In late 2011, the US Department of Justice (DoJ) announced that it would be issuing guidance on the US Foreign Corrupt Practices Act (FCPA). Such guidance was called for as early as 1988 by the US Congress, but at that time the stakeholder community did not see a need for it. The recent spike in FCPA enforcement has, however, caused many in the business community to reassess that view, and that view has been communicated to the Executive Branch. At the same time, the OECD Working Group on Bribery has encouraged the US enforcement authorities to provide more guidance. Under pressure on various fronts, including proponents of legislative reform, the DoJ finally acquiesced. Its late 2011 announcement drew excitement and high expectations, with the date of issuance seen in the FCPA community as an event akin only to a royal wedding. But the date of the event, as well as many other key aspects, has been left to speculation.
In recent months, the agency has been holding a series of informal meetings to gather input from the private sector and civil society (including non-government organizations) on issues of interest for the guidance. One of these meetings took place on April 24, 2012, in Washington, DC, where senior enforcement officials from the DoJ and the US Securities and Exchange Commission (SEC) held a discussion with members of the International Anti-Corruption Committee of the American Bar Association Section of International Law, including FCPA in-house and outside counsel, forensic investigative and due diligence firms, and others. The meeting was held under the Chatham House Rule, which does not permit identifying the specific identity or affiliation of speakers or participants. The report below has been drafted accordingly, without attribution of comments to specific individuals or institutions (hence the passive voice on many topics).
Based on the discussions, it appears that the guidance will be jointly issued by the DoJ and SEC. The guidance reportedly is actively being developed, and some preliminary decisions appear to have been made as to its likely format and content. No commitment has been made as to when the guidance will be issued, however. It also remains unclear whether the guidance will be developed through the notice and comment process for agency rulemaking under the Administrative Procedure Act.
A variety of issues were raised by attendees as potential topics for guidance, including:
- The intent (mens rea) standard to determine when an entity has criminally violated the FCPA
- The application of the corrupt intent element of the statute to small gifts or entertainment (such as a bottle of wine)
- The scope of the facilitating payments exception
- The definition of "instrumentality" in the statute (which informs in part who is a foreign official)
Other issues were discussed in some detail, as described below.
Disclosure of declinations/no action by enforcement authorities. Several participants urged the agencies to issue guidance regarding the types of cases that are not prosecuted, and lead to declinations or no action by the agencies. It was felt that such guidance would be informative to companies seeking information about what is expected with regard to their compliance programs and cooperation. Such guidance also could illustrate to companies, including companies based outside the United States which may be less familiar with the US FCPA enforcement process, how voluntary disclosures do not always lead to enforcement actions. Due to issues relating to privacy and confidentiality of government FCPA investigations, it is unclear that the details regarding specific declinations or terminated investigations will be addressed. At a minimum, it appears that the guidance may include a discussion of hypothetical case studies, including potentially examples of cases that would not lead to enforcement action. It was noted that, where an SEC reporting company has publicly disclosed the existence of an investigation, more information may be available regarding the conclusion of an investigation.
Corporate compliance programs. The need to address the topic of FCPA compliance programs appeared well recognized by participants, though there was little agreement on how the issue should be addressed. Some skepticism was expressed regarding the possibility of a "safe harbor" for effective FCPA compliance programs, for example for a company with a rogue employee. One view was that the "rogue employee" scenario would be best addressed through continued exercise of prosecutorial discretion not to prosecute the company under generally-applicable enforcement policies (rather than an FCPA-specific enforcement policy). From the enforcement perspective, another concern was that a compliance program safe harbor would make it difficult for the agencies to weigh other factors that they currently weigh in making charging and penalty decisions.
Guidance on internal controls. In light of the collaboration of the SEC in preparing the guidance, the agencies were urged by participants to clarify what constitute "internal controls" which issuers that file reports with the SEC are required to implement. At present, in the FCPA context, issuers are left to infer what may constitute an FCPA internal control by examining which conduct is criticized in FCPA internal controls enforcement actions. While more detailed examples of internal controls in enforcement actions are useful, general guidance on the meaning of the term in the FCPA context was still urged. Unlike enforcement and sentencing standards which seek to encourage but not mandate FCPA compliance programs, the accounting requirements impose binding legal obligations on issuers to establish internal controls. Accordingly, even if compliance programs are addressed, there is a separate need to address the internal controls requirements.
Voluntary disclosures. Several comments concerned the need for guidance on the types of situations that are appropriate for voluntary disclosures of FCPA matters to the enforcement authorities, as well as the need for standards for what credit is given for such disclosures. The need for predictability in this area was a consistent theme in comments made to the agencies. Certain information on credit for disclosures in the resolution of DoJ enforcement actions, and the potential for FCPA units at DoJ and SEC to ensure consistency of credit, were noted. Participants urged the agencies to go beyond these practices and to provide guidance that can more reliably inform company decisions about disclosure.
Compliance monitors. There was a suggestion that some companies had not yet realized that a number of recent significant FCPA actions were resolved without corporate compliance monitors. As a result, this may be an issue in need of being addressed in guidance.
Third-party due diligence. Commenters suggested that the guidance address the factors in tiering third parties into high, medium, and low risk (as well as identifying other procedures that are core components of FCPA compliance programs). In addition, it was suggested that it would be useful to clarify how far out into distribution channels companies needed to go with their due diligence programs. Several comments also mentioned a need for guidance on due diligence (and FCPA compliance more broadly) in joint ventures.
Employee discipline. Guidance was suggested on the topic of employee discipline, for example in relation to when enforcement agencies would expect termination of an employee, versus other actions, in light of variant cultural practices and local labor restrictions.
Data privacy. A comment was offered about the need for the agencies to articulate how they foreign data privacy restrictions are taken into account in the enforcement process, whether through redactions of identifying information, disclosure to a foreign authority who provides information to US authorities, or other measures taken to comply with foreign restrictions while cooperating with US investigations.
Debarment/exclusion. Guidance on how potential collateral consequences, such as debarment or exclusion, are weighed by enforcement authorities when resolving FCPA matters.
Steptoe is also working with other stakeholder groups interested in the guidance. As all recognize, the guidance represents an important opportunity to bring greater clarity to both the law and the enforcement regime. We will continue to monitor the discussions regarding the content of the forthcoming guidance, as well as information about its expected timing and form, and let you know as we secure additional information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.