Gifts and Entertainment
Finally, some hypotheticals you can use. The guide dedicates a lot of print to illustrative examples, almost two full pages of which provide hypotheticals with definitive answers to whether specific gifts, travel, or entertainment violate the FCPA’s anti-bribery provisions. Guide at 17–18. There is no denying that the guide’s hypotheticals are helpful. They provide guidance based on what is offered, to whom, and for what purpose. The guide thereby provides welcome confirmation that the U.S. government is willing to apply a rule of reason to gifts, travel, and entertainment.
The guide clarifies that (contrary to some prior comments by DOJ and SEC personnel) “tokens of esteem and gratitude,” “[r]easonable and bona fide promotional expenditures,” and “legitimate hospitality” are all appropriate, unless given with an intent to bribe. Id. The hypotheticals include circumstances under which the following do not constitute a violation of the FCPA: providing promotional items, refreshments, and a “moderate bar tab” for prospective customers including foreign officials at a trade show; a “moderately priced” wedding gift given “as a token of esteem or gratitude”; business-class airfare, hotel, transportation, dinner, a baseball game, and tickets to a play for senior foreign officials who are traveling to inspect a company’s training facilities. On the other hand, the guide points to “larger or more extravagant” gifts, entertainment, and the like that are more likely a sign of corrupt intent. Id. at 15. For instance, $500 to $1,000 per diems in addition to food and lodging are described as “excessive.” Id. at 16.
Effective Compliance Programs
The guide provides a helpful delineation of the government’s view of what can be distilled to ten hallmarks of an effective compliance program:
- commitment from management
- clearly articulated (in appropriate languages) policy against corruption; code of conduct, policies and procedures regarding compliance responsibilities, and internal controls
- oversight vested in senior executive with authority, autonomy, and sufficient resources
- due diligence based on risk and size of transaction
- ongoing training
- incentives and disciplinary measures
- third-party due diligence that is flexible and based on risk assessment
- confidential reporting such as a hotline or ombudsperson
- internal-investigation procedure that is “efficient, reliable and properly funded”
- “continuous” review and improvement of the compliance program
Guide at 57–61.
Corrupt Versus Willful
In contrast with the rule for individual liability, “[p]roof of willfulness is not required to establish corporate criminal or civil liability” for violating the FCPA. Guide at 14. There is no real news there. As the guide points out, this distinction is evident from a comparison of the plain language of various provisions of the statute. For instance, contrast “Any domestic concern that is not a natural person and that violates subsection (a) or (i) of this section shall be fined . . . ,” 15 U.S.C. § 78dd-2(g)(1)(A), with “any natural person that is an officer, director, employee, or agent of a domestic concern, or stockholder acting on behalf of such domestic concern, who willfully violates subsection (a) or (i) of this section shall be fined . . .” § 78dd-2(g)(2)(A) (emphasis added).
In criminal law, corrupt intent (one’s objectives) and willfulness (one’s knowledge) are generally two distinct mental states that may be elements of a crime. Model Penal Code § 2.02(2)(a) and (b). What is interesting is that the guide goes out of its way to emphasize this distinction. Industry groups had sought an interpretation holding that proof of willfulness would be required to establish corporate liability under the FCPA. The DOJ now has reiterated its clear position that proof of corrupt intent is all that is required. This raises the obvious question: What is the difference between corrupt intent and willfulness? The guide cites the House committee report in defining “corruptly” as follows:
The word “corruptly” is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payor or his client, to obtain preferential legislation or regulations, or to induce a foreign official to fail to perform an official function. The word “corruptly” connoted an evil motive or purpose such as that required under 18 U.S.C. §201(b) which prohibits domestic bribery.
Guide at 14 (quoting H.R. Rep. No 95-640, at 7); see also U.S. Attorney’s Criminal Resource Manual § 2044 (providing that “corruptly” in section 201(b) “simply means with a bad or evil purpose”).
In contrast, as a careful reading of the guide points out, the additional willfulness element, required only with respect to an individual, requires knowledge “that his conduct was unlawful.” Guide at 14 (quoting Bryan v. United States, 524 U.S. 184, 191–92 (1998)) (emphasis added). This distinction might come into play, for instance, when an individual intends that his or her gift or other thing of value induce the recipient to misuse his or her official position, but is unaware that it is unlawful to do so. In that case, the defendant might have a defense under the “willfulness” element. Nevertheless, specific knowledge of which law is being violated is not required. Guide at 14. This is in keeping with the general law concerning willfulness. Bryan 524 U.S. at 191–92.
The “Head-in-the-Sand” Problem
While on the subject of mens rea, we note also that the doctrine of “willful blindness,” a concept that should cause all corporate executives to feel queasy, is emphasized in the guide. Guide at 22.
The guide quotes the House report as follows:
[T]he so-called “head-in-the-sand” problem—variously described in the pertinent authorities as “conscious disregard,” “willful blindness” or “deliberate ignorance”—should be covered so that management officials could not take refuge from the Act’s prohibitions by their unwarranted obliviousness to any action (or inaction), language or other “signaling device” that should reasonably alert them of the “high probability” of an FCPA violation.
Id. (quoting H.R. Rep. No. 100-576, at 920 (1988)). As the guide makes clear, organizations have a duty to educate employees about the FCPA's requirements. Willful blindness will not provide a defense.
