Archive for August, 2010
August 30th, 2010
in Anti-Corruption / FCPA |
Enforcement of the Foreign Corrupt Practices Act is at an all time high, and senior FCPA enforcement Government officials have made it clear that the increase in anti-corruption enforcement efforts will continue far beyond 2010. Notable recent FCPA enforcement activity includes the historic FCPA undercover sting operation resulting in the prosecution of 22 individuals at one time, landmark settlements for Daimler AG, BAE, Nexus Technologies, and Innospec. At time of print, many investigations reportedly involve companies in technology, oil & gas, and pharmaceutical industries.
Increased enforcement activity, together with the use of new and aggressive enforcement techniques, makes prevention an even higher priority than it’s been in the past and leaves no industry immune from FCPA scrutiny. Now more than ever, all companies, operating globally must design robust FCPA compliance and training programs to protect themselves against FCPA violations.
What are the differences between the two?
According to The Metropolitan Corporate Counsel, the FCPA does not overlap entirely with the anti-bribery provisions under Chinese criminal and administrative law. Businesses doing business with china should be up to date with differences. These differences should not be overlooked and are considered important. Should you over look them, you will be in a heap of trouble.
“For example, the FCPA proscribes only bribes provided to “foreign officials” (as well as political party officials and candidates for public office), whereas the Chinese law applies to bribes provided to nearly all types of entities or individuals, including private companies and employees of private companies in China.” -Metropolitan Counsel
“Anything of value”,how is it defined according to the FCPA?
“The term “anything of value” is not defined in the FCPA nor is the statute’s legislative history illuminating. The term, however, has been broadly construed and can include not only cash or a cash equivalent, but also, among other things, discounts; gifts; use of materials, facilities or equipment; entertainment; drinks; meals; transportation; lodging; insurance benefits; and promise of future employment. There is no de minimis value associated with the “anything of value” element, and the perception of the recipient and the subjective valuation of the thing conveyed is often a key factor considered by the enforcement agencies in determining whether “anything of value” has been given to a foreign official.” -FCPA Enforcement
Rule of thumb: Monitor further developments in Chinese anti-bribery laws and review their internal compliance programs to ensure compliance with both the FCPA and relevant Chinese laws. Having an effective and comprehensive FCPA compliance policy in place will demonstrate to employees and, if necessary, law enforcement officials that your company considers anti-corruption compliance an important corporate goal. If done properly, a comprehensive compliance program can become a valuable corporate asset that enhances company operations, facilitates compliance and mitigates reputation and monetary damages when and if violations occur.
How would you like your eggs? Over-easy, scrambled, or tainted?
William Marler, ACI’s Distinguished Co-Chair for the upcoming 4th National Forum on Food-Borne Illness Litigation, recently had the opportunity to discuss the spiraling recall of salmonella-tainted eggs on Larry King Live: http://www.marlerblog.com/lawyer-oped/what-will-i-do-when-larry-king-retires/
In the wake of one of the largest egg recalls in history and the expected passage of food safety reform any day, now is the time for in-house counsel, regulatory affairs and compliance officers within the food industry to re-group and update internal policies and procedures to ensure your company is ready for the impending e.coli/salmonella season and the litigation that follows. Don’t miss this opportunity to hear straight from the source what next steps the plaintiff’s bar will be taking as well as what you can do now to prepare for the next wave of litigation.
In an environment such as this, your company (or client) cannot afford to be caught unprepared.
- What new pathogens are infecting our food supply – and how to best trace and isolate them in the context of a food contamination incident
- How the proposed food safety reform legislation in its present form will impact day-to-day operations – legal, business, manufacturing and operations
- Best practices for maintaining control of the corporate message and the media while preserving your relationship and reputation with the consumer and corporate stakeholders
- The investigative priorities of government regulators – and how they will impact litigation going forward
A unique opportunity to get highly-specialized, up-to-the minute information in a setting where you can network with your peers while also getting answers to your specific questions and concerns, if you are involved at all with food-borne illness litigation, this is one event you don’t want to miss!
