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US Government clarifies foreign anti-bribery laws

The US Government has published comprehensive guidance on how it will enforce laws prohibiting acts of bribery by companies operating overseas, including details of the type of payments that will generally be allowed.15 Nov 2012

The new guidance (130-page / 2.8MB PDF) has been published jointly by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC), the two US government departments responsible for enforcing the Foreign Corrupt Practices Act (FCPA).

"Investors must have faith that the economic performance of public companies reflects lawful considerations of markets, price and product rather than a mirage resulting from bribery and corruption," said Robert Khuzami, the SEC's enforcement director. "This guide will protect investors by assisting businesses in preventing such unlawful behaviour, thus avoiding FCPA violations in the first place, which is in the interest of law enforcement and business alike."

Enacted in 1977, the FCPA generally prohibits the payment of bribes to foreign officials for the purpose of obtaining or retaining business. The Act covers the activities of publicly-traded companies and their officers, directors, employees, shareholders and third-party 'agents' that take place anywhere in the world. It requires companies to maintain accurate business records and maintain adequate internal controls.

The SEC said that the guidance would provide helpful information to "all sizes" of business on who and what was covered by the FCPA, the definition of a "foreign official" and what types of gifts, travel and entertainment expenses would be considered "proper". The guidance also looks at the different types of civil and criminal enforcement powers available to the Government, and contains case studies and examples of cases the SEC and DOJ have decided not to pursue.

The guidance makes it clear that "small gifts" or "tokens of esteem or gratitude" will usually be appropriate in a business context, particularly when the gift is given "openly and transparently", properly recorded by the recipient and permitted under local law.

"Items of nominal value, such as cab fare, reasonable meals and entertainment expenses, or company promotional items, are unlikely to improperly influence an official and, as a result, are not, without more, items that have resulted in enforcement action by DOJ or SEC," the guidance states. "The larger or more extravagant the gift, however, the more likely it was given with an improper purpose. DOJ and SEC enforcement cases thus have involved single instances of large, extravagant gift-giving (such as sports cars, fur coats and other luxury items) as well as widespread gifts of smaller items as part of a pattern of bribes."

The guidance also goes into more detail on the type of payment which will be allowed under the exception for "facilitating or expediting payments made in furtherance of routine governmental action" contained in the FCPA. This exception is a "narrow" one which will only apply to "non-discretionary acts" such as processing visas, providing police protection or supplying utilities or mail services, according to the guidance. It will not include decisions to award new business or continue business with a particular party, or "acts that are within an official's discretion or that would constitute misuse of an official's office".

"Whether a payment falls within the exception is not dependent on the size of the payment, though size can be telling, as a large payment is more suggestive of corrupt intend to influence a non-routine governmental action," the guidance says, "But, like the FCPA's anti-bribery provisions more generally, the facilitating payments exception focuses on the purpose of the payment rather than its value."

The UK's Bribery Act, which came into force in 2010, does not contain an exception for this type of payment. The US guidance makes it clear that companies operating in the UK may still be caught by these laws, even if the payments are legal under US laws.

The guidance clarifies that the prohibition on bribing "foreign officials" includes those acting in an official capacity for governments or departments, government agencies or "instrumentalities". This can include employees of state-owned or state-controlled companies. Employees of companies in which the national government holds a minority stake will generally not be included, although any inappropriate payments will generally be caught by other laws.

Although the FCPA prohibits payments to officials rather than governments, the guidance states that companies "contemplating contributions or donations" to foreign governments should "take steps" to ensure that the money will not be used for the personal benefit of individual foreign officials or other corrupt purposes.

Anti-corruption law expert Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, said that companies with US operations or with shares that are publicly-traded in the US would find the new guidance useful, particularly following criticism that the law was "vague".

"That said, there is significant enforcement precedent in the US in relation to the FCPA and you could question whether the guidance was really necessary at all," he said. "However, on balance, corporations will no doubt find the new guidance helpful in the context of their global regulatory compliance. If your business has operations in the US, you should read it."