Dancing Around the Edges: A Journey in the FCPA Guidance
I am really enjoying reading and re-reading the FCPA Guidance. It is a fascinating document, well written and chock full of salient points, messages, explicit and implicit.
For me, the most important issues are those that are in the so-called “gray area.” Some of the hypotheticals and the anonymous declinations are easy calls – after reading them, I am positive of the answer. The descriptions are kind of loaded, and everyone in the compliance industry would have no trouble either agreeing to a course of conduct or prohibiting the conduct. But within the explanations are some very important points, some where I may have been leaning the other way and DOJ/SEC come out the other.
Here are some examples:
Chapter 5, Part 2, p. 64 – Distributors and Local Partners: The FCPA Guidance outlines a scenario in which Company A, a US issuer, hires a local distributor to sell Company A’s products to a government agency in a high-risk country. The distributor requires a significant discount or rebate to cover its costs of support services. Also, the distributor requests use of a local partner which includes a foreign official from another part of the foreign government.
There are certainly a number of red flags in this situation – the significant discount/rebate, the designation of a specific local partner, and the foreign official’s participation in the local partner.
The FCPA Guidance, however, suggests that there is a way through this situation.
“While there is nothing inherently illegal about contracting with a third party that is recommended by the end-user, or even hiring a government official to perform legitimate services on a transaction unrelated to his or her government job, these facts raise additional red flags that warrant significant scrutiny.”
In this situation, DOJ and SEC require further diligence to examine the relationship among the three parties and written representations and warranties from the foreign official concerning his or her role in the transaction. Legal and compliance officers should breathe a sigh of relief. This is a very good solution to a difficult set of facts and risks. It confirms that DOJ and SEC credit, and indeed sometimes require, transparency, written assurances, and specific due diligence examinations of potential risks. This example is an important lesson for companies, and legal and compliance officers.
Chapter 7, Example 1, pp. 77-78: The FCPA Guidance outlines a declination in a situation in which a public company disclosed to DOJ it had received non-public bid information from a third party (raising antitrust and FCPA concerns), and conducted an internal investigation during which it uncovered “red flags,” including prior concerns about a third party agent, and improved its compliance program.
Forgive me for possibly missing the point but I do not understand why the company decided to disclose the conduct which did not include an antirust violation nor an FCPA violation. As I have said on numerous occasions, red flags are not violations. Similarly, the possession of nonpublic information by itself is not an antitrust violation unless there was an agreement (or attempt to reach an agreement) with a competitor in submitting bids. If the nonpublic information was obtained by the third party agent by paying a bribe, then there would be an isolated FCPA violation and the declination makes more sense. However, if the agent did not pay a bribe but simply obtained the information, then there does not appear to be an FCPA violation.
Chapter 7, Example 4, pp. 78-79: The FCPA Guidance outlines a declination for small bribes paid by a foreign subsidiary’s customs agent, citing the fact that the company detected a “potential” bribe before a payment was made, and immediately responded to the issue, provided in-person FCPA training to employees of the subsidiary and undertook an extensive internal investigation, cooperated with the DOJ and SEC, conducted training and implemented enhanced internal controls and other remediation.
Again, I do not understand why the company disclosed to the government a single “attempted” bribe. An alternative course may have been to respond to the attempted bribe in the same manner as outlined but avoid disclosure to the DOJ and SEC. The end result may have been the same and the company may have avoided the risk of uncovering more violations while losing any leverage in settlement negotiations.
These examples are close calls and I am not suggesting how they should be resolved in real world situations. Companies have different risk appetites and there are a number of factors which can influence how they resolve a specific issue.
Whatever the specifics may have been surrounding the declinations, DOJ and SEC have provided important information and precedents for compliance officers and practitioners to weigh when handling real world issues.