The Foreign Corrupt Practices Act enforcement action last week against Odebrecht / Braskem was unique – specifically the DOJ’s and SEC’s bribery charges against the companies relating to conduct with alleged Brazilian “foreign officials.”
What makes it unique is that it is believed to be the first FCPA enforcement action in history against a foreign issuer for allegedly bribing its own domestic officials. In other words, a large portion of the U.S. enforcement action against the Brazilian companies is that they bribed Brazilian officials.
All previous FCPA enforcement actions against foreign issuers have not addressed this dynamic. In other words, German companies Siemens and Daimler did not bribe German officials; French companies Alstom, Total and Technip did not bribe French officials; Japanese company JGC did not bribe Japanese officials, etc., etc.
The precise dynamic highlighted in this post was previously flagged in this prior post about the 1996 SEC FCPA enforcement action against Montedison, an Italian issuer, the first SEC FCPA enforcement action against a foreign issuer. The prior post asked why, despite the SEC’s allegations, was Montedison not charged with FCPA anti-bribery violations? Jurisdictional issues aside, according to a knowledgeable source at the SEC at the time, there was a belief that there were no “foreign” officials involved because Montedison, an Italian company, allegedly bribed Italian officials.
The interesting question flagged in the prior post was: does the “foreign” in official mean foreign as it relates to the specific company at issue or foreign as it relates to the U.S. (meaning a non-U.S. official)?
I stated then, and still believe, that the legislative history supports the later, but also added that Congress likely never understood that it was legislating as to foreign issuers when the FCPA was passed in 1977 because there were few foreign issuers at that time. In the current era of FCPA enforcement, there are approximately 900 to 1,000 foreign issuers in any given year.
FCPA Institute - Houston (March 26-27, 2020)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.
There are policy issues anytime the U.S. brings an FCPA enforcement against a foreign issuer for bribing non-U.S. officials. In this regard the Oderbrecht / Braskem enforcement action raises three tiers of policy issues.
The first tier policy issue is what U.S. interests are implicated when the Brazilian companies allegedly bribed officials in Angola, Argentina, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru, and Venezuela? This first tier issue is implicated in all FCPA enforcement actions against foreign issuers.
The second tier policy issue is what U.S. interests are implicated in the above scenario given that Odebrecht / Braskem’s “home” law enforcement agency (Brazil) brought an enforcement action based on the same alleged conduct? This second tier issue is sometimes implicated in FCPA enforcement actions against foreign issuers.
The third tier policy issue is what U.S. interests are implicated when Brazilian companies allegedly bribe “domestic” Brazilian officials? This would seem to be an internal Brazilian matter that is adequately addressed by an enforcement action by Brazilian authorities.
That the U.S. also piled on with its own enforcement action is troubling just as it would be troubling if the reverse occurred: a U.S. company bribes U.S. officials but Brazilian law enforcement brings a multi-million dollar enforcement action because a meeting in connection with the bribery scheme may have taken place in Brazil and/or a portion of the bribe payments may have flowed through a Brazil-based account.
Another thing that is interesting about the Odebrecht / Braskem action and its core allegations that the companies bribed Petrobras officials is that (as flagged in this prior post) Petrobras owed 36% of the shares of Braskem and Petrobras has ADRs listed on a U.S. exchange and thus would presumably be considered by the DOJ and SEC to be an “issuer” subject to the FCPA.
In short, the enforcement theory that employees of SOEs are “foreign officials” results in an interesting paradox of sorts should there be an FCPA enforcement action against Petrobras as Petrobras employees would have been on “both sides” of the FCPA – an occurrence that has likely never happened before. Should there be an FCPA enforcement action against Petrobras (as an issuer) for bribing Brazilian officials, big picture it would mean that the U.S. government would be prosecuting the Brazil government (Petrobras) for bribing other Brazilian officials.