any individual, firm, officer, director, employee, or agent of your company and includes foreign subsidiaries and related companies. Individuals and companies may also be penalized if they order, authorize, or assist someone else to violate the anti-bribery provisions of the law or if they conspire to violate those provisions.
Red Flags:
- Intermediary’s refusal to certify compliance with the FCPA.
- Incomplete or inaccurate information in required disclosures.
- Unnecessary third parties or multiple intermediaries performing similar functions.
- Consultant boasts that he is related to a foreign government official.
What does all of this mean?
It means that U.S. companies may not condone payments of bribes, “grease” money, facilitating payments, commissions, finder’s fees, or gifts to any foreign government officials in order to get business in foreign countries. Therefore, if you are working on a project that involves a contract with a foreign country or a foreign government-owned company, you cannot participate in any scheme to bribe a foreign government official in order to get or keep the business. Furthermore, using a third-party intermediary (“Consultant”) will not protect you if the Consultant bribes the government official.
Frequently Asked Questions
Q: Can we use an independent contractor, Consultant, or other agent in the foreign country to help us get business from a foreign government?
A: Yes. U.S. companies commonly uses foreign agents to assist them to get contracts in foreign countries. Often they are the people who have contacts in the government agencies that will be making decisions related to the award of contracts.
Analysis: There is nothing wrong with using a Consultant who knows people in the government or who understands the decision-making process in the government agency to assist your company to bid on business contracts in a foreign country. Payment of appropriate consulting fees to these Consultants is not a violation of the FCPA. BUT payment of a consulting fee to a Consultant that you know or should reasonably know will be used as a bribe to a government official is a violation of the FCPA and is not allowed. The FCPA applies to any individual, company, officer, director, employee, or agent of a company and any stockholder acting on behalf of the company. Individuals and companies may also be penalized if they order, authorize, or assist someone else to violate the anti-bribery provisions or if they conspire to violate those provisions.
Using a Consultant will not insulate you from liability under the FCPA if that Consultant pays a bribe to a foreign government official. The Consultant must be legitimate, must perform services in exchange for the compensation paid him or her and must agree in writing that he or she will not bribe government officials in violation of the FCPA.
Q: How can I determine if a Consultant or local agent that we are considering hiring is legitimate?
A: First, you need to check the name of the Consultant and the Consultant’s company against the lists of people with whom US companies may not do business. These lists are maintained on the U.S. Department of Commerce website at:
http://www.bis.doc.gov/complianceandenforcement/liststocheck.htm.
When you are considering hiring any consultant or company in a foreign country, you must check the lists of denied persons and entities and debarred persons etc. that are listed on the Department of Commerce website above. If the person or company you are talking to shows up on any of the lists, you cannot use them. If the Consultant has partners or other business partners with an ownership interest in his or her business, you should check their names against the list.
Second, once you have cleared the Consultant or third-party intermediary on the Commerce lists, then you need to do some due diligence to collect information about that person or company. Ideally the consultant will have an established business entity through which he or she does business in the country where you are working or are bidding on a contract. The longer the business has been established, the better.
Third, you must have a written contract for the consulting services that will be rendered to your company by the Consultant. This contract must contain an express provision that the Consultant will abide by the Foreign Corrupt Practices Act, i.e. the Consultant must agree in writing that Consultant will not bribe any government officials or do anything else that is illegal when representing your company. Having this language in the contract will not protect you from an FCPA violation, especially if any of your personnel are aware that the Consultant intends to bribe a government official, but the clause in the contract will serve as some protection from liability for an FCPA violation because it shows that you attempted to obtain compliance from the Contractor.
Red Flags:
- Requests for payment to a third party rather than the intermediary.
- Requests for payment in cash.
- Requests for unusually large commissions or other payments that appear excessive in relation to the service rendered.
- Requests for reimbursement of expenses that are poorly documented.
Q: Can we pay a finders fee to a Consultant or third-party intermediary?
A: Yes. Reasonable finders fees can be paid to foreign agents or Consultants who assist in locating business for your company. As with Consultants, such “Finders” must be vetted by checking their names against the U.S. Department of Commerce lists of people with whom U.S. companies may not do business. A written contract describing the finder’s fee arrangement is required and the finder must agree in writing that he or she will not bribe any foreign officials and will comply with the FCPA.
Q: What do you do if, for example, the only way you can get your equipment released from customs in a foreign country is to grease a palm?
