United States: Focus on Foreign Corrupt Practices Act Enforcement

Although there has been a "changing of the guard" in the Fraud Section of the Criminal Division of United States Department of Justice ("DOJ"), the following survey of cases indicates that Foreign Corrupt Practices Act ("FCPA") cases remain a high priority. Specifically, over the past six months, DOJ and the U.S. Securities and Exchange Commission ("SEC") have announced five FCPA cases with penalties ranging from $450,000 to $13 million. Considering these recent results, companies should redouble their efforts to ensure that FCPA considerations are incorporated into an overall compliance program. Further, companies should ensure that FCPA violations, when discovered, are adequately addressed.

By way of background, the FCPA generally prohibits American individuals and companies from making illicit payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also requires that U.S. publicly traded companies keep corporate records in a way so as to minimize the likelihood of "off the book" payments. As enforced by the DOJ and the SEC, the FCPA can result in criminal penalties up to $2 million per offense and civil fines up to $10,000 per offense for companies. Individuals who violate the FCPA are subject to criminal penalties of not more than $100,000 per offense and up to five years in prison, and civil fines of up to $10,000 per offense. The following recent cases demonstrate that the DOJ and the SEC enforcing the FCPA to the fullest extent of the law.

Diagnostic Products Corporation: $4.8 million (May 2005): Diagnostic Products Corporation ("DPC") and its wholly owned Chinese subsidiary, DPC (Tianjin) Co. Ltd. ("DPC Tianjin") agreed to resolve its potential liability with the SEC and DOJ regarding violations of the FCPA. DPC reached an agreement with the SEC to disgorge $2.8 million in net profit earned in China for the period of its alleged misconduct, plus prejudgment interest. DPC Tianjin separately pled guilty to DOJ charges and agreed to pay an additional criminal penalty of $2 million. DPC, through DPC Tianjin, allegedly made illicit payments of approximately $1.6 million to doctors and laboratory staff in China to induce them to purchase DPC products.

Micrus Corporation: $450,000 (March 2005): Micrus Corporation ("Micrus") agreed to resolve its criminal liability associated with potential violations of the FCPA by paying $450,000 in penalties to the United States. Micrus is a privately held company based in California that develops and sells medical devices. Through its officers and agents, the company allegedly paid more than $105,000 to doctors in France, Turkey, Spain and Germany to induce them to purchase its medical devices.

Titan Corporation: $13 million (March 2005): The Titan Corporation ("Titan") pled guilty to violating the FCPA and agreed to pay a criminal fine of $13 million. Titan is a California-based military intelligence and communications company. It reportedly paid more than $2 million in illicit payments to officials in the African nation of Benin towards the election campaign of Benin’s then-incumbent President, in exchange for preferential treatment for projects in Benin.

Monsanto Company: $1 million (January 2005): Monsanto Company ("Monsanto") agreed to pay a penalty of $1 million to the United States for violating the FCPA. Monsanto is a Missouri-based public company and global producer of technology-based solutions and agricultural products. It reportedly paid $50,000 to a senior Indonesian environment official to "incentivize" him to repeal an environmental law. The law required companies to conduct an environmental impact study before the government would authorize the cultivation of genetically modified crops.

InVision Technologies: $800,000 (December 2004): InVision Technologies, Inc. ("InVision") agreed to pay a penalty of $800,000 to the United States for violating the FCPA. InVision is a California-based public company that sells airport security screening products. Investigations by the DOJ and the SEC revealed that InVision was aware that its agents and distributors in Thailand, China and the Philippines had paid or offered to pay money to foreign officials to increase the sales of its products.

While enforcement actions are on the rise, these cases result from familiar fact patterns that have led to FCPA liability for other companies in the past. For example, the DPC, Micrus, and InVision cases involve FCPA liability incurred by foreign sales agents of U.S. parent companies. The Titan case involved an FCPA violation that was discovered during merger and acquisition due diligence, while the Monsanto case highlights how FCPA violations occur in non-transactional scenarios. Considering these scenarios, companies must properly vet and screen foreign sales representatives and commercial agents before they are engaged to identify and address FCPA red flags. Further, an FCPA review must be included in any merger or acquisition when international sales and transactions are involved. Finally, companies must have compliance plans in place and provide adequate training so that not only transactional FCPA issues, but regulatory issues as well are addressed.

This article is presented for informational purposes only and is not intended to constitute legal advice.