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The Foreign Corrupt Practices Act wasenacted in 1977 in response to a growingnumber of companies that admitted tomaking “questionable payments” to bothforeign and domestic entities.

The Foreign Corrupt Practices Act has twoprimary components: the anti-bribery provisions; and

books and records provisions.

includes internal controls

The Foreign Corrupt Practices Act prohibits: Any person or entity from using jurisdictional means

to corruptly make a payment or give anything ofvalue to a foreign governmental official for thepurpose of obtaining or retaining business. See 15U.S.C. §§ 78dd-1(a) & 78dd-2(a).

‣ The FCPA applies to:

‣ Any publicly traded company that is registered with the SEC. See 15U.S.C. § 78dd-1.

‣ All officers, directors, agents, employees, and shareholders of publiclytraded companies. See 15 U.S.C. § 78dd-1(a).

‣ Any individual who is a citizen, national or resident of the United States.See 15 U.S.C. § 78dd-2(h)(1)(A).

‣ Any corporation, partnership, association, joint-stock company, businesstrust, unincorporated organization or sole proprietorship which has itsprincipal place of business in the United States or which is organizedunder the laws of a State of the United States or a territory, possession orcommonwealth of the United States. See 15 U.S.C. § 78dd-2(h)(1)(B).

• This includes all officers, directors, employees, agents, stockholders orrepresentatives of an entity. See 15 U.S.C. § 78dd-2(a).

‣ The 1998 amendments expanded the FCPA to allow for the prosecutionof any person who takes any act in furtherance of a corrupt paymentwhile in the territory of the United States. See 15 U.S.C. § 78dd-3(a).

Using “jurisdictional means” is making use ofthe mails or any means or instrumentality ofinterstate commerce in furtherance of acorrupt act. See 15 U.S.C. §§ 78dd-1(a) &78dd-2(a). There is no requirement the corrupt act make use of

the U.S. mails or other means or instrumentalities ofinterstate commerce.

The person or entity making or authorizingthe payment must have a corrupt intent.• The payment must be intended to induce the

recipient to misuse his or her official position todirect business wrongfully to the payer or to anyother person. See H.R. Rep. No 95-640, at 8 (1977); S.

Rep. No. 95-114, at 10-11 (1977), as reprinted in 1977U.S.C.C.A.N. 4098, 4108; see also United States v. Kay, 513F.3d 461, 463 (5th Cir. 2008).

The offer, promise or authorization of acorrupt payment constitutes a violation of thestatute. See 15 U.S.C. §§ 78dd-1(a) & 78dd-2(a).• If the payment is intended to influence any act or decision

of a foreign official in his or her official capacity, to obtainan improper advantage or to induce a foreign official to usehis or her influence improperly to affect or influence any actor decision, it is a violation and can be prosecuted.

The FCPA prohibits paying, offering,promising to pay (or authorizing to pay oroffer) money or anything of value. See 15U.S.C. §§ 78dd-1(a) & 78dd-2(a).• The DOJ and SEC continue to expand this definition

to include more items that are prohibited. A fewexamples of “items of value” that were determinedto constitute violations of the FCPA: charitable donations;

loans with favorable terms;

transportation of household goods; and

college scholarships.

“Facilitating payments” are currentlypermitted under the FCPA. Any facilitating or expediting payment to a foreign

official, political party or party official for the purposeof expediting or securing the performance of routinegovernmental action is permitted. See 15 U.S.C. §§78dd-1(b) & 78dd-2(b).

‣ The following actions are permissible under theFCPA. See 15 U.S.C. §§ 78dd-1(f)(3) & 78dd-2(h)(4). Obtaining permits, licenses or other official documents to

qualify a person to do business in a country.

• Processing governmental papers, such as visas and workorders.

• Providing police protection, mail pick-up and delivery,scheduling inspections associated with contractperformance or inspections related to the transport ofgoods across the country.

• Providing phone service, power and water supply,loading/unloading cargo or protecting perishableproducts or commodities from deterioration.

A "foreign official" is defined as any officer oremployee of a foreign government, a publicinternational organization, or any departmentor agency thereof, or any person acting in anofficial capacity, including public officials. See15 U.S.C. §§ 78dd-1(f)(1)(A) & 78dd-2(h)(2)(A).• The definition of foreign official is very broad and

encompasses political parties, party officials, andeven candidates for foreign political office.

The FCPA prohibits payments made in orderto assist the company in obtaining orretaining business for or with or directingbusiness to any person. See 15 U.S.C. §§78dd-1(a) & 78dd-2(a).• The term "obtaining or retaining business" is

interpreted very broadly, and encompasses morethan the mere award or renewal of a contract.

• Please note the business to be obtained or retaineddoes not need to be with a foreign government orforeign government instrumentality.

‣ Examples of violations include:

• Actions taken by a company to reduce its tax burdenwas a violation as the company saved valuableresources which permitted it to submit morecompetitive bids, thereby creating an unfair advantage.