August 26th, 2010
in Legal Conferences |
A unique organization, American Conference Institute is devoted to providing the business intelligence that senior decision-makers need to respond to challenges both here in the US, and around the world.
Staffed by industry specialists, lawyers and other professionals, American Conference Institute operates as a think tank, monitoring trends and developments in all major industry sectors, the law, and public policy, with a view to providing information on the leading edge.
Headquartered in New York and led by Benjamin J. Greenzweig, Managing Director, American Conference Institute has grown to produce more than 220 events each year, attended by thousands of senior delegates from across the country.
Our conferences, summits, and executive briefings offer a combination of lectures, hands-on workshops, panels, roundtables and case studies to ensure that the right information is delivered in the right format.
Each of our events is based on a solid foundation of research conducted with industry key players. Before we can develop a program that delivers the critical information our delegates demand, we must first do the market research necessary to ensure we understand and hit the “hot button” issues for that industry sector. As an objective third party, we strive to add value to the industries we serve by producing unbiased events that balance the needs and views of different stakeholders.
American Conference Institute – together with its affiliates, The Canadian Institute (Toronto) and C5 (London) – offers over 500 conferences, forums, and summits each year around the globe. Over 25,000 senior business and public sector executives, lawyers and other professionals from the United States, Canada, Europe, Russia and CIS, China, Australia, Asia and Africa will attend our events this year.
An important part of our role is that of “relationship broker.” We ensure that each event offers ample opportunity for our delegates to meet and network with like-minded professionals from across the country and around the world
Our sponsors and exhibitors tell us they depend on our events to help them reach highly focused market segments, expand customer networks, build brand equity, and make a lasting, positive impression on existing and potential customers. Learn more about our Sponsorship Opportunities.
As a result of your feedback on how we can improve your networking opportunities, ACI has developed an interactive website for all ACI conference attendees (Alumni). The complimentary ACI Alumni Program is designed to provide returning delegates with unique networking and learning opportunities beyond the scope of their conference experience. Highlights include:
- Search for and contact fellow Alumni
- Post a question or look for answers in our Industry Forums
- Join a live Industry Chat in progress
- Build your own community
- Earn forum points towards free conferences & workshops
Expand your Network at www.my-aci.com
A Practical Resource
American Conference Institute also publishes comprehensive materials for the majority of our conferences. These materials are specially developed by the speakers and are designed to be used by delegates as a practical reference source long after the conference is over. Learn more about our Publications .
I. The Problem
So what is the problem with a US company paying for travel, room and board for foreign governmental officials to travel to the United States? The problem is that payment for such travel, lodging and expenses may run afoul of the prohibition against corrupt payments (or promises of them) made to obtain or retain business. The Foreign Corrupt Practices Act (FCPA) allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services” that are “reasonable and bona fide” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). This affirmative defense, however, is notoriously hard to use (and easy to abuse), mainly because no one is quite sure what reasonable and bona fide really mean.
In his recent post on the FCPA Blog, UCLA student Kyle Sheahen, explored this issue in his discussion of his upcoming publication, entitled “I’m Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act”. In his paper, he sets forth his proposition that FCPA enforcement actions provide “uneven indicators or what conduct the government considers covered by the defense. Consequently, in the absence of authoritative judicial interpretation or clear regulatory guidance, corporate managers are required to make educated guesses as to whether contemplated payments will qualify as “bona fide” promotional expenses.”; he cites the following cases:
PROMOTIONAL EXPENSE ENFORCEMENT BOX SCORE
While the Department of Justice (DOJ) and/or the Securities and Exchange Commission (SEC) brought enforcement actions against the above companies, this author believes that the facts of each enforcement action demonstrate that the expenses incurred by the companies were neither reasonable nor bona fide as required under the FCPA. These cases do not require a FCPA compliance professional to guess, educated or otherwise, as to whether the travel, lodging and expense payments listed above violated the FCPA. The payment amounts noted above in the Box Score are so beyond the pale of reasonableness to be prima facie evidence of corrupt intent. Of course, it really does not help your case with the DOJ if you do not have company facilities in Disney World.
