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How A Foreign Non-Issuer Company Can Become Subject To The FCPA’s Anti-Bribery Provisions

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This recent report suggests that Angelica Rivera, wife of Mexico President Enrique Pena Nieto, is using a luxury property in Florida bought by a company (Grupo Pierdant) that is expected to bid for lucrative Mexican government contracts. According to the report, Grupo Pierdant has also paid the property tax on an additional Florida property bought by a holding company set up by Rivera.

This post uses the recent report to review how a foreign non-issuer company (such as Grupo Pierdant) can become subject to the FCPA’s anti-bribery provisions.

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Skittish Then, Still Skittish Now

skittish

The more things change, the more things stay the same, including the skittishness of the business community surrounding the Foreign Corrupt Practices Act and related laws and its attendant real-world consequences.

This recent “Global Anti-Corruption Survey” (a survey of 330 “respondents around the world to understand companies’ usage of anti-corruption programs and its impact on business decisions as well as due diligence in practice) contains a litany of responses concerning the 50% (or so) of respondents who, because of “concerns about violating anti-corruption regulations”

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Hail To The Chief

President Seal

Today is Presidents’ Day.

This post highlights the roles of the Gerald Ford, Jimmy Carter, Ronald Reagan, and William Clinton administrations in enactment and subsequent development of the FCPA.

The article “The Story of the Foreign Corrupt Practices Act” also contains a detailed overview of the roles of the Ford and Carter administrations.

Ford

After watching Congress investigate and hold hearings on the foreign payments problem for approximately nine months, in March 1976 President Ford issued a  “Memorandum Establishing the Task Force on Questionable Corporate Payments  Abroad” (see here).

The great debate at this time was whether the foreign payments problem should be addressed through a disclosure regime or through a criminalization regime.  The Ford Administration favored the former and in June 1976, President Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here).  As noted in the remarks, President Ford directed the task force “to prepare legislation that would require corporate disclosure of all payments made with the intention of  influencing foreign government officials.”

Certain bills were introduced in Congress consistent with Ford’s vision and in August 1976 President Ford issued “Foreign Payments Disclosure – Message From the President of the United States Urging Enactment of Proposed Legislation to Require the Disclosure of Payments to Foreign Officials.” (see here).

Neither Ford’s proposal, or any other, was enacted by Congress prior to the 1976 elections in which Ford was defeated by Jimmy Carter.

Carter

Unlike the Ford Administration, the Carter administration favored the criminalization regime that was under consideration in the prior Congress.  When Congress reconvened in January 1977 after the election, the movement to adopt a criminalization regime soon picked up speed again.

Certain members of the Carter administration testified at Congressional hearings throughout 1977 in favor of the criminalization regime and in December 1977, S. 305 (the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977) was presented to President Carter.

On December 20, 1977, President Carter signed S. 305 into law – see here for his signing statement.

Reagan

As noted in this previous post, President Reagan’s administration very soon sought decriminalization of foreign payments subject to the FCPA. During the Reagan administration, numerous efforts were made in Congress to amend the FCPA. Soon after the FCPA was enacted, it was widely recognized that while the FCPA had addressed a serious problem, the statute created much uncertainty and was, in the minds of many, unworkable.

Among other things, the FCPA antibribery provisions enacted in 1977 contained a broad knowledge standard (“reason to know”) applicable to indirect payments to “foreign officials”; (ii) did not contain any affirmative defenses; and (iii) did not contain an express facilitating payments exception. Beginning in 1980, various bills were introduced – either as stand alone bills or specific titles to omnibus trade and export bills – that sought to amend the FCPA. This legislative process took eight years.

In August 1988, President Reagan signed H.R. 4848 the Omnibus Trade and Competitiveness Act of 1988. Title V, Subtitle A, Part I of the Act was titled “Foreign Corrupt Practices Act Amendments.” President Reagan’s signing statement does not refer to the FCPA amendments buried in the omnibus trade bill. Among the amendments were a revised knowledge standard applicable to indirect payments and the creation of affirmative defenses and an express facilitating payment exception.

Clinton

In November 1998, President Clinton signed S. 2375, the “International Anti-Bribery and Fair Competition Act of 1998.” Among other things, the Act amended the FCPA by (i) creating a new class of persons subject to the FCPA – “any person” not an issuer or domestic concern to the extent such person’s bribery scheme has a U.S. nexus; and (ii) creating a new alternative nationality jurisdiction test for U.S. issuers and domestic concerns.

See here for President Clinton’s signing statement.

