Justice Dept. Issues Guidance on Foreign Bribes

WASHINGTON — With billions of dollars in potential fines and foreign investment in the balance, the Justice Department and the Securities and Exchange Commission on Wednesday released long-awaited guidance on how prosecutors interpret and enforce a federal anticorruption law that bans American businesses from bribing officials overseas.

The 120-page “resource guide” to the Foreign Corrupt Practices Act lays out the government’s understanding of and standard practices for the 1977 law. The statute sat largely dormant for decades, but a recent explosion of enforcement has struck terror into corporate boardrooms, leading to large fees for compliance lawyers and enormous fines and settlements paid to the government.

The detailed guidance — including numerous case studies illustrating what would and would not be considered a violation of the law — is particularly important because cases of foreign corrupt practices rarely get adjudicated. Corporations are generally inclined to settle potential cases without a trial because being indicted can cripple a business.

As a result, judges rarely weigh in on whether prosecutors’ interpretation of the statute in ambiguous scenarios — such as when an employee of a state-owned enterprise, like a utility, should be considered a “foreign official” and therefore covered by the law — is accurate.

The guide — signed by Lanny A. Breuer, the assistant attorney general for the Justice Department’s criminal division, and Robert S. Khuzami, the director of enforcement for the S.E.C. — lays out a series of factors in considering who counts as a foreign official. Among the factors, for example, is whether a foreign government controls an entity, like a utility, or has only a minority stake in it.

It also discusses gift-giving at length, and addresses when gifts to an overseas charity — or travel and entertainment provided to foreign officials who may be considering issuing a contract to a business — amount to a bribe.

For example, the guidance says that it would not violate the statute if a company provided foreign officials, like employees of a state-owned electricity commission, promotional T-shirts at a trade show, picked up a bar tab or bought “a moderately priced crystal vase” as a wedding gift. There would also be no violation if the company paid for the foreign visitors’ travel to a city in the United States where the company has facilities, including taking them to a baseball game or the theater.

However, it says, it would violate the law to pay for foreign officials and their spouses to travel to a city like Las Vegas or Paris if the company has no significant facilities there. That would display a “corrupt intent” to curry favor with the officials because “the trip does not appear to be designed for any legitimate business purpose” and “is extravagant.”

    “The fight against corruption is a law enforcement priority of the United States,” Mr. Breuer said in a statement. Enforcement of the statute “is critical to protecting the integrity of markets for American companies doing business abroad, and we will continue to make clear that bribing foreign officials is not an acceptable shortcut.”

Mr. Khuzami added: “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.” 

Paul E. Pelletier, a former Justice Department prosecutor who worked on Foreign Corrupt Practices Act investigations, said the guidance was unlikely to be “groundbreaking” for lawyers who already specialize in the law in terms of “providing bright lines that don’t already exist,” but would be “important and useful” for in-house lawyers at companies.

“I think it’s important because people want it and it provides one-stop shopping,” he said. “It’s going to give us good boundaries as to what the government’s present view is as to certain issues, and that’s always good and helpful. And it’s going to raise the profile of the Foreign Corrupt Practices Act even more.”

Congress enacted the Foreign Corrupt Practices Act as part of a series of reforms after the Watergate scandal. For its first few decades, prosecutors rarely invoked the statute. But in recent years, enforcement has soared, from just two actions in 2004 to 48 in 2010.

The change dates to the collapse of Enron a decade ago. It led to tougher financial laws, like requiring top executives at publicly traded companies to certify that their firms’ books were accurate, which in turn forced them to pay closer attention to payments made overseas. The 2010 Dodd-Frank law further ratcheted up pressure by giving corporate whistle-blowers a financial incentive to report violations.

Against that backdrop, beginning with the Justice Department in the George W. Bush administration, prosecutors began developing more expansive theories about the type of graft that the statute covered. The department and the S.E.C. also began driving up fines by requiring companies to disgorge profits as a condition of settling cases without an indictment, driving up fines to record levels, including $800 million paid by Siemens in 2008.

Businesses have called for greater clarity, complaining that the law is being stretched beyond its intent and that it is not clear what conduct is now considered off limits; the guidance is expected to be closely analyzed by corporate lawyers who help firms comply with the law and respond when a violation is uncovered.

Article source: http://www.nytimes.com/2012/11/15/business/justice-dept-issues-guidance-on-foreign-bribes.html?partner=rss&emc=rss