Judicial Decision Touches Upon On A Variety Of FCPA Issues
As highlighted in this prior post, in February 2024 Javier Aguilar was convicted by a federal jury “for his role in a scheme to bribe Ecuadorean and Mexican government officials and to launder money to secure contracts worth hundreds of millions of dollars for his then-employer, Vitol Inc. (Vitol), the U.S. affiliate of the largest independent energy trading firm in the world.” Aguilar was convicted of one count of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”), one count of violating the FCPA, and one count of conspiracy to commit money laundering.
Thereafter, Aguilar filed a motion for judgment of acquittal, or in the alternative, for a new trial. Recently, Judge Eric Vitaliano (E.D.N.Y.) denied the motion and in doing so touched upon the FCPA’s “foreign official,” element, knowledge, and the FCPA’s local law affirmative defense.
A Focus On The FCPA’s Local Law Affirmative Defense
This post highlighted the recent ruling in U.S. v. Aguilar that employees of Pemex Procurement International Inc. (PPI) – a wholly-owned affiliate of PEMEX – are not “public servants” for purposes of the relevant Mexican law.
After the ruling, Aguilar’s counsel (Quinn Emanuel) moved “for a partial judgment of acquittal on the money laundering conspiracy count, insofar as it asserts that Mr. Aguilar conspired to launder money in connection with (1) violations of Mexican antibribery law and (2) violations of the Foreign Corrupt Practices Act (FCPA) involving alleged payments to PPI employees.
On The Eve Of Trial, Battle Over The FCPA’s “Local Law” Affirmative Defense In U.S. V. Ng Lap Seng
This previous post highlighted U.S. v. Ng Lap Seng (pictured), a criminal enforcement action involving alleged bribery of United Nations officials that includes FCPA charges. Trial was to begin in late May but was adjourned at the last minute and trial is set to begin today.
As highlighted in this post, on the eve of trial the parties are battling over jury instructions regarding the Foreign Corrupt Practices Act’s “local law” affirmative defense.
When It Comes To Employee FCPA Training, Companies Should Consider Omitting Reference To The FCPA’s Facilitating Payments Exception And Affirmative Defenses
Employee FCPA training is obviously an essential component of an effective Foreign Corrupt Practices Act compliance program. Yet when it comes to employee training, companies should consider omitting reference to the FCPA’s facilitating payments exception and affirmative defenses.
You may be asking in your best Gary Coleman impersonation “whatcha talkin bout.”
What I am talking about begins with a parenting analogy. Would a parent best achieve compliance with the command “clean your room” if the parent spent much time telling a child why they should clean their room, but then ended the conversation by telling the child various “outs” not to clean their room?
Of course not, and the same logic applies to rank-and-file employee FCPA training.
By including the FCPA’s facilitating payments exception and the FCPA’s affirmative defenses (the local law affirmative defense and the reasonable and bona fide expenditures affirmative defense) in employee training, companies are providing employees with concepts and words of art that employees can use to justify their conduct – conduct that could expose the company to FCPA scrutiny and enforcement based on enforcement agency theories.
By training rank-and-file employees on the FCPA’s facilitating payments exception – and its guiding principle of “routine government action” – companies are inviting employees to make discretionary, subjective calls as to what “routine government action” is.
By training rank-and-file employees on the FCPA’s local law affirmative defense, companies are inviting employees to justify their conduct if the conduct is accepted or condoned in a foreign country (even though the local law affirmative defense only applies to conduct lawful under the written laws and regulations of a foreign country).
By training rank-and-file employees on the FCPA’s reasonable and bona fide expenditures affirmative defense companies are inviting employees to make discretionary, subjective calls as to what “reasonable’ and “bona fide” mean as well as whether such an expense is “directly related” to business purposes specifically set forth in the affirmative defense.
A company with best-in-class FCPA compliance policies and procedures does not want rank-and-file employees making these discretionary, subjective calls in the global marketplace.
The point of employee FCPA training is to provide employees with “FCPA goggles” so that they can spot FCPA risk and report it to designated experts in the company to allow the experts to decide issues that could potentially implicate the FCPA’s facilitating payment exception and/or the FCPA’s affirmative defenses.
Many FCPA training courses in the marketplace contain discussion of the FCPA’s facilitating payments exception and affirmative defenses in rank-and-file employee training and thereby actually increase the company’s overall risk exposure.
The Global Anti-Bribery Course I have developed in partnership with Emtrain takes a different approach and best assists companies in reducing their overall risk exposure by omitting reference to the FCPA’s facilitating payments exception and affirmative defenses in rank-and-file employee training. (Such concepts are – as is appropriate – included in the executive / manager version of the course).
To learn more about the course, see here.
To read what others are saying about the course, see here.
Amendments To Simplify The FCPA For U.S. Businesses
Foreign Corrupt Practices Act reform may be in sleep mode at the moment, but this has not stopped (nor should it) forward-thinking individuals from contemplating FCPA reform.
Case in point, Stephen Clayton, with today’s guest post. Clayton is currently an attorney in private practice specializing in FCPA services. Previously, he was an in-house counsel, including for Sun Microsystems. At Sun, he responsible for all legal work in East and South Asia, Latin America, Australia/New Zealand and Canada, and then became Senior Director, Anti-Corruption Compliance, responsible for Sun’s global FCPA compliance. Sun was acquired by Oracle in early 2010 at which point Clayton established his private practice. Clayton also teaches an FCPA-related course for Golden Gate University’s School of Accounting.