Charitable Contributions
The guide also emphasizes the need to question whether charitable contributions are legitimate or being used to funnel bribes. “Proper due diligence and controls are critical for charitable giving.” Guide at 19. While the guide addresses only corporate donations, we have addressed similar issues for company-related but separately incorporated charitable foundations, which often provide donations in countries where the related company has facilities. These foundations require their own FCPA compliance programs, including robust due diligence procedures.
When reviewing charitable payments made by corporations or their related not-for-profit entities in foreign countries, the key questions the government will ask are the same questions those entities’ own due-diligence procedures should focus on: what is the purpose of the payment, and whether it is part of a quid pro quo for business or other unfair advantages in the country. See id.
The guide provides helpful examples of due-diligence measures and controls that may help determine that a proposed grant or donation is permissible, including the following:
- certifications by the recipient regarding compliance with the FCPA
- due diligence to confirm that none of the recipient’s officers are affiliated with the foreign government at issue
- requirement that the recipient provide audited financial statements
- a written agreement with the recipient restricting the use of funds
- steps to ensure that the funds are transferred to a valid bank account
- ongoing monitoring of the efficacy of the charitable program
- prohibiting compensation of board members of the recipient charity
- implementing an anti-corruption compliance program at the charity
See id. The guide acknowledges that charitable donations will continue to be part of the “legitimate local outreach” of companies. The FCPA does not “prevent corporations from acting as good corporate citizens.” Id.at 16. However, such donations must be carefully monitored to ensure FCPA compliance.
Third Parties and Red Flags
As is well known in FCPA practice, the existence of red flags in any transaction involving third parties can be used to establish that a payment was made “knowing” that a bribe would be paid. In our experience, the vast majority of FCPA counseling inquiries, investigations, and settlements focus on third-party payments. 15 U.S.C. § 78dd-1(a)(1)-(3); § 78dd-2(a)(1)-(3); § 78dd-3(a)(1)-(3). The guide points to the following important red flags to watch for when third parties are involved:
- excessive commissions to third-party agents or consultants
- unreasonably large discounts to third-party distributors
- third-party “consulting agreements” that include only vaguely described services
- the-third party consulting firm is in a different line of business than that for which it has been engaged
- the third party is related to or closely associated with a foreign official
- the third party became part of the transaction at the express request or insistence of the foreign official
- the third party is merely a shell incorporated in an offshore jurisdiction
- the third party requests payment to offshore bank accounts
Guide at 22–23.
These sample red flags, while not fresh news, are especially important and helpful.
Declinations
Deep in the guide is buried a small but valuable treasure: an outline of circumstances present in six matters in which the government recently has declined to bring an enforcement action. While the guide does not provide the names or specific details surrounding the declinations (consistent with DOJ policy), it nevertheless spells out factors that contributed to the declination decisions in those cases. They include facts that demonstrate good faith, reasonable inquiry, cooperation, candor, and effective remediation. The factors are presented to demonstrate that (in some cases, at least) the government is willing to decline criminal prosecution of violations where a company acted in good faith. Guide at 77–79.
No Safe Harbor: The Other Side of the Flexible Approach
The guide embraces a flexible approach to enforcement, in which a rule of reason is applied to many aspects of FCPA enforcement. The guide thus eschews formulaic or check-the-box approaches to compliance policies. According to the DOJ and SEC, such approaches are inefficient and may be ineffective. Instead, the guide indicates that the DOJ and SEC will view favorably those companies that make “thoughtful efforts to create a sustainable compliance program.” Guide at 62.
As a result, the DOJ and SEC did not use the guide to create a “safe harbor” for companies with adequate compliance measures, such as the provision contained in the U.K. Bribery Act, see Bribery Act 2010, c.23 (Eng.), and which the U.S. Chamber of Commerce has urged the United States to adopt. See, e.g., S. Rubenfeld, “Chamber Picks Apart Guidance.”Although the existence of a working compliance program may garner meaningful credit should an FCPA issue arise, there is no guarantee that credit will be given for any single facet, or combination of facets, of a compliance policy. There are no objective criteria for functional compliance policies. Instead, credit depends largely on whether or not the program meets the subjective criterion of working and acting in good faith. Of course, one rational worry is that any violation will per se demonstrate that the compliance program is not working, no matter how rigorous in word and deed the program is.
Conclusion
The guide offers a great deal of information about FCPA compliance, violations, investigations, and prosecutions, some of which is newsworthy and some of which suggests a potential policy shift by the government. It is a wellspring of valuable insight for providers as well as arguments for the defense counsel familiar with its contents. The key to making full use of the guide, as with any government guidance, lies in parsing the details and in carefully applying the lessons learned to a specific business transaction under consideration or under investigation.
Keywords: criminal litigation, Foreign Corrupt Practices Act, Resource guide, Department of Justice, DOJ, Securities and Exchange Commission, SEC, gifts, entertainment, compliance
Bruce. J. Casino and Scott Maberry are both partners with Sheppard Mullin Richter & Hampton, LLP, in Washington, D.C. Bruce Rubin is chair of the Export Controls and Economic Sanctions Subcommittee of the Criminal Litigation Committee.