A: There is an exception to the anti-bribery prohibition for “facilitating payments” for routine governmental actions. The exception is narrow and allows for payments to facilitate routine governmental action such as:
- issuance of permits, licenses, or other official documents;
- processing governmental papers, such as visas and work orders;
- providing police protection, mail pick-up and delivery, providing telephone service, power and water supply;
- loading and unloading cargo or protecting perishable products; and
- scheduling inspections associated with contract performance or transit of goods across country.
In many countries, utility, oil and communication companies to name a few, are owned by the government. Therefore employees of these companies will be considered to be foreign government officials for FCPA purposes.
The difference here is that this type of facilitating payment involves no corrupt intent on your part. You are simply asking a government official to perform the duties he or she is obligated to perform. The facilitating payment serves as encouragement to get the government official to do what he or she is supposed to do and the payment is not being made in order to get the government official to award your company business.
- If you have a question about whether a payment falls within the exception, you should consult with your corporate counsel.
- “Routine governmental action” does NOT include any decision by a foreign official to award new business or to continue business with your company.
Q: What are the penalties if you are caught making improper payments to government officials?
A: Criminal Penalties include fines of up to $2,000,000 for companies; and up to $100,000 for individuals plus imprisonment for up to 5 years. Fines imposed on individuals may NOT be paid by their employer or principal.
Civil Penalties include fines ranging from $5,000 to $100,000 for individuals and $50,000 to $500,000 for companies and in some cases disgorgement of profits from a particular transaction. In addition, a person or company found in violation of the FCPA may be barred from doing business with the Federal Government.
Q: Who exactly is considered a “foreign government official” under the FCPA?
A: The term “foreign government official” includes any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization or any person acting in an official capacity for or on behalf of any such government or department, agency or instrumentality. Thus the FCPA could be construed to apply to government-owned and operated businesses, as well as any department or agency of a foreign government. Examples range from government ministers to lowly customs officers or police. Anyone who is employed by the government or a government-owned company such as the local telephone company or utility company could be a “foreign official.” Therefore, you should not assume someone is not a government official before doing some background research.
Q: Can we make a contribution to a government official’s campaign fund?
A: Yes, if the candidate is not involved with any contract that your company is involved with. But political contributions cannot be made in place of a bribe or to get around the rules prohibiting bribes. Payment need not be made directly by the payor or directly to the payee for a violation to occur. A violation occurs if a thing of value is provided to a designee of an official rather than to the official personally if it has been provided pursuant to a prohibited quid pro quo. Thus a payment to an official’s campaign rather than to the official himself is irrelevant if the payment is made with the understanding that an official act will be done in exchange for the contribution.
Q: What if we do not know that a payment has been made to a foreign government official?
A: You can be found guilty of a violation of the FCPA if you have “actual knowledge” of the illegal payment or if you are found to have “consciously disregarded” the illegal payment. “Conscious disregard,” also known as “willful blindness” of the facts and circumstances indicating a violation, is not a viable defense.
Analysis: It is human nature to try to find a way around the rules so that you get what you want. But you cannot make a payment for consulting fees or a finder’s fee if you suspect that the Consultant will use some or all of the money to bribe a government official. You must be proactive by taking steps to reassure yourself that the consulting fees or finders fees will not be used to bribe a government official.
Q: Can we pay travel and other expenses of foreign government officials to, for example, attend a tradeshow where your company is marketing its services?
A: As a general rule, no. If you have a contract with a government for services and a portion of that contract requires that you provide training, for example, to certain government personnel, then payment of travel expenses might be appropriate if provided for in the contract. Any travel for marketing purposes, however, should be avoided.
Analysis: If there is a no legitimate business purpose to reimburse travel expenses for foreign government officials and especially their family members, such reimbursement will likely be interpreted as a gift intended to influence the government official to award your company business and it would therefore be a violation of the FCPA.
Anti-Boycott Laws
In 1945, the Arab League, an organization comprised of 23 Middle Eastern and African countries, began a boycott of goods and services originating in what is now known as Israel. The boycott was aimed at the state of Israel and non-Israelis who maintain economic relations with Israel.
To counter the boycott, the U.S. government passed laws making it illegal for U.S. companies to cooperate with the boycott and authorized the imposition of civil and criminal penalties against U.S. violators. Under the anti-boycott laws U.S. companies cannot enter into:
- Agreements that require refusal to do business with or in Israel or with blacklisted companies.
- Agreements to discriminate against other persons based on race, religion, sex, national origin or nationality.
- Agreements to furnish information about business relationships with or in Israel with blacklisted companies.
- Agreements to furnish information about the race, religion, sex, or national origin of another person.