Author: Doug Cornelius

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FCPA Opinion Procedure Release 07-03

FCPA Opinion Procedure Release 07-03 comes from an individual who wants to make a payment required by an Asian court to cover litigation-related expenses payable to a court-appointed administrator.

The Release notes that the payment is being made to a government entity, the court clerk’s office, rather than a foreign official.  The FCPA only prohibits payments to foreign officials. Further, there is no evidence that the payment will benefit the court clerk or estate administrator personally.  Finally, the payment is lawful under the laws of that foreign country. This lawfulnesses is one of the affirmative defenses under the FCPA.

FCPA Opinion Procedure Release 08-01

FCPA Opinion Procedure Release 08-01 (.pdf) came at the request of an unnamed company who is planning to have a subisidiary purchase the majority interest in an investement target from a State Enterprise. The minority interest is held by someone who would be considered a “foreign official” under the FCPA.

FCPA Opinion Procedure Release 08-02

FCPA Opinion Procedure Release 08-02 came at the request of Halliburton and its subsidiaries as they are looking to buy a UK well flow management company. They did not have enough time to complete the appropriate FCPA diligence on the target. Halliburton was concerned about inheriting FCPA liability as a result of its acquisition of the target company. There is a tight timeframe and a competing bid that prevents Halliburton from taking the steps that would ordinarily occur.

FCPA Opinion Procedure Release 08-03

FCPA Opinion Procedure Release 08-03 was a request from TRACE International, Inc. on paying expenses for journalists from China to attend a press conference being held by TRACE in Shanghai. Most of the media outlets are wholly-owned by the People’s Republic of China.

The opinion finds the stipend and expenses that TRACE intends to pay into the promotional expense affirmative defense because the expenses are “reasonable under the circumstances and directly relate to the promotion, demonstration, or explanation of [TRACE’s] products or services.”

U.S. v. King

U.S. v. King (.pdf) was a FCPA case that came out of the Eight Circuit Court of Appeals on appeal from the USDC for the Western District of Missouri. The defendant was convicted of violating the Foreign Corrupt Practices Act in connection with a scheme to bribe Costa Rican officials for valuable land concessions to develop a port in Limon.

Like most FCPA cases, there is little discussion of the FCPA itself.

Contingent Fee Arrangements in Government Contracts

Section 3.400 of the Federal Acquistion Regulations limit the ability of the federal governmen to enter into contingent fee arrangements. Federal contracts require the insertion of the Covenant Against Contingent Fees:

(a) The Contractor warrants that no person or agency has been employed or retained to solicit or obtain this contract upon an agreement or understanding for a contingent fee, except a bona fide employee or agency. For breach or violation of this warranty, the Government shall have the right to annul this contract without liability or, in its discretion, to deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.

(b) “Bona fide agency,” as used in this clause, means an established commercial or selling agency, maintained by a contractor for the purpose of securing business, that neither exerts nor proposes to exert improper influence to solicit or obtain Government contracts nor holds itself out as being able to obtain any Government contract or contracts through improper influence.

“Bona fide employee,” as used in this clause, means a person, employed by a contractor and subject to the contractor’s supervision and control as to time, place, and manner of performance, who neither exerts nor proposes to exert improper influence to solicit or obtain Government contracts nor holds out as being able to obtain any Government contract or contracts through improper influence.

“Contingent fee,” as used in this clause, means any commission, percentage, brokerage, or other fee that is contingent upon the success that a person or concern has in securing a Government contract.

“Improper influence,” as used in this clause, means any influence that induces or tends to induce a Government employee or officer to give consideration or to act regarding a Government contract on any basis other than the merits of the matter.

Anti-Kickback Act

The Anti-Kickback Act of 1986, 41 U.S.C. § 51 et seq., modernized and closed the loopholes of previous statutes applying to government contractors. The 1986 law attempts to make the anti-kickback statute a more useful prosecutorial tool by expanding the definition of prohibited conduct and by making the statute applicable to a broader range of persons involved in government subcontracting. Prosecutions under these statutes must establish the following:

  1. Prohibited conduct–the Act prohibits attempted as well as completed “kickbacks,” which include any “money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee“. The act also provides that the inclusion of kickback amounts in contract prices is prohibited conduct in itself.
  2. Purpose of kickback–The Act requires that the purpose of the kickback was for “improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract.” It is intended to embrace the full range of government contracting. Prior to 1986, the “kickback” was required to be for the inducement or acknowledgment of a subcontract.
  3. Covered class of “kickback” recipients–The Act prohibits “kickbacks” to prime contractors, prime contractor employees, subcontractors, and subcontractor employees. These terms are defined in the Act.
  4. Type of contract–The Act defines kickbacks to include payments under any government contract. Prior to this legislation, the statutes’ applicability was limited to negotiated contracts.
  5. Knowledge and willfulness–The Act requires one to knowingly and willfully engage in the prohibited conduct for the imposition of criminal sanctions.

Gratuities Clause

Section 3.201 of the Federal Acquisition Regulations requires the Gratuities Clause in all federal government contracts:

(a) The right of the Contractor to proceed may be terminated by written notice if, after notice and hearing, the agency head or a designee determines that the Contractor, its agent, or another representative—

(1) Offered or gave a gratuity (e.g., an entertainment or gift) to an officer, official, or employee of the Government; and

(2) Intended, by the gratuity, to obtain a contract or favorable treatment under a contract.

(b) The facts supporting this determination may be reviewed by any court having lawful jurisdiction.

(c) If this contract is terminated under paragraph (a) of this clause, the Government is entitled—

(1) To pursue the same remedies as in a breach of the contract; and

(2) In addition to any other damages provided by law, to exemplary damages of not less than 3 nor more than 10 times the cost incurred by the Contractor in giving gratuities to the person concerned, as determined by the agency head or a designee. (This paragraph (c)(2) is applicable only if this contract uses money appropriated to the Department of Defense.)

(d) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.

The Federal Acquisition Regulations can also be found in the 48 CFR Chapter 1.

Bribery of Public Officials

18 U.S.C. § 201 prohibits the bribery of public officials.

“Public Officials” means “Member of Congress, Delegate, or Resident Commissioner, either before or after such official has qualified, or an officer or employee or person acting for or on behalf of the United States, or any department, agency or branch of Government thereof, including the District of Columbia, in any official function, under or by authority of any such department, agency, or branch of Government, or a juror” 18 U.S.C. § 201(a)(1).