Tag: FCPA Opinion Release

Buy Assets From a Foreign Bank Without Violating the FCPA

A quirky feature of the Foreign Corrupt Practices Act is that you can ask the Department of Justice to opine on whether your proposed action would violate the FCPA. Generally, one or two of these FCPA opinions pop up each year. It’s been a six-year drought since the last one.

Some of the FCPA opinions have provided great insight into how the DOJ thinks about FCPA compliance. This latest is not one of those. I scratch my head wondering why the Requestor even bothered.

The Requestor planned to buy some assets from a state-owned foreign bank. Another subsidiary of that state-owned foreign bank helped with the transaction and wanted to get paid a fee. The opinion was on whether it was okay to pay that fee.

Sure, the parties are state-owned and the people working at them should be treated as government officials under the FCPA for compliance purposes. The FCPA doesn’t prevent US firms from entering into transactions with foreign companies, even if the company is state-owned. You just can’t pay a bribe to the people involved.

There is nothing in the facts that says any individual is getting paid a fee. The money is all going to a company. The opinion includes a statement that the Requestor has no belief that any of the money will be diverted to an individual.

The Requestor received legitimate services from the company, the payment is commensurate with the services and there is no indicia of corrupt offers.

The latest release notes that three prior releases all addressed this topic: 09-01, 97-02, and 87-01. They each had a declination when the payment was going to the government entity and not to an individual.

The fee to be paid was only $237,500. I would guess that the Requestor paid almost as much in legal fees to get the FCPA opinion.

Whatever uncertainty the Requestor had in making the payment I guess has been erased. We can pile this fact pattern into the stack of things that are okay to do.

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Adoption and the FCPA

The latest Opinion Procedure Release from the Department of Justice comes from a group of non-profit adoption agencies. Based on the stories I’ve heard from friends who have adopted from overseas, I’m not surprised that adoption agencies are concerned about the Foreign Corrupt Practices Act. Opinion Release No. 12-02 is focused on an event hosted by the agencies and not the actual adoption practices. This is the second opinion release focused on adoption agencies.

Nineteen adoption agencies want to host 18 officials involved in the adoption process. The event sounds like a typical business/entertainment gathering:

  • Business class airfare on international portions and coach airfare for domestic portions of flights;
  •  Two or three nights hotel stay at a business-class hotel;
  • Meals; and
  • Transportation.

To minimize the concerns of concerns of corruption, the agencies put a few protections in place:

  1. Entertainment events will be of nominal value
  2. The agencies will not pick the attendees, but leave it up to the government agency.
  3. Souvenirs will have a business logo and be of nominal value.
  4. No stipend or spending money.

This sounds familiar because the Department of Justice dealt with very similar issues last year in Release 11-01. This year’s request sounds like there will be a bit more entertainment involved, but nothing extravagant.

The fact pattern does reflect anything new. I think it’s how most businesses would treat the situation. I suppose that’s helpful. But it also reflects a paranoia about the FCPA. It’s not a violation for merely giving something of value to a foreign official, there needs to be corrupt intent for a violation of the bribery sections of the FCPA. Obviously, a company should be anxious when a government official is involved and there should be heightened scrutiny. There was nothing about this release that has not been covered in other releases.

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Royalty Is Not Always a Foreign Official

I’m not quite sure how royalty works in various parts of the world. From the latest FCPA Opinion release, the parties to a business deal also did not fully understand. The proposed business relationship has some serious red flags so I’m not surprised the parties requested the opinion. According to the release, submission for a release was part of the contract.

The requestor was going to make payments to a member of the country’s royal family. (Red flag – But a key issue is whether he is Foreign Official.) The Royal Family Member was going to lobby his home country’s embassy to engage the requestor as the country’s lobbyist in the United States. (Lobbying the government = another red flag) The Royal Family Member would be working on a commission for 20% of what requestor receives for business. (red flag) The Royal Family Member can also identify other opportunities for the Requestor in the foreign country subject to a separate engagement. (red flag)

The whole opinion hinges on the definition of “Foreign Official” under the FCPA and whether the Royal Member falls under that definition. The FCPA defines a “foreign official” as

any officer or employee of a foreign government or any department, agency, or instrumentality thereof, . . . or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality . . . .

