FCPA

China’s bribery law amendment resembles a version of the FCPA

In February 2011, the People’s Republic of China (PRC) legislature, among 49 amendments, passed Amendment No. 8 to Article 164, which criminalizes the payment of bribes to non-PRC government officials and to international public organizations. Legal experts say that that the passing of this amendment is the PRC’s effort to comply with the United Nations Convention Against Corruption to which the PRC is a signatory. Although no interpretive guidance has been issued, the amendment resembles an early version of the Foreign Corrupt Practices Act (FCPA).

Before the amendment was passed, the PRC prohibited bribery of PRC officials and provided for civil and criminal liability for making commercial bribes to private parties for the purpose of obtaining illegitimate benefits, but had no specific law that criminalized the payment of bribes to non-PRC officials. Effective May 1, 2011, the amendment adds the following clause to Article 164 of the PRC Criminal Law:

“Whoever, for the purpose of seeking illegitimate commercial benefit, gives property to any foreign public official or official of an international public organization, shall be punished in accordance with the provisions of (Article 164.)”

Article 164 states that “if the payer is an individual, depending on the value of the bribes, he/she is subject to imprisonment for up to 10 years. If the payer is an entity, criminal penalties will be imposed against the violating entity and the supervisor chiefly responsible; other directly responsible personnel also may face imprisonment of up to 10 years. Penalties may be reduced or waived if the violating individual or entity discloses the crime before being charged.”

According to legal experts, the PRC Criminal Law applies to all PRC citizens (wherever located); all natural persons in the PRC regardless of nationality; and all companies, enterprises, and institutions organized under PRC law. Thus, in addition to PRC domestic companies, any joint venture or other business entity formed under PRC law, including ones involving non-PRC companies, may be criminally liable under the amendment. Non-PRC companies with representative offices in the PRC may also be subject to the provisions of the amendment.

April 4th, 2011|Educational Series, Legislation|

Tyson Foods charged with violations of the Foreign Corrupt Practices Act

The Securities and Exchange Commission (SEC) today charged Tyson Foods Inc. with violating the Foreign Corrupt Practices Act (FCPA) by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary’s chicken products for export sales.

The SEC alleged that Tyson de Mexico concealed the improper payments by putting two veterinarians’ wives on its payroll but they performed no work for the company. The spouses were later removed from the payroll and their payments were processed with invoices issued for “services.” Tyson de Mexico paid the veterinarians, who were responsible for certifying Tyson’s chicken products for export and served as official Mexican government veterinarians at Tyson facilities, a total of $100,311. It was not until two years after Tyson Foods officials first learned about the subsidiary’s illicit payments that its counsel instructed Tyson de Mexico to cease making the payments.

The SEC further charged that in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to implement a system of effective internal controls to prevent salary payments to phantom employees and the payment of illicit invoices. The improper payments were recorded as legitimate expenses in Tyson de Mexico’s books and records, and included in Tyson de Mexico’s reported financial results for fiscal years 2004, 2005 and 2006. Tyson de Mexico’s financial results were, in turn, a component of Tyson Foods’ consolidated financial statements filed with the SEC for those years.

Without admitting or denying the SEC’s allegations, Tyson Foods consented to the entry of a final judgment ordering disgorgement plus pre-judgment interest of more than $1.2 million and permanently enjoining it from violating the anti-bribery, books and records, and internal controls provisions of the FCPA. The proposed settlement is subject to court approval.

In a related criminal action announced today, the Department of Justice (DOJ) charged Tyson Foods with conspiring to violate the FCPA and violating the FCPA. The DOJ and Tyson Foods agreed to resolve the charges by entering into a deferred prosecution agreement. Tyson Foods also agreed to pay a $4 million criminal penalty.

February 12th, 2011|Fraud|

Some call the new U.K. Bribery Act “The FCPA on Steroids”

The new law, called the Bribery Act, takes effect in April 2011. It resembles the U.S. Foreign Corrupt Practices Act (FCPA) which bars companies that trade on U.S. exchanges from bribing foreign government officials to gain a business advantage, but the Bribery Act goes beyond the FCPA by not just prohibiting illicit payments to foreign officials, but also bribes between private business people. It holds even if the individual who makes the payment does not realize that the transaction was a bribe.

