Top Menu

If H.R. 2152 Were to Be Enacted …

There is little in terms of substantive FCPA case law. Yet this much is clear – there is no private right of action under the FCPA – enforcement of the law is in the hands of the DOJ and the SEC (as to issuers).

However, Representative Ed Perlmutter (D-CO) would like to change that (at least a bit). In April, 2009, Perlumutter introduced H.R. 2152 – the Foreign Business Bribery Prohibition Act of 2009 (see here).

Big picture, under the proposed law, any “foreign concern” (defined to mean any person other than an issuer, domestic concern or U.S. person) that violates the FCPA’s anti-bribery provisions would be liable to any issuer, domestic concern or U.S. person for damages caused by the FCPA violation. Under the proposed law, a plaintiff would need to prove that: (i) the “foreign concern” violated the FCPA’s anti-bribery provisions; and (ii) the violation prevented the plaintiff from obtaining or retaining business and assisted the foreign concern in obtaining or retaining business.

In other words, if a U.S. company can prove that it lost business because a “foreign concern” gained that same business by violating the FCPA, the U.S. company could bring a lawsuit seeking damages. Under the proposed law, the damages would be the higher of the total amount of the contract or agreement that the “foreign concern” gained in obtaining or retaining the business or the total amount of the contract or agreement that the plaintiff failed to gain. To sweeten the pot, the proposed law requires treble damages along with attorneys fees and costs.

Certainly, lots to think about here.

But alas, with two foreign wars, government bailouts and debates about financial regulation, and now, the health care debate, H.R. 2152 remains buried in Congress. The last reported activity is from June 12, 2009 when the bill was reported to the House Subcommittee on Crime, Terrorism, and Homeland Security.

It’s been a few months since I thought about H.R. 2152.

But I was reminded of the law and its potential application last night while reading an interesting front-page article in the New York Times titled “China Spreads Aid in Africa, With a Catch for Recipients” (see here).

The article talks about business activity by Chinese companies around the globe, and how, according to quoted sources, Chinese companies may be securing contracts through improper payments, kickbacks and the like.

A good portion of the article is about Nuctech Company Ltd. (a Beijing-based scanner company) and its questionable activity in Namibia. The article quotes the Vice President of Nuctech’s “American rival, Rapiscan Systems.”

I trust you are now thinking about the potential application of H.R. 2152 as well?

Let’s go through the elements – “foreign concern” check, potential violation of the FCPA check, a domestic concern damaged by the “foreign concern’s” violation check.

Before FCPA lawyers start dusting off their copy of the rules of civil procedure and daydreaming about H.R. 2152’s promise of treble damages and attorney fees, H.R. 2152 needs to at least get “out of committee.”

In any event, for those in favor of H.R. 2152, the article would seem to present a poster-child of sorts.

Corruption in China

Consider the feature story in today’s NY Times Business Section titled “The Corruptibles” (in the print edition) (see here) for your long-weekend reading pile.

Among other interesting points, writer David Barboza notes that the “Chinese government has more than 1,200 laws, rules and directives against corruption” and that even with selective enforcement of these laws about “150,000 officials [are] being punished every year for bribery, corruption and other offenses.”

The cost of such conduct? According to a cited report, approximately 3% of China’s gross domestic product.

Query whether employees of state-owned or state controlled companies are considered government / public officials under any of these various laws, rules or directives applicable to such office holders (as opposed to say commercial bribery laws). If anyone has insight into this issue, please do share.

Authorizing Improper Payments … You Can’t Do That Either!

The FCPA’s anti-bribery provisions prohibit one from offering to pay, paying, or promising to pay “anything of value” to a “foreign official” to “obtain or retain business.”

As highlighted by the SEC’s recent settled enforcement action against Oscar Meza (the former Director of Asia-Pacific Sales for Faro Technologies, Inc.), the anti-bribery provisions also prohibit one from “authorizing” such payments or offer of payments as well.

According to an SEC complaint (see here), this is exactly what Meza did when the company’s new China Country Manager requested permission to “do business the Chinese way,” a term, the SEC alleges, Meza understood to mean that the Country Manager was requesting permission to pay kickbacks and other things of value to potential Chinese customers in order to obtain sales contracts.

The SEC’s complaint alleges that Meza’s authorizations resulted in Faro-China’s payment of approximately $450,000 in improper payments to … you guessed it …”employees of Chinese state-owned companies.” (see para. 12). According to the complaint, not only did Meza authorize these payments, but he also instructed Faro-China’s staff to alter account entries to conceal the true nature of the payments. (see paras 15-16). Further, in language sure to make any defense lawyer cringe, Meza allegedly sent an e-mail to the Country Manager lamenting that “someone will notice [the payments] one day and we may all be in trouble.” (para 14).

Based on the above conduct, the SEC charged Meza with violating the FCPA’s anti-bribery provisions and books and records and internal control provisions, and aiding and abetting Faro’s violations of these same provisions.

Without admitting or denying the SEC’s allegations, Meza consented to entry of a final judgment enjoining him from violating the FCPA and aiding and abetting such violations. According to the SEC release (see here) Meza was ordered to pay a $30,000 civil penalty as well as approximately $27,000 in disgorgement and pre-judgment interest (a figure no doubt attributed to the fact that Meza received, in addition to a base salary, a sales commission based on the value of sales contracts awarded to Faro-China – including contracts with Chinese government-owned companies).

This is not the first time FCPA followers have heard about Faro Technologies or the above factual scenario. In June 2008, the company (based on the same core set of facts as above) (i) agreed to a DOJ non-prosecution agreement and paid a $1.1 criminal penalty (see here); and (ii) consented to the entry of an SEC cease and desist order and agreed to pay $1.85 million in disgorgement and pre-judgment interest (see here).

Powered by WordPress. Designed by WooThemes