A reader recently asked:
“Do you have any information specific to non-profits and NGO’s in regard to FCPA and anti-bribery and corruption statistics?”
To my knowledge, there has never been a Foreign Corrupt Practices Act enforcement action against a non-profit or NGO.
That is not to say that non-profits can not be subject to the FCPA.
In terms of the FCPA’s books and records and internal controls provisions, those are only applicable to issuers (generally speaking companies with shares traded on a U.S. exchange or otherwise required to file certain reports with the SEC) , so that is easy, such provisions do not apply to non-profits.
However, it would be wise for non-profits to otherwise act consistent with such provisions for the simple reason that they represent good governance and adherence to such provisions can reduce the risk of FCPA anti-bribery violations (to which non-profits and those associated with non-profits can be subject to) as well as reduce the risk of other legal violations.
In terms of the FCPA’s anti-bribery provisions, they apply to “issuers,” “domestic concerns,” and “persons other than issuers or domestic concerns.”
The FCPA defines “domestic concern” as follows:
“(A) any individual who is a citizen, national, or resident of the United States; and (B) any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.” (“emphasis added).
Not only could a non-profit itself qualify as a “domestic concern,” but U.S. citizens or nationals working for or acting on behalf of a non-profit would independently qualify as a “domestic concern” under the FCPA.
The FCPA defines “person” under the dd-3 prong of the statute applicable to “persons other than issuers or domestic concerns” as follows.
The term “person,” when referring to an offender, means any natural person other than a. national of the United States or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the law of a foreign nation or a political subdivision thereof.” (emphasis added).
Here again, not only could a non-profit itself qualify as a “person,” but any natural person working for or acting on behalf of a non-profit would independently qualify as a “person” under the FCPA and could be subject to liability to the extent a bribery scheme involves a U.S. nexus, as stated in the jurisdictional prong of dd-3.
Just because there has not, to my knowledge, been an FCPA enforcement action against a non-profit, there could be. For instance, this prior post highlighted an instance in which FCPA anti-bribery charges might perhaps have fit.
Indeed, non-profits have in the past raised concerns about potential FCPA liability in the form of FCPA Opinion Procedure Releases.
As highlighted in this prior post, Release 12-02 involved “19 non-profit adoption agencies headquartered in the U.S.” who sought an opinion “related to their proposal to host 18 government officials from a foreign country during visits to the United States.” The DOJ did provide clearance as to the proposed conduct, but did find that the requestors were indeed “domestic concerns” and thus subject to the FCPA’s anti-bribery provisions.
Release 12-02 was a near carbon-copy of Release 11-01, which as highlighted in this prior post, also involved a “U.S. adoption service provider” request regarding a proposal “to pay certain expenses for a trip to the United States by one official from each of two foreign government agencies.”
Any FCPA enforcement action against a non-profit would present an interesting question given the FCPA’s required “obtain or retain business” element. While the 5th Circuit in U.S. v. Kay did conclude that this element could be more broad than just obtaining contracts, it did nevertheless state as follows.
“There are bound to be circumstances in which such a cost reduction does nothing other than increase the profitability of an already-profitable venture or ensure profitability of some start-up venture. Indeed, 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 is obtaining or retaining business would be unnecessary, and thus surplusage—a conclusion that we are forbidden to reach.”
Post-Kay there have been numerous FCPA enforcement actions (none subjected to judicial scrutiny) outside the context of procurement involving taxes, customs duties, licenses, permits, certifications and the like. Yet, all those enforcement actions concerned profit seeking corporations or other business organizations.
That the “obtain or retain business” element might not apply to non-profits was the focus of this interesting press release from Paul Weiss titled “Paul, Weiss Achieves Favorable Resolution in Unique FCPA Investigation of Nonprofit Organization.” The release stated in full.
“Paul, Weiss recently secured a complete victory for a large nonprofit organization that provides humanitarian relief and assistance overseas. The organization was being investigated by the Fraud Section of the Criminal Division of the Department of Justice (DOJ) for potential violations of the Foreign Corrupt Practices Act, in one of the first FCPA investigations by the DOJ of a nonprofit entity. The investigation had significant implications not only for the organization, but also for other nonprofit entities whose overseas activities could potentially come under scrutiny if the DOJ determined that the FCPA applied to charitable activities in addition to commercial activities.
After a five-month review analyzing conduct in multiple countries, Paul, Weiss presented its findings and legal analysis to the DOJ at the beginning of June, specifically requesting that the DOJ formally close its investigation. The DOJ recently issued an official declination letter, stating that the DOJ was satisfied that the business nexus element of the statute was not met. Receiving a formal closure letter from the DOJ is unusual and is a significant victory. The organization has not issued a public statement.
The Paul, Weiss team included litigation partner Mark Mendelsohn and counsel Kevin Loftus.”
Mark Mendelsohn is a former head of the DOJ’s FCPA Unit.
Even though there there has never been an FCPA enforcement action against a non-profit, there have been several FCPA enforcement actions against individuals employed by arguably non-corporate entities.
In 2002, Richard Pitchford (the Vice President and Country Manager in Turkmenistan of The Central Asia American Enterprise Fund (“CAAEF”) was criminally charged and pleaded guilty to, among other charges FCPA violations for making improper payments to a United Kingdom “foreign official” with responsibilities for promoting business opportunities for British companies in the Central Asian region. In the DOJ’s criminal information, CAAEF is described as being incorporated under Delaware law and wholly funded by an appropriation of $150 million from the Congress of the United States pursuant to the Support for Eastern European Democracy Act of 1989 (the “SEED Act”) and the Freedom for Russia and Emerging Eurasian Democracies and Open Market Support Act of 1992 (“FREEDOM SUPPORT ACT”). In the information, CAAEF is alleged to be a “domestic concern” and Pitchford is alleged to be an officer and agent of a “domestic concern,” as well as a “domestic concern” himself as a U.S. citizen.
Also in 2002, Ramendra Basu (an individual employed in the World Bank’s Consultant Trust Funds Office) and Gautam Sengupta (an individual employed at The World Bank as a Task Manager responsible for The World Bank’s Africa Region) were criminally charged and pleaded guilty to, among other charges FCPA violations for conspiring to assist a contractor in bribing a Kenyan “foreign official.” In the DOJ criminal informations (here and here), Basu and Sengupta are alleged to be “persons” other than an issuer or domestic concern under the dd-3 prong of the FCPA.
In 2005, Richard Novak was criminally charged and pleaded guilty to, among other charges, FCPA violations for making improper payments to various foreign government officials who “held various positions at the Liberian Embassy in Washington, D.C., the Liberian Embassy in Accra, Ghana, and at the Ministry of Education for the Republic of Liberia in Monrovia, Liberia.” According to the DOJ superseding information, Novak was employed by two individuals “who owned and operated several internet businesses from their principal places of business in the States of Washington and Idaho and from mail forwarding boxes located in Washington, D.C., and Wilmington, Delaware. These 11 internet businesses used the names “Saint Regis University,” “Robertstown University,” and “James Monroe University.” They were diploma mills in that these “universities” had no legitimate faculty members; offered no legitimate academic curriculum or services; required no course or class work; and were not recognized by the United States Department of Education.”
