Foreign Corrupt Practices Act (FCPA)
DOJ & SEC Focus On China
Roscoe C. Howard, Jr.
phone: 202.274.2960
roscoe.howard@troutmansanders.com
Atlas Legal - Doing Business in China
Doubletree Metropolitan, NY, New York
December 13, 2007
OVERVIEW OF FCPA
15 U.S.C.§§ 78dd-1, et seq.
PROHIBITS BRIBERY OF “FOREIGN OFFICIALS” IN
ORDER TO OBTAIN OR RETAIN BUSINESS
ANTI-BRIBERY PROVISIONS ARE ENFORCED BY
DEPARTMENT OF JUSTICE
2
OVERVIEW OF FCPA
“ACCOUNTING PROVISIONS” REQUIRE U.S.
COMPANIES TO:
MAINTAIN BOOKS AND RECORDS THAT ACCURATELY
REFLECT TRANSACTIONS IN REASONABLE DETAIL;
AND
ESTABLISH INTERNAL ACCOUNTING CONTROLS
DESIGNED TO ENSURE THAT EXPENDITURES ARE
AUTHORIZED BY MANAGEMENT
ACCOUNTING PROVISIONS ARE ENFORCED BY THE
SECURITIES AND EXCHANGE COMMISSION
3
WHO IS SUBJECT TO THE FCPA?
• Any U.S. Citizen or Resident
• Any Other Person Within the U.S.
• Any U.S. Company
–
–
–
–
Officers, Directors, Employees
Foreign Subsidiaries
Agents
Consultants
• Foreign Companies Listed On U.S. Exchanges (Issuers)
4
ELEMENTS OF AN ANTI-BRIBERY VIOLATION
•
•
•
•
•
Payment, Authorization Or Offer to Pay Anything of Value
To A Foreign Official, Political Party Or Candidate
Directly or Indirectly
Corruptly
For The Purpose of
– Influencing An Official Act or Decision of The Recipient
– Inducing The Recipient to Do or Omit To Do Any Act in Violation of
Lawful Duty
– Inducing The Recipient to Use His or Her Influence With a Foreign
Government to Affect or Influence any Governmental Act or
Decision
• In Order to Obtain, Retain or Direct Business to Any
Person
5
FOREIGN OFFICIAL
An Officer or Employee of • Any Department, Agency or Instrumentality of a
Foreign Government
• A Public International Organization, or
• Any Person Acting in an Official Capacity
6
FOREIGN OFFICIAL
• Includes
– Foreign Political Party or Party Official
– Candidate for Foreign Political Office
• Depending on their authority, a foreign official might
Include
– Member of Legislative Body
– Employee of a State Owned Enterprise
7
PAYMENT
• Payment May Be Made Directly or Indirectly
– To a Relative or Any Other Person Which Might Benefit the
Official
– To a Third Party, Knowing That a Portion Will be Paid or
Offered to the Official
• Or Not At All
– Offense is Complete Upon Offer, Promise or Authorization of a
Corrupt Payment
8
“CORRUPTLY”
• Payment or offer intended to:
– Induce Recipient to Misuse His or Her Official Position;
– Influence Any Official Act or Decision of a Recipient; or
– Induce a Recipient to Do or Omit to Do Any Act in Violation of His
or Her Official Duty
9
IN ORDER TO OBTAIN, RETAIN OR DIRECT
BUSINESS TO ANY PERSON
• Obtaining or Retaining a Contract
• Obtaining Favorable Regulatory Treatment
– Licenses
– Permits
– Lower Taxes
– Avoiding Adverse Government Action
– Zoning Variances
– Product Approvals
10
ILLUSTRATIVE CASES
SYNCOR INTERNATIONAL CORPORATION
In 2002, Syncor paid a $500,000 civil penalty for violation
of the anti-bribery, and accounting provisions of the FCPA
in a case brought by the SEC based on payments to
doctors employed by hospitals controlled by foreign
authorities in Taiwan, Mexico, Belgium, Luxembourg and
France. The payments were recorded as promotional and
advertising expenses.
In a related proceeding, DOJ filed criminal FCPA charges
against Syncor Taiwan, which paid a $2 million fine.
11
ILLUSTRATIVE CASES
SCHERING-PLOUGH CORPORATION
In 2004, Schering-Plough paid a $500,000 civil penalty in
settlement for violation of the accounting procedures
provisions of the FCPA for making payments to a bona fide
charity headed by a Polish Government Official. The SEC
alleged that the payments were made to induce the official
to purchase Schering-Plough’s pharmaceutical products.