15 U.S.C. § 78dd-2(h)(2)(A)

The Department of Justice looks to FCPA Opinion Release 10-03 and United States v. Carson, et al., No. 09-cr-00077 (C.D. Cal. 2011) and distills the factors in those sources to three factors to determine whether a member of a royal family is a “foreign official”:

(i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like;

(ii) whether a foreign government characterizes an individual or entity as having governmental power; and

(iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government.

This royal family member:

  1. has no official or unofficial title or role in the Foreign Country’s government
  2. has no official or unofficial power over any aspect of the Foreign Country’s governmental decision-making process, executive function, administration, finance
  3. has no direct or indirect power to award the business the Requestor seeks
  4. cannot, by virtue of his membership in the royal family, ascend to a governmental position
  5. has no benefits or privileges because of his status as a Royal Family Member
  6. has no relationship—personal, professional, or familial—with the decision-makers in the Foreign Country’s Embassy and the Foreign Country’s government who will decide whether to award the business

As the FCPA Professor Mike Koehler points out, this opinion procedure release creates more uncertainty in the definition of a foreign official. Past advice has focused on the purpose of the payments and not just the mere status of the official. The Carson decision looks to the entity to determine if it is a government organization.

The facts and circumstances about the royal family member sound unique to me. (Again, pointing out that I don’t understand how the various royal family members related to their home countries.) We don’t know the foreign country based on the opinion release. It would seem based on points 4 and 5 that the royal family is largely ceremonial in the country and not in a position of power in the government. Otherwise, the royal family itself would be foreign government instrumentality.

There is new guidance expected this month from the DOJ and SEC that is meant to consolidate the advice given on the FCPA. Perhaps that will help clear up some of the confusion over who is a foreign official.

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Image is the Crown of Rus-Ukrania by Alexandr Synytsa

Another FCPA Opinion Procedure Release on Corporate Hospitality

The Department of Justice released the latest Opinion Procedure Release on the Foreign Corrupt Practices Act. The releases are great tool to help you figure out if a proposed corporate action could lead to an enforcement action. Anyone with an interest in the FCPA looks to the existing body of opinion releases as a way to help understand the DOJ’s interpretation of the law and what corporate actions are acceptable, which are risky and which are forbidden.

This opinion request came from an adoption agency. So maybe there is an interesting twist to their corporate behavior that could offer an interesting new perspective on the FCPA.

Unfortunately FCPA Opinion Procedure Release 11-01 (.pdf) covers no new ground. In fact the fact pattern is nearly identical to those presented in the FCPA Opinion Procedure Release 2007-01 and 2007-02.

At best the release once again lays out best practices for corporate hospitality:

  • Let the government agency pick who will come.
  • No spouses or family members on the trip
  • Pay costs directly to providers
  • No cash to the government officials
  • Souvenirs should be of nominal value and/or have the corporate logo
  • Don’t fund side trips or leisure activities
  • Focus the function on educating the visiting officials about the operations and services of your company

These best practices were in the old opinion releases. Howard Sklar scratched his head over why the requestor went through the trouble and expense of getting this opinion release.  I share the same thoughts. The fact pattern was not a close call. Anyone who could spell FCPA should have been able to find the releases. The DOJ has all of the FCPA Opinion Procedure Releases published on their FCPA website.

Maybe it was the nature of the requestor: and international adoption agency. I would guess that the government officials are from either Russia or China, two countries with an international reputation for bribery and corruption.

From what I’ve heard from some friends, there are often numerous shakedowns and cash requests made on the adoptive parents during the international adoption process.  Obviously, the parents are in an emotionally fragile state when heading overseas to adopt. They are likely in a country that is unfamiliar to them, lost in a fog of foreign languages. Could some of those “gifts” be bribes and could some of the recipients be foreign officials? Sure.

There have been big headlines about FCPA enforcement actions in the US and the coming rise of enforcement under the UK Bribery Act. The adoption agency should be concerned that its activities could be in violation of these laws.