United States v. Kay, 359 F.3d 738, 739 (5th Cir.2004).

• Money paid to influence the repeal of a governmentdecree was a violation as a potential future advantagecould be gained. See SEC v. Monsanto Company, CaseNo. 1:05CV00014, (U.S.D.C., D.D.C) (filed January 6,2005).

The FCPA prohibits corrupt payments throughintermediaries. It is unlawful to make apayment to a third party knowing that all or aportion of the payment will go directly orindirectly to a foreign official. See 15 U.S.C.§§ 78dd-1(a)(3) & 78dd-2(a)(3). Intermediaries may include joint venture partners,

agents or representatives.

The term “knowing” includes consciousdisregard, willful blindness, and deliberateignorance. See 15 U.S.C. §§ 78dd-1(f)(2) &78dd-2(h)(3).

Due diligence Be cautious when forming business relationships; and

Investigate potential foreign representatives and jointventure partners. Potential inquires may include:

Does the person have personal or professional ties to thegovernment;

Who are their clients;

What is their reputation with their clients; and

What is their reputation with the U.S. Embassy orConsulate, local bankers and other business associates.

A country with a history of violations;

An industry with a history of violations;

A refusal by an agent or representative tocertify compliance;

An agent that has family or business ties to agovernmental official;

The agent or representative insists his or heridentity not be disclosed; and

The potential foreign governmental officialrecommends the agent.

The agent lacks the staff to perform his orher services;

The agent claims a particular amount ofmoney is needed to get the business or makethe arrangements;

The size of the payment or commission issubstantially above the going rate; and

The payment is made through indirectmeans.

‣ Corporations can be fined up to $2,000,000 for a singleviolation of the FCPA. See 15 U.S.C. §§ 78dd-2(g)(1) &78ff(c)(1).

Under the Alternative Fines Act, the actual fine may be up totwice the benefit that the defendant sought to obtain by makingthe corrupt payment.

‣ Officers, directors, employees or agents acting on behalf ofcompanies who willfully violate the bribery provisions can befined up to $100,000, imprisoned for up to five years orboth. See 15 U.S.C. §§ 78dd-2(g)(2) & 78ff(c)(2).

Whenever a fine is imposed upon an officer, director,employee, agent or stockholder of a company, the fine maynot be paid, directly or indirectly, by the company. See 15U.S.C. §§ 78dd-2(g)(3) & 78ff(c)(3).

‣ The Attorney General may bring a civil action against anycompany or any officer, director, employee, or agent of acompany, or stockholder acting on behalf of the company,who violates the anti-bribery provisions. A penalty of upto $10,000 may be imposed for a single violation. See 15U.S.C. § 78dd-2(g).

‣ The Attorney General can also seek injunctive relief. See15 U.S.C. § 78dd-2(d).

‣ Prohibition from doing business with the FederalGovernment.

‣ Actions by foreign and/or state governments.

‣ Private actions by competitors.

The general federal five-year statute of limitations applies to FCPAprosecutions. See 18 U.S.C. §3282.

***However, the government routinely charges companies andindividuals with conspiracy to violate the FCPA in place of or inaddition to substantive FCPA charges, which the government can useto stretch the statute of limitations period. For conspiracy offenses,the government would need to prove that an act in furtherance ofthe conspiracy occurred during the limitations period. See, e.g.,United States v. Milstein, 401 F.3d 53, 71 (2d Cir. 2005).

Tolling Agreements

‣ The payment, gift, offer or promise of anything ofvalue was lawful under the written laws of theforeign official’s country; or

‣ The payment, gift, offer or promise of value that wasmade was reasonable and a bone fide expenditure,such as travel and lodging expenses, incurred by aforeign official and was directly related to:

the promotion, demonstration or explanation ofproducts or services; or

the execution of a contract with a foreign governmentor agency. See 15 U.S.C. §§ 78dd-1(c) & 78dd-2(c).

‣ The Department of Justice and Securities and Exchange Commission prosecuted more cases between 2005-2010 than it did from 1977-2005.

In December of 2008, Siemens AG resolved an FCPA dispute by agreeingto pay $1.6 billion to the Department of Justice, SEC, and the MunichPublic Prosecutor’s Office (approximately $800 million was paid to U.S.authorities).

In February of 2009, Kellogg Brown & Root, Inc. (“KBR”) agreed to pay$579 million to regulators.

In June of 2010, Technip settled with the SEC and DOJ for a total of$338 million.

In July of 2010, Snamprogetti Netherlands B.V. and its parent companySaipem agreed to pay $365 million to resolve FCPA-related charges.Snamprogetti, KBR, Technip, and JGC of Japan were part of a four-company joint venture called TSKJ. The combined settlement, $1.28billion, is the largest paid to date to the United States from an FCPAviolation.

