Foreign Corrupt Practices Act Compliance - Managing the Global Visa Process and Global Operations

Foreign Corrupt Practices Act Compliance - Managing the Global Visa Process and Global Operations

By Elizabeth E. Stern and Jane W. Chen

This year marked a significant upward trend in enforcement around the world under the U.S. Foreign Corrupt Practices Act ("FCPA").  In 2009, the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC") brought a record number of FCPA cases against companies, secured convictions in each of three high-profile FCPA trials against individuals, and broadened the scope of industries under the scrutiny of prosecutors and regulators.  The severity of penalties for noncompliance remains significant, and violations have far-reaching consequences for companies that extend beyond costly monetary penalties. 

Most recently, Defense Contractor DynCorp International, Inc. voluntarily disclosed to the DOJ and the SEC that payments totaling as much as USD300,000 were made to expedite the issuance of visas and licenses from foreign government agencies.  For any company, such a disclosure necessitates a lengthy and costly process of investigating payments and evaluating internal policies and procedures to improve the company's compliance procedures.  This alert highlights the necessity for companies across all sectors to have in place a comprehensive and proactive compliance program to avoid running afoul of the FCPA.

Overview of the FCPA

 Enacted in 1977, the FCPA makes it unlawful for a U.S. person and certain foreign issuers of securities to make a payment to a foreign official for the purpose of any act of that foreign official in violation of the duty of that official, or to secure any improper advantage in order to obtain or retain business.[1]  Since 1998, the FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States.  The United States seeks to extend the reach of the FCPA by entering into new treaties with the European Union by January 1, 2010 to maximize cooperation between jurisdictions. 

The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions, which require corporations covered by the provisions to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. 

The FCPA provides three exceptions: 1) payments for routine government actions which expedite or secure the performance of a routine governmental action by a foreign official, political party or party official; 2) payments which are lawful under foreign law; and 3) reasonable and bona-fide expenditures.

The recent example in the visa arena highlights the challenges a  global organization faces in managing the lodging of government filings across  geographic locations.  For many companies, local agents facilitate these lodgings, with company managers often unaware of  the precise breakdown of fees for the submissions.  The need to develop a proactive compliance program, with best practices adopted for third party agent and distributor agreements, is potent.

Sanctions Under the FCPA

The DOJ is responsible for all criminal enforcement and for civil enforcement of the anti-bribery provisions with respect to domestic concerns and foreign companies and nationals.  The SEC is responsible for civil enforcement of the anti-bribery provisions with respect to issuers.  Criminal penalties under the FCPA include a fine of up to USD2,000,000 for corporations, and a fine of up to USD250,000 and imprisonment for up to five years for officers, directors, stockholders, employees, and agents.  Moreover, under the Alternative Fines Act, these fines may be actually quite higher -- the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment.  Further, fines imposed on individuals may not be paid by their employer or principal.  Civil penalties include a fine of up to USD10,000 against any firm as well as any officer, director, employee, or agent of a firm, or stockholder acting on behalf of the firm, who violates the anti-bribery provisions.  The SEC may also require disgorgement of profits.

Violations under the FCPA have far-reaching consequences.  In addition to criminal and civil penalties, companies should be aware of further serious repercussions including bans on doing business with the U.S. federal government, ineligibility to receive export licenses, and/or being delisted from securities exchanges by the SEC.  Moreover, beyond direct monetary fines, the SEC and DOJ may insert clauses in settlement agreements that require the company to pay for an independent compliance monitor to examine, report on and recommend improvements to the compliance programs for a specified period of time.  For many years after the violations, the company will have to continue bearing the expenses associated with any mandated compliance improvements, legal fees and the disruption of normal business operations.

Cost of the Cure Exceeds the Cost of Prevention

The cost of non-compliance with the FCPA can be significantly higher than the cost of implementing a comprehensive compliance program.  In 2008, Munich-based Siemens, Europe's largest engineering company, announced that it had agreed to pay a record USD1.34 billion to settle the FCPA investigations in the United States and Germany.  In addition, the cost of investigation and remediation approximated USD1 billion, including roughly 1,750 interviews, over 1,000 informational briefings, 82 million documents electronically searched and 14 million documents reviewed, 38 million financial transactions analyzed, and 10 million bank records reviewed.[2]  Recent statements by senior Justice Department officials confirm that these trends in enforcement will only continue, reaffirming the need for robust compliance for all global enterprises.

A strong FCPA compliance program should establish internal and external controls adequate to ensure compliance with both the anti-bribery and accounting provisions of the act.  Companies should educate all employees as to what type of activity is prohibited under the FCPA; include an FCPA compliance manual summarizing policy and procedures; involve special FCPA training programs for in-house counsel, auditors, managers and employees working on overseas projects; and develop external controls and procedures to ensure that all transactions and relationships between a company and any intermediary adequately comply with the FCPA.

Along with aggressive enforcement, larger penalties and a focus on individual responsibility, trends show that the FCPA now covers a broader scope of activity and geographic reach.  A strong compliance program, tailored to a company's business, size, industry, supply and distribution chain, is necessary to manage risk.  Because FCPA internal investigations are often complex, implicating foreign laws, business customs, data privacy, and privilege issues, companies should consider retaining outside counsel specializing in the FCPA when approaching a potential violation. 

Baker & McKenzie's Immigration, International Trade and Litigation practice groups are harmonized to assist companies in complying with the requirements of the FCPA and navigating the often complex requirements of export controls and economic sanctions regulations, U.S. money laundering laws, and, as the DynCorp voluntary disclosure evidences, immigration-related violations such as payments to expedite the issuance of visas.