International adoption agencies also have a larger moral question to consider. To the extent they are making payment or encouraging the adoptive parents to make payments, their activities start to look more like baby buying. If the activity is more wholesale, you end up looking like a baby farmer. I think more people are concerned with that moral question, than the legal question of bribery.

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FCPA Release 10-03: Foreign Agents as Foreign Officials

The Department of Justice released its latest FCPA Opinion Release. The requesting company for this opinion release is stepping into a situation full of FCPA red flags. In the end, the DOJ opined that it would not bring an enforcement action based on the safeguards put in place by the company.

The company is involved in “natural resource infrastructure development” and trying to get a government contract. They want to hire a consultant who has previously and currently holds contracts to represent the foreign government
and act on its behalf and a registered agent of a foreign government pursuant to the Foreign Agents Registration Act, 22 U.S.C. § 611 et seq. Of course, the consultant is being paid on a contingency basis.

The DOJ points out that the FCPA does not “per se prohibit business relationships with, or payments to, foreign officials.” They look for these factors in the business relationship:

  • indicia of corrupt intent
  • transparency to the foreign government and the general public
  • whether the arrangement is in conformity with local law
  • whether there are safeguards to prevent the foreign official from improperly using his or her position

In this case, the company is putting extensive safeguards in place. The DOJ found the safeguards were good enough.

The consultant is an agent of the foreign government and there are situations in which the consultant will act on behalf of the foreign government, so the company should treat the consultant and its employees “foreign officials” for purposes of the FCPA.

The company is walling off the employees working on the various representations from each other and is disclosing  the relationships to the relevant parties. The business relationships are permitted under local law. The obligations limit representation of the foreign government by the consultant are sufficient to ensure that the consultant will not be acting on behalf of the foreign government in acting for the company.

The walling off and limitations are actually enough to pull the consultant out from under the label of being a “foreign official.”

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FCPA Opinion Procedure Release 10-02

A continuing quirk of the Foreign Corrupt Practices Act is the ability to ask the Department of Justice whether a particular set of facts would be a violation of the Act. Given all of the recent FCPA activity I expected there to be an uptick in Opinion Procedure Releases under the FCPA. So far that does not seem to be the case. There was one release in 2009 and only the second for 2010 has recently been issued.

Maybe the bribery situations being faced by corporate America are straightforward and don’t need interpretation (or unwanted attention) from the Department of Justice.

The Opinion Requestor runs a micro-finance operation in a country in Eurasia. (I’m not sure why they used this identification.) They are trying to convert from a non-profit model to a commercial operation. The government of the unnamed Eurasian country is insisting that the requestor make a significant grant to local micro-finance institution. The regulating agency has provided a short list of six local MFIs in the Eurasian country. Either cough of the cash to get it localized or it can’t get its operating permits.

Of the six local micro-finance institutions, they found three “as generally unqualified to receive the grant funds and put them to effective use.” They then conducted further diligence on the remaining three and ruled out two more: one for conflict of interest concerns, the other after the discovery of a previously undisclosed ownership change in the entity.

That left them with one choice, so they dove deeper in their diligence. They discovered that one of the board members of the local micro-finance institution was also a government official.

The requestor laid out a series of controls is would put in place to protect the investment in the local micro-finance institution from corrupt influence and prevent money from flowing to board members.

There is some interesting discussion about what charitable institutions need to look at and controls needed to avoid FCPA violations. The DOJ also refers to three prior releases that have dealt with charitable-type grants or donations:

  1. FCPA Opinion Release 95-01 (Jan. 11, 1995)
  2. FCPA Opinion Release 97-02 (Nov. 5, 1997)
  3. FCPA Opinion Release 06-01 (Oct. 16, 2006)

The situation in the release is unique but you can use the controls and discussion in the release to help with your own FCPA compliance program.

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FCPA Opinion Procedure Release 10-01

The Department of Justice released its latest Opinion Procedure Release under the Foreign Corrupt Practices Act. It’s one of the quirks of the FCPA that you can ask the Department of Justice whether a particular situation would be a violation of the FCPA.

