On 14 November 2012, the criminal division of the United States Department of Justice ("DOJ") and the enforcement division of the US Securities and Exchange Commission ("SEC") published a guide intended to provide information for businesses and individuals regarding the Foreign Corrupt Practices Act ("FCPA") entitled: FCPA: A Resource Guide of the U.S. Foreign Corrupt Practices Act (the "Guide"). The Guide reviews both the DOJ and the SEC's guiding principles with respect to enforcement. While the guide does not represent a significant departure from the DOJ and SEC's prior positions, it does provide several clarifications, and useful hypothetical case studies.
GUIDANCE ON INTERNAL COMPLIANCE POLICIES AND PROCEDURE
Any company operating abroad should have in place an adequate compliance program, with specific policies and procedures aimed at preventing corruption and dealing with it if it occurs. The Guide is a very helpful tool with respect to establishing an effective compliance program. In particular, it refers to ten components of an effective compliance program:
- Commitment from senior management to anti-corruption and ethical business practices, and a clearly articulated policy against corruption;
- A code of conduct and compliance policies and procedures that are clear, concise and accessible in the local language (if need be), and which will be tailored according the level of risk assessed. Policies should deal with use of third parties, gifts, travel and entertainment expenses, charitable and political donations and facilitation payments;
- Oversight, autonomy, and resources: Senior executive(s) should be assigned the task of oversight and implementation of the compliance programs and be give autonomy from management and sufficient resources;
- Risk assessment mechanism should be in place to identify the transactions where there is a higher risk of corruptions and apply the necessary procedures accordingly;
- Training and continuing advice: Policies and procedure need to be communicated to employees and agents;
- Incentives and disciplinary measures in relation to both breaches and adherence to company anti-bribery policies;
- Third party due diligence and payments: third parties must be properly scrutinized in accordance with the identified level of risk;
- Confidential reporting in internal investigations (whistleblowing);
- Continuous improvement: periodic testing and review; and
- Mergers and acquisitions: preacquisition due diligence and postacquisition integration.
The Guide states that a compliance program (or the lack thereof) may influence whether or not charges should be resolved through a deferred prosecution agreement ("DPA") or a non-prosecution agreement ("NPA"), as well as the appropriate length of any NPA or DPA. It will also impact the amount of a fine. In some cases, a robust compliance program will prevent charges from being brought all together.
The Guide also states that effective compliance programs are tailored to the company's specific business and to the risks associated with that business; they are dynamic and evolve as the business and the markets change. The DOJ and SEC do not have formulaic requirements regarding compliance programs. Rather, they employ a common-sense and pragmatic approach to evaluating compliance programs, making inquiries relating to three basic questions:
- is the company's compliance program well-designed?;
- is it being applied in good faith?; and
- does it work?
According to the Guide, the DOJ and SEC recognize that a company's failure to prevent every single violation of the FCPA does not necessarily mean that a particular company's compliance program was not generally effective. DOJ and SEC understand that "no compliance program can ever prevent all criminal activity by a corporation's employees", and they do not hold companies to a standard of perfection.
The Guide also provides useful information on the different types of resolutions that are possible with the DOJ and the SEC, including injunctive actions to compel a party to comply with the FCPA going forward. In addition to going over the characteristics of a DPA, which consists of the DOJ filing a charging document with the Court, but simultaneously requesting that the prosecution be deferred (or postponed) for the purpose of allowing the company to demonstrate its good conduct, the guide discusses the characteristics of a NPA, where the DOJ maintains the right to file charges but refrains from doing so to allow the company to demonstrate its good conduct during the term of the NPA.
WHAT DOES DOJ AND SEC CONSIDER WHEN DECIDING WHETHER TO OPEN AN INVESTIGATION OR BRING CHARGES?
The Guide reiterates that whether and how the DOJ will commence, decline, or otherwise resolve an FCPA matter is guided by the Principles of Federal Prosecution in the case of individuals, and the Principle of Federal Prosecution of Business Organizations in the case of companies.
Nine factors are considered in conducting an investigation and determining whether to charge a corporation, including the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, as well as the existence and effectiveness of the corporation's pre-existing compliance program. This further emphasises the need of an adequate compliance program. We also note that a robust compliance program is a means of establishing the due diligence defence under the UK Bribery Act in relation to the offence of an organization failing to prevent bribery by associated parties.
The Guide clearly states that both the DOJ and the SEC place a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA matters. Specifically, consideration will be given to whether the company made a voluntary and timely disclosure as well as the company's willingness to provide relevant information evidence and identify relevant actors inside and outside the company, including senior executives. This can prevent charges being brought or allow for more favourable settlement terms. As with the recent guidance issued by the Serious Fraud Office in relation to the UK Bribery Act, however, self-reporting is no guarantee against prosecution.
WHO CAN BE PROSECUTED?
The Guide reviews who is covered by the bribery provision of the FCPA, which includes any company with a class of securities listed on a US securities exchange, or a company with a class of securities quoted in the overthe- counter market in the US and required to file periodic reports with the SEC. It adds that foreign companies with American Depository Receipts that are listed on a US exchange are also issuers and captured by the FCPA. Officers, directors, employees, agents or stockholders acting on behalf of an issuer (whether US or foreign nationals) can also be prosecuted under the FCPA.
REASONABLE EXPENDITURES (HOSPITALITY)
The Guide reiterates that the FCPA allows companies to provide reasonable and bona fide travel and lodging expenses to a foreign official, and it is an affirmative defense where expenses are directly related to the promotion, demonstration, or explanation of a company's products or services, or are related to a company's execution or performance of a contract with a foreign government or agency.
FACILITATING PAYMENTS
The Guide also provides some clarification with respect to facilitating payments. The FCPA's bribery prohibition contains a narrow exception for "facilitating or expediting payments" made in furtherance of routine governmental action. However, a facilitation payment will not include acts that are within an official's discretion or that would constitute misuse of an official's office. Thus, paying an official a small amount to have the power turned on at a factory might be a facilitating payment; but paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not be a facilitating payment. Note that while there is a similar exception under Canadian law, there is no such exception under the UK Bribery Act.
WHAT CANADIAN BUSINESSES NEED TO KNOW
The threat of prosecution of a Canadian company by the DOJ or SEC is real. The Guide provides an excellent framework around which to build a robust internal compliance program that can curb corruption, prevent charges from being brought or allow your organization to negotiate a more favourable resolution. If applied, the policies and procedures discussed in the Guide also offer some protection against charges from other enforcement authorities around the world, including in Canada.
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