By Foley & Lardner LLP | May 8th, 2015

Manufacturing Industry Advisor

By Jaime B. Guerrero and Nicholas E. Williams

So, we have covered the Foreign Corrupt Practices Act’s (“FCPA”) scope, but the FCPA anti-bribery provisions also contain certain exceptions and affirmative defenses. These exceptions and affirmative defenses attempt to carve out legitimate payments to foreign officials, so the FCPA does not unreasonably hamper international business. Be wary, however, because prosecutors narrowly interpret these exceptions and affirmative defenses. Moreover, as most FCPA cases settle, the prosecutor’s perspective will ultimately drive the settlement negotiations and the prosecutor may have a different view of a company’s payments to the foreign officials.

As an important point, these “exceptions and affirmative defenses” are really affirmative defenses. Simply put, if the government accuses a company or individual with violating the FCPA, the burden is on the defendant to prove one of the following exceptions or affirmative defenses apply.

The Waning Facilitating Payments Exception

This exception purports to exculpate business and individuals for making payments to foreign officials to prompt routine government action by a foreign official. The exception attempts to distinguish between payments made to expedite an inevitable process, on the one hand, and payments to influence a decision, on the other hand. But this exception has been interpreted so stringently by prosecutors that it has almost disappeared in practice. Moreover, a corporate policy that permits employees to pay facilitating payments is morally indefensible, as it would difficult to determine which facilitating payments are “legal.”

Accordingly, companies should prohibit facilitating payments, with one exception. Though not technically facilitating payments, payments made to foreign officials to prevent harm to employees have been acknowledged under this exception.

The Written Local Law Affirmative Defense

If a payment, gift, or promise to pay something of value was “lawful under the written laws and regulations of the foreign official’s” country, then such a payment does not violate the FCPA. For example, the payment of a registration fee, mandated by a municipality’s written regulations, would not violate the FCPA.

But beware, a custom is not the same as written laws and regulations. In other words, no matter how universally routine a payment is, if it is not in the foreign country’s written laws or regulations, this exception will not exculpate a company or individual from FCPA liability. Thus, to avoid FCPA liability under the written local law defense, be sure to request or locate written authority requiring any “mandatory” payment.

Read more

By Foley & Lardner LLP | January 5th, 2015

By Jonathan N. Halpern,  and 

Behind the Headlines

Jonathan N. Halpern

The December 23, 2014, announcement by the U.S. Department of Justice (DOJ) that Alstom, S.A., a French power and transportation company, pled guilty to two Foreign Corrupt Practices Act (FCPA) charges and agreed to pay $772 million in fines generated headlines for the record-breaking size of the fine and scope of Alstom’s scheme to pay bribes to officials in several countries, including the Middle East, Asia, and the Caribbean. Choices made by the prosecution team provide powerful instruction on what the DOJ expects public companies to do to prevent and detect FCPA violations and, emphatically, what not to do regarding their obligations when it comes to books and records and accounting controls. The prosecution illustrates that merely having FCPA policies and due diligence protocols — without effective enforcement — not only is insufficient protection, but may actually be used as evidence against the company.

Summary of the DOJ’s Charges

The DOJ alleged widespread payoffs, reliance on consultants as conduits to pay bribes, and an extensive, behind-the-scenes cover-up at Alstom. The Deputy Attorney General characterized the decade-long scheme as “astounding in its breadth, its brazenness and its worldwide consequences”: more than $75 million paid for $4 billion in projects that generated a profit of approximately $300 million. Yet the multinational conglomerate did not plead guilty to the anti-bribery provision of the FCPA statute. Rather, under the plea agreement, Alstom pled guilty to two counts of violating the FCPA’s accounting controls provisions: falsifying the company’s books and records, and failing to implement adequate internal controls.

Separately, Alstom’s Swiss subsidiary pled guilty to conspiracy to violate the anti-bribery provisions of the FCPA, and two U.S. subsidiaries entered into deferred prosecution agreements (in which they acknowledged they had conspired to violate the anti-bribery provisions of the FCPA). In addition, three company executives pled guilty to FCPA charges, a member of the Indonesian parliament was convicted of accepting bribes from Alstom, and one Alstom executive awaits trial.

