I have been teaching Foreign Corrupt Practices Act content for approximately 20 years (as a lawyer, as a professor in a traditional classroom setting, at my FCPA Institute, and otherwise).
Many individuals come to the FCPA topic expecting to learn bright-line rules and are initially disappointed upon discovering that there are few FCPA bright-line rules. Thus, as highlighted below, an initial learning curve associated with the FCPA is gaining comfort with uncertainty.
For starters, the FCPA is a principle-based statute and not a rule-based statute and because of that learning about the FCPA (let alone conforming one’s conduct to the FCPA) is more difficult. The analogy is as follows: as a driver it is easier to conform one’s conduct to a rule-based law (the speed limit is 65) than a principle-based law (the speed limit is to drive reasonable).
Next, in the study and analysis of the FCPA one is immediately confronted with the question of what does the FCPA mean? There should be a simple answer, but in many instances there is not.
Obviously, the FCPA means what legal authority (such as the statute, judicial decisions, and legislative history) say it means, but the problem here is that there is not much judicial authority of precedent construing the FCPA. Moreover, in much of the legal authority that does exist, judges have found various FCPA elements vague or ambiguous (see here for the prior post).
Thus, in learning what the FCPA means (or at least what the FCPA enforcement agencies think the FCPA means) one very soon encounters non-legal sources of information such as actual FCPA enforcement actions (i.e. prosecutorial common law – see here for the prior post), and DOJ/SEC FCPA Guidance including in the form of DOJ opinion procedure releases. The problem with this “stuff” of course is that it is not legal authority.
Combine the above dynamics and in many (but certainly not all) instances of FCPA scrutiny and enforcement one can ask two similar, yet distinct, questions. Indeed, the learning point here is to recognize how the questions are distinct.
The first is whether, given the DOJ’s and SEC’s enforcement theories, the conduct at issue can expose a company to FCPA scrutiny and an FCPA enforcement action? This question can often be answered yes.
The second question is whether Congress in passing the FCPA intended to capture the alleged conduct at issue and whether a court would find the alleged conduct in violation of the FCPA? This question is often unknown.
Obviously business organizations subject to the FCPA are most interested in the answer to the first question. However, at the risk of being called old fashioned, the answer to the second question is very important as well.
Once learners of FCPA material are over this hump, analysis of the statute begins.
Anything of value – well that is a fairly uncertain term and FCPA enforcement actions have included allegations about golfing, flowers, karaoke bars as well as payments as low as $4.
Foreign official – who the heck is a foreign official? The FCPA statute does not definitely answer this question, legislative history conflicts with current DOJ and SEC interpretations, and even the only judicial decision of precedent on this issue contains a non-exhaustive factor-based test (see here for the prior post).
Obtain or retain business – what does that mean? Well, it certainly means things of value offered or provided to secure foreign government contracts, but beyond that, well it depends. As highlighted in this article, the government has an overall losing record in cases outside the context of procurement and even in the U.S. v. Kay case which held that certain payments outside the context of foreign government could fall within the FCPA’s anti-bribery provisions the court pointed out that there “there are bound to be circumstances” in which such payments merely increase the profitability of an existing profitable company and thus, presumably does not assist the payer in obtaining or retaining business. The court specifically stated as follows.
“If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”
In short, uncertainly there as well.
Next, one encounters the FCPA’s express exception for facilitation payments. If one has trouble understanding these provisions, don’t feel bad – federal court judges do as well (see here for the prior post).
Then one reads the exception which specifically mentions “obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country” but then learns that many FCPA enforcement actions concern payments in connection with “obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country.”
Remember those two questions from above?
From there, it is on to the so-called “reasonable and bona fide” business expenditures affirmative defense and if there was ever an uncertain term in the FCPA “reasonable” would be it (a term which also appears frequently in the FCPA’s books and records and internal controls provisions).
And then it is on to the third-party payment provisions and learners think they “get it” that business organizations can be exposed to FCPA scrutiny and enforcement based on the conduct of various third parties. Yet, the FCPA (at least as written) is not a strict liability statute, but has a knowledge element embedded in it. However, the FCPA’s definition of knowledge is muddy.
Then one learns that to negate this knowledge element, business organizations often engage in compliance best practices. Yet, the term “best practices” is inherently uncertain. Do due diligence one might say, but what is due diligence and how much due diligence is enough? The FCPA does not answer this question.
And then of course it is on to the FCPA’s books and records and internal controls provisions – likely one of the most generic legal provisions one can find. Indeed, as stated by a federal court judge:
“The main problem with the internal accounting controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgable individuals can arrive at totally different conclusions.”
I could go on and on, but I trust you get the point.
When learning about the FCPA, one must first gain comfort with uncertainly. Often times the answers to questions are not legal answers, but risk tolerance answers which are often business judgments.
So when I leave students (whether spending an entire semester with them or just two days) I often close by saying “well, at least you are now confused on a higher level.”
