Foreign Corrupt Practices Act: The More You Know, The Better For Your Business

December 28, 2012

(Editor’s Note: Yesterday, we briefly summarized recent administrative guidance on the Foreign Corrupt Practices Act. This post will take a deeper look at those issues.)

My last post focused on the complexities and uncertainty that can be inherent in international business agreements, particularly as they concern conflict of laws and jurisdictional issues.  In addition to detailing the ins and outs of formalizing business arrangements with foreign partners, U.S. companies also need to be aware of the activities those foreign partners may be involved with, particularly as they concern potential liability under the Foreign Corrupt Practices Act.

Today’s fast-paced global business model can outrun a careful consideration of the legal implications that partnerships and other arrangements with foreign businesses can have on a U.S. company.  Over the past few years, there has been consistent and continuing media coverage of what can happen when companies don’t have enough information about their foreign business practices, and the practices of foreign businesses that they are involved with.  In particular, that coverage has focused on civil liability and government fines under the Foreign Corrupt Practices Act (FCPA).

Though enacted in 1977, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have recently prioritized use of the FCPA as an enforcement tool.  At its most basic, the FCPA prohibits U.S. or foreign companies that are registered or required to file reports with the SEC from offering payments to foreign officials for the purpose of influencing them or gaining an improper business advantage.  Federal FCPA investigations over the last several years have cumulatively resulted in billions of dollars in fines paid by both U.S. and foreign-based companies.  Moreover, companies who become ensnared in government FCPA enforcement actions frequently face derivative shareholder litigation, subjecting those companies to further civil liability for FCPA violations.

When it comes to limiting FCPA liability, prevention is crucial.  And the only way to prevent FCPA liability is to know as much as possible about your company’s foreign business practices, as well as the practices of foreign businesses with whom your company has entered into strategic relationships, joint ventures, or partnerships.

To accomplish this, in-house counsel should conduct anti-corruption due diligence with its foreign subsidiaries and other foreign companies or agents it works with as part of a formal FCPA compliance program.  In November 2012, the DOJ and the SEC jointly issued a resource guide for companies to use to better monitor their FCPA compliance.  The guide is intended to work as a desktop reference for companies as they form and proceed with FCPA compliance reviews.  As part of that compliance process, companies can also set up ongoing anti-corruption reviews to examine links between its foreign business partners and illicit behavior or connections to foreign governments.  Gathering that kind of key information can take a company a long way toward preventing the FCPA nightmares recently experienced by many U.S. companies.