Wednesday, May 27, 2009

Should You Take Your Foreign Supplier to Dinner?

The dilemma of whether to take foreign suppliers to dinner is one that is not easily answered. It appears that the Foreign Corrupt Practices Act (FCPA) is waking up from a little nap. Ok, the FCPA has been around since 1977 and it has not actually been sleeping, but we are seeing more about it in the news. The Justice Department reports approximately 120 companies are currently under investigation. The FCPA came out of hibernation shortly after the scandal at Enron and the introduction of the Sarbanes-Oxley Act of 2002. (SOX). The FCPA prohibits improper payments to influence foreign officials who have the power to affect a company's business. Officials at the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have been aggressively pursuing more and more cases and obtaining results that include criminal fines, prison terms for individuals, and the return of monies obtained through illegal means. Because of the increased scrutiny by both the government and the press, many companies have placed more efforts on anti-corruption efforts.

The FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business. The provisions of the FCPA make it unlawful for a U.S. person to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. The provisions also apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. The purpose of the FCPA is to eliminate bribery of foreign officials, restore the public confidence in the integrity of American business, and change the way American firms do business.

Because of SEC investigations in the mid-1970's, over 400 U.S. companies admitted making questionable or illegal payments to foreign government officials, politicians, and political parties. Some of the payments were bribes of high foreign officials to secure some favorable action by a foreign government. Others were labeled as facilitating payments that were made to ensure that government employees performed their required duties.

It is important to understand the difference between a bribe and a facilitation fee. A bribe is the offering, giving, receiving, or soliciting of something of value for influencing the action of an official in the discharge of his or her public or legal duties. A facilitation fee or payment is one that is paid for routine governmental actions. The fee is paid to ensure that the government employees actually perform the task that they are legally obligated to perform. The fees may also be paid to expedite the process. Some of these fees include:

· obtaining permits, licenses, or other official documents;
· processing governmental papers, such as visas
· providing police protection,
· mail pick-up and delivery;
· providing phone service, power and water supply,
· loading and unloading cargo.

The bottom line is that a bribe could cost your company millions of dollars in penalties and send someone to jail and a facilitation fee will not.

Who is subject to the FCPA?

The FCPA applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the anti-bribery provisions or if they conspire to violate those provisions. U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in question, as can U.S. citizens or residents, themselves "domestic concerns," who were employed by or acting on behalf of such foreign-incorporated subsidiaries. The FCPA also prohibits corrupt payments through intermediaries. It is unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. Intermediaries may include joint venture partners or agents.

The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position to direct business wrongfully or to provide to the payer or to any other person any improper advantage, or to induce a foreign official to use his or her influence improperly to affect or influence any act or decision.

The payment may be the actual payment, promising to pay, authorizing to pay or offering money or anything of value, including gifts or trips. The FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment, offer, or promise of payment. The FCPA prohibits payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person. The business to be obtained or retained does not need to be with a foreign government or foreign government instrumentality.

Best Practices

Is someone at your company violating the FCPA? How would you know? It is not likely that your co-worker is going to jump up and shout the he is bribing the customs officials in Brazil. In order to help companies maintain compliance with the FCPA, they should consider the following actions.
  • Develop a policy consistent with the FCPA.
  • Publish the policy in the employee manuals and on the company’s website.
  • Provide clear guidelines for gifts, meals, entertainment, travel, donations and lobbying.
  • Provide training for all employees and refresher training as needed.
  • Establish and enforce similar guidelines for foreign branches, subsidiaries, etc.
  • Use due diligence when selecting business partners that act as intermediaries.
  • Establish a compliance monitoring program.
  • Disclose any violations to the DOJ.

Before taking that foreign supplier to a fancy dinner or slipping some cash under the table, consider what that dinner might actually cost you and your company. In December 2008, a fine of $800 million was imposed on a large multinational company. Not only could your company incur a hefty penalty payable to the U.S. government, but also the cost of rectifying internal corruption could exceed the amounts paid in penalties.

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