And the Act’s impact extends beyond U.K.-based companies. It applies to entities with any “business presence” in the U.K., regardless of where the act of briberyoccurs. It also covers bribery by any person with “close connections” to the U.K., including both British citizens and citizens of others countries “ordinarily residing” in the U.K.

According to the Ministry of Justice, the law basically creates three criminal offenses: 1) giving or accepting a bribe designed to induce someone to perform a function improperly; 2) bribing a foreign public official with the intention of obtaining a business advantage, and 3) failing to prevent bribery.

Legal experts say that the most significant development in the law is a company’s strict liability for failing to prevent bribery (by an employee, a joint-venture partner or a subsidiary.) Under the Act, the company can be penalized with an unlimited fine for such actions, and further can be held liable for the acts of bribery by a person “associated” with the company who is trying to obtain a business advantage for the company. And unlike the FCPA, the Act does not exempt from prosecution what are commonly known as “facilitation payments.” (In some parts of the world, it is common practice to pay a small amount of money to ensure that an otherwise legitimate permit is approved in a timely manner.)

While the British government released some draft guidance on the Act in late 2010 and more definitive text is expected in 2011, it is unclear how vigorously the law will be enforced or what resources will be committed to investigating and prosecuting the suspected violations. Ultimately, it will be up to the courts to determine the true impact of the new law.

January 5th, 2011|Educational Series, Legislation|

Spotlight on Foreign Corrupt Practices Act (FCPA) compliance

All U.S. firms seeking to do business in foreign markets must be familiar with the FCPA. Enacted in 1977 and amended several times since then, the FCPA generally states that if a foreign company has any footprint in the U.S., even simply wiring money through it, that company is subject to prosecution if involved in corrupt payments to foreign officials for the purpose of obtaining or keeping business.

The FCPA applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. U.S. parent corporations also 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, who were employed by or acting on behalf of such foreign subsidiaries. The same provisions essentially extend to intermediaries which include joint venture partners or agents.

Between 2006 and 2009, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), both of which have jurisdiction over the FCPA, initiated more enforcement actions than in the first 28 years of the FCPA’s existence. And the financial penalties for violations have skyrocketed. In December 2008, Siemens AG, Europe’s largest engineering firm, pleaded guilty to violating U.S. anti-corruption laws and was ordered to pay $1.6 billion to settle bribery charges in U.S. and Germany.

To ensure FCPA compliance, the DOJ recommends that companies exercise risk-based due diligence to ensure that they are doing business with reputable and qualified entities and representatives. The due diligence process, at minimum, should include investigating potential foreign representatives and joint venture partners to determine their general reputation and qualifications, whether they have personal or professional ties to the government, the reputation of their clients, and their history with the U.S. Embassy or Consulate, local bankers and other business associates. Additionally, the U.S. firm should be aware of “red flags,” i.e., unusual payment patterns or financial arrangements, indicators of corruption in the country or the particular industry, or refusal by the foreign joint venture partner or representative to provide certification that it will not engage in actions to further an unlawful offer, promise, or payment to a foreign public official and not cause the firm to be in violation of the FCPA (such as paying unusually high commissions, lacking transparency in expenses and accounting records, or retaining a joint venture partner or representative that has been referred by a government official.)

Capturing recent headlines are the changes to the FCPA-related compliance and ethics provisions of the Federal Sentencing Guidelines for Organizations that will become effective in November 2010. The amendments provide that a meaningful compliance program requires, among other actions, that when criminal conduct is detected, the company implement “reasonable steps to respond appropriately … to prevent further similar conduct.” An annotation to that provision specifies that the actions include “assessing the compliance and ethics program and making modifications necessary to ensure that the program is effective … and possibly including the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.”

The Guidelines also state that a board must be knowledgeable about the content and operation of the company’s compliance program and must “exercise reasonable oversight with respect to the implementation and effectiveness of its compliance and ethics.” Likewise, the DOJ’s prosecution guidelines consider whether the board exercises independent reviews of the compliance program and whether it is provided with information sufficient to enable the exercise of independent judgment. Directors have similar “Caremark” oversight duties arising under case law and various other directives, such as stock exchange rules, Sarbanes-Oxley, and audit committee charters.

October 14th, 2010|Educational Series, Legislation|