This opinion is also quirky. The company requesting the opinion was in the odd situation of having to hire a foreign official as the director of a facility it is building in a foreign country.

Hiring a foreign official is an obvious red flag for a potential violation of the FCPA.

The quirk of the situation is that the United States government directed the company to hire the foreign official. The company is building the facility under a government contract as part of US assistance to the foreign country. The foreign country identified the individual they wanted as facility director. They told the US government, who directed the company to hire the individual.

Here are the reasons stated why this situation is not a violation of the FCPA:

  • [T]he Individual is being hired pursuant to an agreement between the U.S. Government Agency and the Foreign Country, and will not be in a position to influence any act or decision affecting the Requestor.
  • [T]he Requestor is contractually bound to hire and compensate the Individual as directed by the U.S. Government Agency.
  • The Requestor did not play any role in selecting the Individual, who was appointed by the Foreign Country based upon the Individual’s qualifications.
  • In neither position will the Individual perform any services on behalf of, or receive any direction from, the Requestor.
  • [T]he Individual will have no decision-making authority over matters affecting the Requestor, including procurement and contracting decisions.

I don’t think this release offers much insight to the FCPA. It does point out that you may be able to hire a foreign official if directed by the US government.

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FCPA Opinion Procedure Release 09-01

doj

The Department of Justice released its latest Opinion Procedure Release under the FCPA: 09-01

The Requestor designs and manufactures a specific type of medical device. The Requestor’s competitors already operate and sell their products to the government of a certain foreign country and the Requestor wants to enter that market.

A senior government official laid out the foreign government’s plan to provide a specific type of medical device for patients in need in the country. The government intends to purchase the medical devices, and then subsidize the cost of such devices when it resells them to patients. The Requestor and its competitors would be allowed to participate in the program.

To get the foreign medical centers familiar with their product, the government official suggested free samples for evaluation. The Requestor must have been nervous given that a sample size of 100 units was needed for evaluation. Since each cost $19,000, that was a $1.9 million payment involving a foreign official.

Ten different medical centers will each get ten medical devices. The Requestor will select the centers that will participate in order to ensure that the participating centers have the requisite expertise, resources, and experience to successfully participate in the evaluation.

The obvious comparison is to the Iowa Beef Packers request to send free samples addressed in FCPA Review Procedure Release 81-02. But that only involved 700 pounds of beef, with an estimated total value of less than $2,000.

The key element in the DOJ’s decision in this latest release is that the devices are being provided to the foreign government, not to individual government officials. Close family members of the Government Agency’s officers or employees, working group members, or employees of the health centers are ineligible to receive a sample device except in certain, specific circumstances. Also, the names of the recipients will be published on the Government Agency’s web site for two weeks following the selection.

There is nothing inherently wrong with giving stuff to a foreign government. You just have to make sure it does not personally benefit a government official.

The DOJ does not presently intend to take any enforcement action with respect to the proposal described Opinion Procedure Release 09-01.

References:

TRACE and FCPA Opinion Procedure Release 08-03

The Summer 2008 newsletter from TRACE International provides some more background on FCPA Opinion Procedure Release 08-03. TRACE points out that this release was the first time that the DOJ has approved the payment of a specific dollar amount to government officials.

FCPA Review Procedure Release 81-02

FCPA Review Procedure Release 81-02 came from the Iowa Beef Packers, Inc. who wanted to send promotional samples to the Soviet Ministry of Foreign Trade, the Soviet government agency responsible for procurement of such products.

The total amount of the samples which the company intends to furnish to these officials is approximately 700 pounds of beef, with an estimated total value of less than $2,000. Individual sample packages will not exceed $250 in value. IBP estimates that prospective sales of packaged beef products to the Soviet government will be in minimum amounts of 40,000 pounds each.

The company has represented that the sample products to be presented to MVT officials are intended as items for their inspection, testing and sampling, and to make these officials aware of the quality of the company’s products. IBP also represents that the sample products are not intended for the individual use of the MVT officials, but will be provided to them in their capacity as representatives of the government agency responsible for purchasing the company’s products. Finally, the Soviet government has been informed that the company intends to furnish sample products to the MVT officials.