The FCPA Turns 38

38th

Yesterday our favorite statute, the Foreign Corrupt Practices Act, turned 38.

President Jimmy Carter’s December 20, 1977 signing statement stated in full as follows.

“I am pleased to sign into law S. 305, the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977. During my campaign for the Presidency, I repeatedly stressed the need for tough legislation to prohibit corporate bribery. S. 305 provides that necessary sanction. I share Congress’s belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our basic institutions. This law makes corrupt payments to foreign officials illegal under United States law. It requires publicly held corporations to keep accurate books and records and establish accounting controls to prevent the use of ‘off-the-books’ devices, which have been used to disguise corporate bribes in the past. The law also requires more extensive disclosure of ownership of stocks registered with the [SEC]. These efforts, however, can only be fully successful in combating bribery and extortion if other countries and business itself take comparable action. Therefore, I hope progress will continue in the United Nations toward the negotiation of a treaty on illicit payments. I am also encouraged by the International Chamber of Commerce’s new Code of Ethical Business Practices.”

S. 305, of course, did not fall out of the sky onto President Carter’s desk thirty-eight years ago.  Rather, S. 305 was the result of more than two years of Congressional investigation, deliberation, and consideration.

If the FCPA is your area of practice or interest, you owe it to yourself to read the most extensive piece ever written about the FCPA’s history – “The Story of the Foreign Corrupt Practices Act.”

The article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.

Among other things, you will learn: (i) how the foreign corporate payments problem was discovered, specific events that prompted congressional concern, and the policy ramifications of those events which motivated Congress to act; (ii) how seeking new legislative remedies to the foreign corporate payments problem was far from a consensus view of the U.S. government and the divergent views as to a solution; (iii) the many difficult and complex issues Congress encountered in seeking a new legislative remedy; (iv) the two main competing legislative responses to the problem—a disclosure approach as to a broad category of payments and a criminalization approach as to a narrow category of payments, and why Congress opted for the later; and (v) how Congress learned of a variety of foreign corporate payments to a variety of recipients and for a variety of reasons, but how and why Congress  intended and accepted in passing the FCPA to capture only a narrow category of such payments.

Five Years Since The Senate’s FCPA Hearing

Koehler Congress

Five years ago today, the Senate held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.”

(See here for the full hearing transcript, here for the video).

It was the first congressional hearing on the FCPA during its new era of enforcement (to be followed by a June 2011 FCPA hearing in the House) and the first FCPA hearing in Congress since the FCPA was amended in 1998.

In opening the hearing, Senator Arlen Specter (who passed away in October 2012) noted that “oversight is a major function of Congress,” but that Congress does “not do very much of it.”

During the hearing:

  • Greg Andres (then the DOJ’s Acting Deputy Assistant Attorney General, Criminal Division) provided an overview of the DOJ’s FCPA enforcement program;
  • I provided a critique of the DOJ’s charging decisions in the most egregious cases of corporate bribery as well as the DOJ’s prosecution (or lack thereof) of individuals;
  • Andrew Weissmann (then with Jenner & Block, appearing on behalf of the U.S. Chamber of Commerce) suggested potential reforms to the FCPA, including an affirmative compliance defense and clarification of the “foreign official” element; and
  • Michael Volkov (then with Mayer Brown) proposed a more balanced enforcement approach and suggested a limited amnesty program for corporations.

During the hearing, Senator Amy Klobuchar (D-Minn.) noted, among other things, that “one of the basic principles of due process is that people in companies have to be able to know what the law is in order to comply with it” and she further stated that “many very good standing companies [in her state of Minnesota] … do not always know what behavior will trigger an enforcement action.”

Senator Christopher Coons (D-Del.) stated, among other things, that he “would welcome [the] opportunity” to work on “potential amendments to the [FCPA] that would allow clarification on the definition of foreign official and the creation of a compliance defense.”

Five years have passed since the Senate’s FCPA hearing and certain things have changed.

Most interestingly, Weissmann, who advocated for FCPA reform at the hearing, is now the current DOJ Fraud Section Chief (see this prior post for additional discussion) and Andres, who defended the DOJ’s FCPA enforcement program, is now in private practice and as highlighted in this prior post has largely abandoned many of the positions he articulated on behalf of the DOJ at the hearing. (For more on this general issue, see this prior post “In the FCPA Space, Who Speaks for Whom?”).

Other things have not changed, including my FCPA views (see here for my written testimony).

I went to Capitol Hill five years ago today without an agenda and on behalf of no one but myself.

My testimony represented my genuine beliefs and I was proud of what I said then and I remain proud today.

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