Aggressive enforcement of the FCPA, part 2

FCPA breach involving bribing of foreign government officials occurs when the following five elements co-exist:

  • a covered entity
  • makes a payment
  • to a non-U.S. government official
  • with a corrupt motive
  • to assist in obtaining or retaining business.

In my previous post, I discussed the first two elements; today I am going to discuss non-U.S. government officials.

FCPA prohibits payments to foreign officials, political parties and potential candidates for important positions.  Further, it prohibits payments to third parties while knowing that they will be transferred to the above individuals or entities in whole or in part.

Foreign official

As defined in FCPA, the term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization (such as WTO, the World Bank, OECD).

FCPA prohibits corruptive payments to any officer or employee, regardless of their rank (e.g. a low-level employee of a tax office, Director of Military Property Agency, a head of a public hospital or a secretary of state).  Payments (such as subsidies) to a foreign government or its agencies are not prohibited.  Companies that grant money for digitalization of society should make sure that the funds they transfers will not be used to bribe a foreign official.

Public enterprises are the ones directly or indirectly owned or controlled by the State Treasury. American courts provide a list of factors that should be considered when assessing the occurrence of ownership or control of an enterprise by the State Treasury, to include the type of ownership, degree of control, appointment of key employees, purpose of incorporation, privileges (monopoly), financial support (tax reliefs, exemptions) etc.

If the State Treasury does not hold or control majority of interests in an enterprise, there is little probability that investigation regarding a breach of FCPA shall be initiated. Nevertheless, even if the State Treasury holds only minority interests, a company may be treated as a state controlled entity if, for example, the government can veto important decisions or appoint key managers and supervisory board members.

Payments to third parties

Payments to third parties are prohibited while knowing that they will be transferred to public officers in whole or in part. Many companies hire agents or representatives who know local conditions and provide support to business operations.  They should be aware of risks related to the involvement of such agents, though.  The fact that a third party is the one to hand over a bribe does not eliminate the risk of FCPA breach on the side of the company.

“While knowing”

A person getting involved in a bribing process or being aware of a circumstance and results of actions undertaken by other individuals (bribing) commits a breach of FCPA.  A person who has a firm belief that such circumstance exists or that such result is substantially certain to occur commits such a breach as well.

FCPA applies also to persons who intentionally refrain from learning about flagrant FCPA breaches or about high risk of such a breach.  The most frequent red flags regarding third party involvement include high commissions and payments to agents, unusually high discounts for distributors, consulting contracts for odd, imprecisely defined services, third parties being closely related to public officers.

Companies should consider the above risks related to FCPA breach and include them into their compliance programs.

Follow our blog, where we will discuss the remaining elements of violating the FCPA.

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