Use of Consultants to Pay Bribes

At the heart of the scheme’s modus operandi, as Alstom acknowledged in the 41-page statement of facts, was the company and its subsidiaries’ extensive use of “consultants” to help win public projects. Alston conceded, however, that the consultants’ primary purpose was not to provide legitimate services for bidding on and executing projects, but to bribe government officials to obtain power and transportation contracts from state-owned agencies and related businesses.

For example, consultants were retained in Indonesia to pay bribes to a member of Parliament and to an executive at the state-owned electricity company agency that was awarding the contract. Similar arrangements with consultants retained to influence foreign officials in awarding public contracts, through bribe payments, were allegedly carried out in Saudi Arabia (as part of a joint venture), Egypt, Taiwan, and the Bahamas. The bribe payments came in the usual flavors, such as gifts and cash, as well as hiring family members and contributing to a charity associated with a foreign official — in this case, more than $2 million.

Read more

By Foley & Lardner LLP | May 5th, 2014

By Rebecca S. Bradley and Lisa M. Noller

A recent federal court decision raises concerns about the ability of companies to maintain privilege over materials generated in connection with internal investigations. The case, United States ex rel. Barko v. Halliburton Company et al., No. 1:05-CV-1276 (D.D.C. Mar. 6, 2014), involved allegations by a qui tam relator that his employer committed abuses in connection with government contracts for military support in Iraq. The relator sought to compel documents related to investigations into the same alleged misconduct performed by his employer pursuant to its Code of Business Conduct (COBC). The court ordered the company to produce the documents, reasoning they were not privileged because the investigators were not attorneys and the investigations were performed “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.” Prior to its ruling, the court inspected the requested investigation reports and deemed them “eye-openers” that revealed direct and circumstantial evidence of wrongdoing, reported to the company’s lawyers after an internal investigation.

The court described the company’s COBC investigative process and then declined to extend the reach of the attorney-client privilege over the investigation reports and related documents. Under the company’s established investigation protocol, when the company receives a tip of possible misconduct, its COBC Director, a non-lawyer, decides whether to investigate the matter and then directs non-attorney investigators to interview relevant personnel, review documents, obtain witness statements, and prepare a report, which is transmitted to the company’s law department. The court reasoned the investigations were undertaken pursuant to government regulations requiring internal control systems such as the company’s COBC program, as well as pursuant to corporate policy, rather than for the purpose of obtaining legal advice. Moreover, the court distinguished the COBC investigations from traditional Upjohn internal investigations conducted only after the company consults with outside counsel on how to proceed. In the investigation at issue – as in many internal investigations – the interviewed employees were never informed that the purpose of the interview was to assist the company in obtaining legal advice. The court believed the employees would not have inferred the legal nature of the inquiry because the interviewer was a non-attorney.

The court also refused to shelter the investigation documents from production under the work product doctrine, finding they were generated because “any responsible business organization would investigate allegations of fraud, waste, or abuse in its operations,” irrespective of the prospect of litigation. The fact that the investigation was conducted by non-attorney investigators also made it more difficult for the company to assert the documents were prepared in anticipation of litigation.

The Barko lesson is simple: if the purpose of an investigation is to obtain legal advice on how to proceed based on facts uncovered, then you must involve lawyers in the direction of the investigation. Health care providers often conduct internal investigations of reported fraud, abuse and other wrongdoing, and they often do so pursuant to a mandated compliance plan. Because health care providers are subject to HHS regulations requiring internal control systems, this decision applies to health care as much as to any other regulated industry. To avoid compelled disclosure of investigative documents and findings, the safest course is to have outside counsel undertake the investigation, interview witnesses and prepare any reports and analysis, as actions by in-house counsel are susceptible to a determination that they were performed in the ordinary course of business or for other non-litigation purposes.

Read more

About Foley & Lardner LLP

ANALYSIS: Making the FCPA "Reasonable"— Exceptions and Affirmative Defenses

USDOJ: Criminal Division News  
An error has occurred, which probably means the feed is down. Try again later.