Foreign Corrupt Practices Act 101 | Global News - Advertising Age
15/06/2012 11:35
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What You Need to Know About the Foreign
Corrupt Practices Act
Marketers and Agencies Can Face Substantial Penalties for Violations
By: Linda Goldstein, Jacqueline C. Wolff
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Published: June 12, 2012
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Any marketers or their agencies that are conducting business abroad, including the production of
commercials, must be familiar with the Foreign Corrupt Practices Act. The FCPA is designed to
prevent bribery of foreign officials and imposes criminal sanctions on individuals, domestic companies,
and certain defined foreign companies, that corruptly provide or offer anything of value to a foreign
official in exchange for influencing the official to provide business or any other improper advantage to
the company.
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Additional criminal and civil penalties can be imposed for failure to maintain adequate books and
records and internal controls to detect, prevent and correct bribery of foreign officials. Dozens of
countries have enacted similar laws, the U.K. going so far as to criminalize a company's failure to
prevent bribery.
The penalties for violating the FCPA are substantial. In 2008, Siemens agreed to pay the U.S. and
German authorities $1.6 billion in criminal and civil penalties. Although some of the bribery was directly
traceable to "cash desks," much was simply assumed because the company lacked backup
documentation justifying expenses paid to consultants abroad. In 2011, Johnson & Johnson paid
$21.4 million in criminal penalties and disgorged $48.6 million in profits for payments made to
surgeons overseas to influence their use of J&J's products.
Prosecutions are not limited to companies. Prosecution of individuals has increased, including that of
executives who did not know their employees were engaged in bribery overseas but failed to monitor
or address red flags that came to the executives' attention. Recently, two film producers were
sentenced to six months in prison for their bribery of foreign officials running a film festival in Thailand,
and another executive was sentenced to fifteen years for his dealings with officials at Haiti Teleco.
Conducting business in countries where bribery is widespread, while at the same time remaining
compliant, can be challenging.
The first step is to understand the law. The term foreign official includes any individual who works for a
foreign government or an entity owned or controlled by, or is an "instrumentality" of, a foreign
government. The doctors in the J&J case, therefore, were foreign officials because they worked at
state-owned hospitals and universities. Employees of CCTV, the state-run TV network in China, would
also be deemed foreign officials. Providing any such worker or his family with cash, a valuable contract
or a gift, to ensure that the agency's spots are played, could constitute a violation.
Also, a principal can be criminally liable for its agent's actions. An advertising agency that hires a
consultant to obtain permits when shooting commercials overseas, would be criminally liable if the
consultant were to bribe the foreign official in charge of issuing the permit unless the agency took real
steps to prevent the bribery.
Implementing "real steps" that is, an effective anticorruption program, is the path to compliance.
Indeed, under the U.K. law, having "adequate procedures" can be a complete defense to a charge of
failing to prevent bribery. A comprehensive program includes a clear policy, written due diligence and
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Foreign Corrupt Practices Act 101 | Global News - Advertising Age
15/06/2012 11:35
approval procedures for hiring third parties acting overseas and specific anticorruption clauses for
contracts with any such third parties. Before hiring any consultant acting overseas, always ask the
question, "Did a foreign official recommend this consultant?" If the answer is "yes," you may think twice
before retaining. Merely hiring that person may be deemed a violation.
While having a compliance program in place is an essential step, it is not enough. In 2011, IBM
,
which had an FCPA compliance program in place, found itself paying $10 million to the SEC due its
failure to prevent employees from circumventing the policy and using, among other things, travel
agencies to hide payments to foreign officials. The lesson learned is that once your program is in
place, your employees must be trained and audits must be conducted to ensure the program is
working.
Nicole German Di Schino assisted with this piece. She, Jacqueline C. Wolff and Linda Goldstein are
attorneys with Manatt, Phelps & Phillips
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