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5

10

15

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25

30

35

2004 2005 2006 2007 2008 2009 2010 2011

Prosecutions Against Companies

Department of

Justice

SEC

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10

20

30

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50

60

2004 2005 2006 2007 2008 2009 2010 2011

Individual Criminal Prosecutions

Department of

Justice

“The prospect of significantprison sentences forindividuals should make itclear to every corporateexecutive, every boardmember, and every salesagent that we will seek tohold you accountable forFCPA violations.”

The U.S. government assessed approximately $1.7 billion dollars in finesduring 2010.

In January of 2010, the U.S. government charged 22 individuals with FCPAviolations, which is the largest single investigation and prosecution againstindividuals in the 34-plus year history of the FCPA.

In March of 2010, NEXUS Technologies became the first company to ceaseoperations in the United States as a result of FCPA prosecution.

In April of 2010, Charles Jumet was sentenced to 87 months in prison forbribing Panamanian officials to secure maritime contracts for PortsEngineering Consultants Corporation, and making a false statement tofederal officials. In addition to his prison sentence, Mr. Jumet was ordered topay a $15,000 fine and will serve three years of supervised release followinghis prison term. This is the longest prison term imposed to date against anindividual for violating the FCPA.

Settlements:

Johnson & Johnson;

Tyson Foods;

Maxwell Technologies;

IBM;

Ball Corporation; and

Rockwell Automation.

Jeffrey Tesler agreed to forfeit $148 million for his role in the TSKJ consortium.

Albert Jack Stanley sentenced to 84 months in prison and will pay $10.8 million in restitution.

• Avery Dennison Corp. (adhesives and consumer products)

• Nature’s Sunshine Products, Inc. (nutritional supplements)

• Gerald and Patricia Green (entertainment executives)

• Control Components Inc. (valves)

• Smith & Wesson (firearms)

• Avon (cosmetics)

• Johnson & Johnson (pharmaceutical products)

• Tyson Foods (food industry)

U.S. Entity

Subsidiary A

Subsidiary B

Books and records ofSubsidiary B are incorporatedinto books and records of U.S.Entity for purposes offinancial reporting.

Is the U.S. company liable under the FCPA?

Subsidiary B engages an agent who makes improper payments partially facilitated by Subsidiary B's inflated commission payments.

Comverse Technology Inc. (telecommunications)

Total settlement amount was $2.8 million(A criminal fine of $1.2 million was paid inconnection with a DOJ non-prosecutionagreement; $1.6 million in disgorgementand prejudgment interest was paid to settlethe SEC complaint).

DOJ Prosecutions

Self-reporting

Government Initiated

The Department of Justice recommends self-reporting. Credit can be given to companies that report violations

and cooperate fully with the DOJ.

Siemens

Helmerich & Payne

DOJ can offer guidance on the issues that it wishes to investigate.

Creates an open dialogue with the DOJ regarding investigation and remediation.

The Dodd-Frank Wall Street Reform and Consumer Protection Actrewards whistleblowers who assist the SEC in investigating securitiesviolations, including violations of the FCPA.

• The whistleblower incentive program allows a whistleblower, whocontributes "original information" that leads to recoveries of monetarysanctions of more than $1 million in any criminal or civil enforcementaction under the securities laws by the SEC, the US Justice Department,another federal agency, a self-regulatory organization, or a stateattorney general, a bounty of between 10 and 30 percent of therecovery.

• For example, a whistleblower in the KBR matter could have received between$57.9 and $173.7 million based on the combined DOJ and SEC settlementamounts paid by the company.

Prosecutions will continue to increase. The DOJ reportedly has over 160 open FCPA

investigations.

The DOJ is devoting additional resources aswell as utilizing specialized task forces todeter individuals and companies fromviolating the FCPA.

‣ Educate and communicate with all employees,agents, and representatives the importance offollowing the guidelines set forth in the FCPA;

‣ Implement an FCPA Compliance Program into yourbusiness; and

‣ Use due diligence when forming partnerships orrelationships.

A compliance program that punishes violations but rewards ethical behavior;

A strong whistle-blower program (and protection) through a hotline or other mechanism;

Significant and direct reporting by the FCPA Compliance Officer to the Board of Directors;

A compliance program that evolves with change; and

A compliance program that’s open and visible.

• The Federal Sentencing Guidelines Manual states: “… the priordiligence of an organization in seeking to prevent and detectcriminal conduct has a direct bearing on the appropriate penaltiesand probation terms for the organization if it is convicted andsentenced for a criminal offense.”

• The U.S. Attorney’s Manual lists "the existence and effectivenessof the corporation’s pre-existing compliance program," and "thecorporation’s remedial actions, including any efforts to implementan effective corporate compliance program or to improve anexisting one," among the factors relevant to whether anorganization should be charged.

Looper Reed & McGraw, P.C. Joshua R. Walker

(713) 986-7138

jwalker@lrmlaw.com

The Department of Justice Foreign Corrupt Practices Act Opinion Procedure

http://www.usdoj.gov/criminal/fraud/fcpa/

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