Although the donations were made without the knowledge
or approval of any employee in the U.S., the SEC charged
that the U.S. parent’s internal controls were inadequate to
prevent or detect the improper payment.
12
ILLUSTRATIVE CASES
MONSANTO COMPANY
In 2005, Monsanto paid a $500,000 fine as part of a civil
settlement with the SEC for violations of the anti-bribery
and accounting provisions of the FCPA and paid a $1
million fine as part of a three year Deferred Prosecution
Agreement with DOJ.
Monsanto made a $50,000 payment to an Indonesian
government official to repeal a requirement for an
environmental impact study before genetically modified
crops could be cultivated. The official took the money, but
did not repeal the requirement and so Monsanto received
no benefit.
13
ILLUSTRATIVE CASES
DCP (TIANJIN) CO. LTD.
DIAGNOSTIC PRODUCTS CORP.
DCP’s Chinese subsidiary pled guilty to one count of
bribery under the FCPA for making payments to physicians
and laboratory personnel employed by government-owned
hospitals in the People’s Republic of China. The Chinese
subsidiary agreed to pay a $2 million criminal penalty and
retain an independent monitor for three years.
In a related proceeding the SEC ordered the parent
company to disgorge $2.8 million in profits and prejudgment
interest and to retain a compliance monitor for three years.
14
PERMISSIBLE PAYMENTS
• Facilitating Payments for Routine Governmental Actions
– Modest payments to government official to expedite or secure
performance of routine government actions such as:
• Obtaining permits, licenses or other official documents;
• Processing governmental papers, such as Visas and work
orders;
• Providing police protection, mail pickup and delivery;
• Providing phone service, power and water supply;
• Loading and unloading cargo, or protecting perishable
products;
• Scheduling inspections associated with contract performance
or delivery of goods;
• Similar actions
15
AFFIRMATIVE DEFENSES
• COMPLIANCE WITH WRITTEN FOREIGN LAW
• REASONABLE AND BONA FIDE BUSINESS EXPENSES
Travel and Lodging Expenses Incurred by the Foreign Official and
Directly Related to the Promotion, Demonstration, or Explanation of
Products or Services; or
The Execution of Performance of A Contract With a Foreign
Government
16
FCPA “RED FLAGS”
• Whether the Country Has a Reputation of Corruption
• News Reports of Corruption
• Family or Business Ties of an Agent with a Government
Official
• The Agent’s Reputation With the U.S. Embassy and Local
Banking Officials
• The Agent is Recommended by a Government Official
• Agent Insists That His or Her Role Not be Disclosed
• Agent Has no Experience in the Business
• Agent Has Inadequate Staff or Facilities
• Agent Resists Certifying Compliance with FCPA
• Agent Asks for Payment in Cash or in Another Country
• Last Minute Requests for More Money
• And so on….
17
FCPA TRENDS
• Increased Resources for FCPA Investigations at DOJ
• Increased Reliance on Sarbanes Oxley Information
• Increased Reliance on Self Disclosure
• Increased Reports by Whistleblowers
• Increased Scrutiny of M&A Transactions
• Increased Scrutiny of Joint Ventures
• Focus on Foreign Subsidiaries
• Liability Based on Accounting Provisions
• DOJ is regularly “pushing the envelope”
18
Roscoe C. Howard, Jr.
Partner
Troutman Sanders LLP
401 9th Street, N.W., Suite 1000
Washington, DC 20004
Ph: 202-274-2960 | Fax: 202-654-5665
roscoe.howard@troutmansanders.com
Roscoe C. Howard, Jr. is a litigation partner in the Washington, D.C. office of
Troutman Sanders, LLP. Mr. Howard served as the United States Attorney for
the District of Columbia from 2001 to 2004. He was a full professor at the
University of Kansas School of Law from 1994 - 2001. He has twice served as
an Associate Independent Counsel and has held positions as an Assistant U.S.
Attorney in the District of Columbia, and the Eastern District of Virginia in
Richmond. Mr. Howard has authored numerous articles on criminal law and
procedure and frequently speaks at white collar crime seminars and institutes.
Mr. Howard is a 1974 graduate of Brown University and a 1977 graduate of The
University of Virginia School of Law.
19