DOJ and SEC Issue Long-Awaited FCPA Guidance

November 14, 2012

On Nov. 14, 2012, the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) released a 120-page “Resource Guide” to the U.S. Foreign Corrupt Practices Act (“FCPA”).1 Since 2007, DOJ and SEC have brought more than 250 enforcement actions under the FCPA, resulting in billions of dollars in criminal and civil penalties. The new guidance demonstrates that the government is not backing down from its aggressive interpretation and enforcement of the statute.

Described by DOJ and SEC as “an unprecedented undertaking . . . to provide the public with detailed information about our FCPA enforcement approach and priorities,” the guidance does not significantly change the positions previously advanced by the agencies in enforcement actions around the country. Most significantly, the guidance fails to recognize an affirmative defense based on a robust compliance program, which has been sought vigorously by the U.S. Chamber of Commerce and other proponents of FCPA reform.

While falling short of the enforcement reforms and firm policy statements for which many in the compliance community had hoped, the guidance nevertheless provides useful assistance to companies seeking to avoid prosecution under both the anti-bribery and the accounting provisions of the FCPA. For example, the guidance details a series of factors that DOJ and SEC will consider in assessing the design, application, and efficacy of a company’s compliance program, and further addresses the thorny issue of when a successor company will (and will not) be deemed liable for violations committed by companies acquired through merger or acquisition. No bright-line rules are stated on these matters, but the guidance includes a number of helpful hypotheticals, case studies, and “practical tips” that seek to identify the hallmarks of due diligence and compliance programs that may lead to a declination of charges.

Another area that has been subject to much uncertainty is when gifts, travel and entertainment provided to foreign officials constitute corrupt payments under the FCPA. Here, too, the guidance avoids clear-cut distinctions in favor of the government’s traditional fact-specific inquiry. While stating that “small payments or gifts” will lead to an enforcement action “only when they comprise part of a systemic or long-standing course of conduct that evidences a scheme to corruptly pay foreign officials to obtain or retain business,” the guidance leaves unresolved the substantial gray area between these items of nominal value and the sports cars, fur coats, and $12,000 birthday trips listed as examples of improper hospitality.

Similarly, DOJ and SEC do not retreat from their broad position, argued in a number of cases and currently under review by the U.S. Court of Appeals for the Eleventh Circuit in Atlanta,2 that state-owned or state-controlled entities (including even those in which the government holds a minority interest) constitute “instrumentalities” of foreign governments and that their employees therefore constitute “foreign officials” under the FCPA.

Perhaps the most helpful section of the guidance details several instances in which DOJ and SEC have declined to pursue enforcement actions against U.S. companies (anonymized in the published examples). Because such declinations are not publicized and the underlying facts are often known only to the government, the company, and its counsel, it is useful to review the factors that DOJ and SEC have taken into consideration in making their enforcement decisions. Not surprisingly, thorough internal investigations, self-reporting to and full cooperation with the government, and enhancement of internal controls are all recurring factors in the identified declinations.

Ultimately, the guidance appears valuable primarily as a convenient and practical compilation of previously available reports, prosecution guidelines, policy manuals, agency opinions, and judicial decisions. It remains to be seen whether a push for legislative reform of the FCPA will continue in the next Congress. In the meantime, companies doing business abroad should continue to consult experienced counsel in implementing effective FCPA compliance programs, investigating potential violations, and responding to government inquiries.

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2 United States v. Esquenazi, No. 11-15331-C (11th Cir.).

This article was originally published by Bingham McCutchen LLP.