*****
Amendments to Simplify the FCPA for US Businesses
Proposals for and against amending the FCPA have been percolating in Congress for the past 2 years. The U.S. Chamber of Commerce took a lead role, advocating that substantial changes are needed to promote international business by U.S. companies. Other groups, including the Open Society Foundations, have opposed any revisions that they say would weaken the FCPA or impede enforcement. The amendments that would provide the most help US business people have not been proposed by any of the parties lobbying Congress.
Bribery is still very common in international business and US companies are harmed by it every day. Congress should consider common sense changes to the 35-year-old FCPA that would make the law less confusing and more in tune with anti-corruption compliance practices in 2012. If changes are to be made to the FCPA, they should enable good companies and ethical business people understand and follow the law. It is easier for business people to comply with a clearly worded, strict law than try to deal with a complicated, confusingly worded law that has to be filtered through layers of lawyers. The proposals by the Chamber and its opponents retained all of the complexity and confusion in the current law, so in the end would not benefit business.
There are six changes would substantially reduce the confusion business people and in house lawyers have about the FCPA and thereby enable them to do international business with a clear understanding of their legal risks and implement effective compliance programs.
1. Eliminate the Exception for Facilitating Payments.
This exception creates the illusion that minor bribery of employees of foreign governments can be “legal.” Å corporate policy allowing employees to pay any bribes is morally indefensible. Even if corporate management believes small bribes are a necessary practice, it is extremely difficult to determine which bribes Congress considers “legal.” The facilitating payments exception is offensive to normal US ethical standards for corporate governance. The majority of companies that examine facilitating payments prohibit their employee and agents from paying them. Congress should eliminate the exception.
2. Eliminate the affirmative defense for bribes that are “lawful under the written law or regulation of the country.”
Countries do not have written laws that permit conduct that is illegal under the FCPA. But business people and non-specialist lawyers see this language in the statute and think it must have some meaning. Here again they are forced to guess which types of bribes Congress considers to be “legal.” What difference does it make to good corporate governance if a country rigs its laws to allow bribery of members of its royal family or specific government employees? It is still bribery and clean, ethical US companies would lose business to the bribe payers. This affirmative defense is essentially meaningless and confusing and there is no reason for it to remain in the law.
3. Add provisions to the FCPA making commercial (private) corruption a federal crime.
The most glaring flaw of the FCPA is that it makes it a crime to bribe only certain people, i.e. “foreign officials” including employees of “instrumentalities” of foreign governments. By making that distinction, Congress created the impression that US companies can legally pay bribes to all other people. The FCPA as it is now written causes companies and their lawyers to spend an extraordinary amount of time trying to determine if corrupt payments made on their behalf are legal or illegal. This is the most confusing aspect of the FCPA and puts company management in an ethical conundrum. Amending the FCPA to criminalize all bribery of anyone in international business will end the confusion. In international business in the 21st century, it should not matter if the recipient of a bribe is a government official or works for an instrumentality of a government or is an employee or officer of a commercial company.
4. Add a U.K. style strict liability crime of failure to prevent bribery to the FCPA and a corresponding affirmative defense for proving an adequate compliance program.
The U.K. Bribery Act of July 2011 contains a new crime that does not exist in the FCPA: Failure by a Business Organization to Prevent Bribery. It’s a strict liability crime – if bribery of anyone occurred in a company’s business, the company has violated this law. To balance strict liability, the UKBA includes an affirmative defense. If the company whose employees paid bribes can prove it had in place adequate processes to prevent bribery before the bribery occurred, it may avoid liability for this specific crime.
Congress should consider amending the FCPA to incorporate this U.K. legal innovation that makes it easy for company management to understand that all bribery by employees and agents is a crime.
5. Amend the FCPA to clarify that a parent company is responsible for the violations of its subsidiaries.
Executives of US companies create, manage and are responsible for their company’s foreign subsidiaries. US management hires the subsidiary’s managers and gives them their instructions and goals. Subsidiaries exist to generate profits and provide business advantages to the parent company. U.S. law should be unambiguous on the point that subsidiaries and their employees cannot be a convenient and easily manipulated shield from criminal liability for bribery.
Limiting a company’s liability for the FCPA violations of its subsidiaries adds to the list of gray areas that perpetuate the argument that Congress intended that only certain types bribes of certain people are illegal. Congress can remove uncertainty by amending the FCPA so it is impossible to doubt that a parent company is always responsible for the bribery, corruption and false records of any of its subsidiaries. This is the kind of clear legal guidance US companies need.
6. Widen the scope of the FCPA’s “reasonable and bona fide expenditures” affirmative defense.
Companies should be able to engage normal sales and marketing operations and be confident this will not violate the law. Congress needs to promote legitimate, properly documented business practices. The current affirmative defense is poorly worded and unnecessarily restrictive. It limits bona fide business expenditures to those “directly related to the promotion, demonstration or explanation of products or services; or the execution or performance of a contract…” That limitation is not necessary and is confusing to business people.
Conclusion:
These six amendments would make it easier for corporate management and in house lawyers to understand what is prohibited by the FCPA and significantly improve their ability to develop reasonable compliance programs. Many major companies already have policies that prohibit facilitation payments, make commercial (private) bribery by their employees and agents a terminable offense and apply their FCPA compliance program to all their subsidiaries. Congress should follow this leadership by business and bring the FCPA into the 21st century. Congress should not enact a slate of amendments that only serve to perpetuate the most obvious flaw in the FCPA – that it prohibits only certain (poorly defined) bribery of certain (poorly defined) people and therefore permits all other bribery. Amendments that merely play with the definitions of who can be bribed in what manner will not help US companies. All bribery in international business harms US companies and must be clearly illegal.