Editor’s note: While bribery has changed in the digital age, the seemingly endless stream of leaks showing government corruption and business complicity means that it’s here to stay.
Few Americans would consider the outright offer of cash to a foreign leader. More concerning for most companies are the gray areas where in their zeal to win a foreign deal, salespeople may get carried away.
For those companies selling or operating overseas, it’s paramount to know where the line is between standard business development practices and buying influence. That requires a plan for compliance with the Foreign Corrupt Practices Act, a more than 20-year-old statute prohibiting American companies from engaging in bribery.
Global Atlanta caught up with attorney Michael Burke of Arnall Golden Gregory to talk through the nuances of the law in this post, which is sponsored by the Atlanta-based firm.
Global Atlanta: Define the Foreign Corrupt Practices Act. What does it prohibit, what types of companies should be mindful of it, and what pitfalls should businesses be aware of?
Michael Burke: The Foreign Corrupt Practices Act is an anti-bribery statue that prohibits U.S. companies and U.S. persons from making bribes to foreign government officials for the purposes of securing a business advantage. A lot of the terms are broadly defined. “Bribe,” for instance, doesn’t just apply to cash. It’s the provision of anything of value, and the statute applies not just to the bribe itself but even to the offer as well.
Similarly, “foreign official” isn’t just limited to someone with a business card indicating that they work for the government. Many medical-technology companies selling abroad have found out that the doctors making a purchasing decisions in state-run foreign hospitals are considered government officials for FCPA purposes. And that industry is one where the Justice Department has stepped up scrutiny in recent years.
One thing companies of all sizes should keep in mind is that just as the FCPA applies to giants like Apple and Google, it also covers the small company in Georgia that is expanding overseas.
Where do companies most often get tripped up with regard to FCPA compliance when pursuing deals overseas?
First of all, companies should be aware that the law applies to companies within their supply chains and their third-party agents selling on their behalf, so auditing of their sourcing is a must, for a variety of reasons.
We also frequently see issues with regard to travel and entertainment. Hosting a foreign-government client — even paying for their airfare — is permissible provided that there is a business purpose for that entertainment, and provided that the level of spending is not over-the-top.
Where it gets dicey is when companies bolt on travel for the families of these officials, or book trips to places in the country that are unrelated to the U.S. company’s business. One firm, for instance, tacked a few days on at a high-end Las Vegas hotel after a factory visit. Lavish expenditures out of line with a company’s normal practices — business class tickets where your employees normally fly coach, for instance — will raise red flags with enforcement agencies.
What constitutes a bribe? It seems that what may be one man’s “greasing the skids” is another man’s illegal activity, and the opportunity for misunderstanding is compounded when doing business cross-culturally.
Traditionally people have this vision that an FCPA bribe is money in a briefcase, and that does still happen, but there are other items of value. We mentioned travel and lavish dinners, but it could also be the promise of hiring a family member for a prestigious internship, an exchange of privileged information or the promise of future deals — anything. But there is often clear evidence of intent or willful ignorance.
One debate is over how granular this should be. Generally, there is an understanding of a de minimus value, a threshold value under which an action wouldn’t be considered a bribe. See the pen example above.
But companies should steer clear of ideas like, “This is not illegal because everybody does it,” or that questionable practices are the “cost of doing business” in some places.
Additionally, international norms for bribery are becoming more clearly defined, driven in part by the FCPA’s adoption more than 20 years ago. The United Nations has a convention based on the U.S. law that has served as the template for statutes in other countries. The United Kingdom enacted a 2010 Bribery Act that has broader jurisdictional reach than the FCPA.
How well are companies, especially small ones, prepared for the implications of the FCPA?
I don’t think that FCPA is the radar screen for a lot of emerging companies. They may not think it needs to be, since they don’t sell to foreign governments, but if their supply chain originates in India, China or anywhere outside the U.S., they have exposure.
Every time a supply chain enters or exits a country, that’s an interaction or two with a customs officer, for instance. Depending on the product, it might need additional health or environmental approvals as well. That’s where logistics companies, among others, really have to pay attention, because if they end up paying inflated rates for what should be routine government services, that may well be an indication that bribery is at play.
Also, shippers have to understand what their third-party logistics providers are doing, and companies should keep watch over their entire value chain: The Justice Department looks closely at whether the principals in the relationship have exercised “reasonable oversight” of their agents. Investigating any anomalies as soon as they crop up is vital. You’re held accountable for not only what you know but what you should have known.
This sounds like it could easily scare companies away from doing business overseas, especially those without the resources to handle a major lawsuit or investigation. What would you say to reassure them, and how can they best prepare for compliance if/when they find themselves selling abroad?
Should American companies be concerned? Yes. They should not, however, view this as a bar to exporting overseas. It’s a very manageable requirement.
The first step is to have a sensible FCPA compliance policy that takes into account the specific conditions of their business. I’m not a big believer in “template” policies like the ones you can Google online. They’re not context-specific enough to be relevant, and plans will vary depending on the company’s size and exposure to international markets.
A few broad pointers are helpful, though. One key is setting what I call the “tone from the top,” where company executives lay out that bribery in any form will not be tolerated. Along with that, a person should be designated for FCPA compliance within the company. Employees in the field should be able to use common sense, but they should also have a line of communication to someone who can approve or deny requests. And in ambiguous circumstances, they should “paper it,” sending a memo to headquarters about why, for instance, the employee needs to host a relatively expensive banquet for potential Chinese buyers. That’s not a get-out-of-jail-free card, but it helps make your case that this is within the bounds of reason.
There is a major role for auditors and financial controls. They should beware of money that is directed to an unknown foreign account or of possible cash withdrawals. Multiple approvals might be needed for payments above a certain amount.
All in all, FCPA compliance is an area where an ounce of prevention is worth a pound of cure. You can avert problems, but if there is a problem, the existence of the policy itself is a mitigating factor if the Justice Department decides to penalize you. It is an investment in compliance, but like most such investments (and insurance policies) it goes a long way toward helping companies mitigate risk as they pursue global business.
Michael Burke is a partner in Arnall Golden Gregory’s Corporate and Securities Practice and a member of the firm’s International Business Team. His work includes counseling clients on compliance with the U.S. Foreign Corrupt Practices Act, U.S. export controls and economic sanctions programs, and U.S. anti-boycott regulations. He also authors the Irish Export Insights blog.