II. Opinion Releases
In addition to detailing the above enforcement actions, Mr. Sheahen also discusses guidance that may be gleaned from DOJ Opinion Releases on the Promotional Expenses defense. Here he points to substantive guidance for the FCPA practitioner. In 2007, the DOJ issued two FCPA Opinion Releases which offered guidance to companies considering whether to and, if so how to, incur travel, lodging and expenses for government officials. In Opinion Release 07-01, the Requestor Company desired to cover the domestic expenses for a trip to the United States by a six-person delegation of the government of an Asian country for an educational and promotional tour of one of the requestor’s US operations sites.
Opinion Release 07-01 laid out the specific representations made to the DOJ which led to the DOJ approving the travel to the US by the foreign governmental officials. These facts can provide good guidance to any company which seeks to bring such officials to the US for a legitimate business purpose. In Opinion Release 07-01, the representations made to the DOJ were as follows:
- A legal opinion from an established US law firm, with offices in the foreign country, stating that the payment of expenses by the US Company for the travel of the foreign governmental representatives did not violate the laws of the country involved;
- The US Company did not select the foreign governmental officials who would come to the US for the training program.
- The delegates who came to the US did not have direct authority over the decisions relating to the US Company’s products or services.
- The US Company would not pay the expenses of anyone other than the selected official.
- The officials would not receive any entertainment, other than room and board from the US Company.
- All expenses incurred by the US Company would be accurately reflected in this Company’s books and records.
For these representations, the DOJ noted, “Based upon all of the facts and circumstances, as represented by the requestor, the Department does not presently intend to take any enforcement action with respect to the proposal described in this request. This is because, based on the requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the requestor's] products or services.”
In Opinion Release 07-02 the Requestor Company desired to pay certain domestic expenses for a trip within the United States by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (“NAIC”).
In Opinion Release 07-02 the representations made to the DOJ were as follows:
- The US Company would not pay the travel expenses or fees for participation in the NAIC program.
- The US Company had no “non-routine” business in front of the foreign governmental agency.
- The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
- The US Company would not select the delegates for the training program.
- The US Company would only host the delegates and not their families.
- The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
- Any souvenirs presented would be of modest value, with the US Company’s logo.
- There would be one four-hour sightseeing trip in the city where the US Company is located.
- The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.
As with Opinion Release 07-01, the DOJ ended this Opinion Release by stating, “Based upon all of the facts and circumstances, as represented by the Requestor, the Department does not presently intend to take any enforcement action with respect to the planned educational program and proposed payments described in this request. This is because, based on the Requestor’s representations, consistent with the FCPA’s promotional expenses affirmative defense, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor's] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A).
III. Travel, Lodging and Expenses for Governmental Officials
What can one glean from these two Opinion Releases? In light of the facts it would seem that a US Company should be able to bring foreign officials into the United States for legitimate business purposes. A key component is that the guidelines are clearly articulated in a Compliance Policy. Based upon Releases Opinions 07-01 and 07-02, the following should be incorporated into a Compliance Policy regarding travel and lodging:
- Any reimbursement for air fare will be for economy class.
- Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
- Only host the designated officials and not their spouses or family members.
- Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
- Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
- Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
- The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.
Incorporation of these concepts into a Compliance Policy is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the Compliance Policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA. One of the FCPA violations alleged against UTStarcom was that it falsely recorded these trips as ‘training’ expenses, while the true purpose for providing these trips was to obtain and retain lucrative telecommunications contracts. All business gifts, entertainment and expenses must be properly recorded.
We commend Mr. Sheahen for his upcoming publication, in which he thoroughly discusses the “Local Law” defense under the FCPA in addition to the “Promotional Expenses” defense. His work will add to the discussion of these two affirmative defenses and assist companies in crafting their FCPA compliance program.This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal adviser. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at firstname.lastname@example.org.
© Thomas R. Fox, 2010 Other guest blog postings by Thomas Fox Top 3 FCPA Hits of 2010