Foreign Corrupt Practices Act

New York State Bar AssociationAnd

American Bar AssociationApril 1, 2014

Waldorf Astoria Hotel N.Y.C.Presentation By Carole Basri

©Basri 2014

Carole Basri

What is the Foreign Corrupt Act (FCPA)?

Enacted in 1977, the FCPA makes it a crime for an American Company to bribe or have others bribe on its behalf, foreign officials in an effort to win or retain business.

Carole Basri

Under the FCPA, it’s a crime to do the following:

• Pay a bribe;• Offer to make a bribe; or• Authorize a payment to make a bribe.

Carole Basri

The FCP covers payments to the following:

• Government employees;• Political parties;• Party officials;• Candidates;• Employees of state owned enterprises; or• Employee of public international

organizations, i.e. UN, IMF, World Bank.

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What is “anything of value”?

“Anything of value” could be “anything” given “corruptly” or for the “evil motive or purpose”

of inducing “the recipient to misuse his/her official position in

order to wrongfully” obtain business.

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BUT Some Payments are OKAY!

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Three Payment Exceptions under the FCPA:

• Grease payments;• Reasonable and bona fide entertainment

expenses; and • Defense against prosecution payments.

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Grease payments are allowed.Grease payments are to “expedite or …

secure…a routine governmental action”.Examples of grease payments are payment for:

Obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country;

Processing governmental papers, such as visas and work orders;

Providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit or goods across country;

Providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or

Actions of a similar nature.

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Critical Point

The payment must be for a “routine governmental action.” This would never cover payments to influence: “Any decision by a foreign official

whether, or on what terms, to award new business to or to continue business with a particular party”

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Reasonable and bona fide entertainment expenses are allowed.

This includes “travel and lodging expenses” for foreign officials provided that the expenses are directly related to:• The promotion, demonstration, or

explanation of products or services; or • The execution or performance of a

contract with a foreign government of agency thereof.

Carole Basri

Defense against prosecution payments are allowed.

This only applies if the payment are permitted under the laws of the foreign country. This is rare.

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Caution!

The biggest risk under the FCPA is not that American employees will pay bribes, but that foreign business consultants and/or joint venture partners will.

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Remember!

Ignorance is not a defense if you should have known and did not ask.

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Standard precautions in hiring foreign agents or participating in joint ventures include:

1. Due diligence checks on agents;2. Inserting standard clauses in

contracts; and3. Setting up “red flags” to provide

internal controls in accounting.

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1. Due Diligence Checks on Agents

Due Diligence checks on agents should include:• Background checks;• Investigating family and business ties

with government officials;• Inquiring about agents at U.S. Embassy,

State Department and Commerce Department.

Carole Basri

2. Insert Standard Clauses in Contracts

Standard contracts clauses with agents and joint ventures should include representations that will comply with the FCPA

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3. Set up “Red Flags” to Provide internal Controls

One you hire and agent, look for ‘red flags” including:• Lack of standard invoices;• Bank accounts in a third country;• Check drawn to cash;• Unusual bonuses;• Rumors about kickbacks or bribes in the company;• Lack of internal controls;• Country in questions has traditionally had corruption

issues;• Agent’s commission is excessive or paid in cash;• Agent is related to government official;• Agent’s company is owned by government official or his

family;• Agent has requested false documentation; and• Under local law, its illegal for agent to act as an agent.

Carole Basri

Penalties for Violating the FCPA include:

• Up to 5 years in jail;• $100,000 for each participant including

officers, employees, directors, agents and stockholders;

• Fines up to $2,000,000 to the company plus pecuniary loss;

• Barred from doing business with Federal Government; and

• Competition can sue for treble damages under RICO.

Carole Basri

Five-Phase Approach

APPROACH

PHASE I PHASE II PHASE III PHASE IV PHASE V

High-level Compliance Assessment

Develop or Enhance

Overall FCPA Corporate

Compliance Program

Evaluate and Enhance

Polices and Procedures

Communication, training and

Implementation

Ongoing Self-Assessment, Monitoring

and Reporting

Carole Basri

Five-Phase Approach- Phase I

High level compliance Assessment• Communicate and Educate• High-level Review

Risks and Controls• Baseline review

Risks and Controls• Best Practices and Gaps• Work Plan, Responsibility Assignment and Time

line• Senior Management Meetings (s)

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Five-Phase Approach- Phase II

Develop or Enhance Overall FCPA Corporate Compliance Program• Code of Conduct• FCPA Corporate Compliance Program

Guidelines• Compliance Function• Compliance Help Line (Ethics Line)

Carole Basri

Five-Phase Approach- Phase III

Evaluate and Enhance Policies and Procedures• Gift and Entertainment Policy• Expense Approval and Documentation

Policy• Hiring of Foreign Partners, Agents,

Consultants and Marketing Representatives Policy

• Background Check Policy• FCPA Contract Clauses

Carole Basri

Five-Phase Approach- Phase IV

Communication, Training and Implementation• Introduce Code of Conduct and FCPA

Program• Ongoing Communication Plan• Training plan• Training materials/Video Tapes• Training Schedule

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Five-Phase Approach- Phase IV

Ongoing Self-Assessment, Monitoring and Reporting• Management Controls• Monitoring Tools• Self-Assessment Tools• Internal Audit

Carole Basri

Thank You

Carole Basri

President, Corporate Lawyering Group, LLCwww.corporatelawyeringgroup.com

Executive Director of the Fordham University Law School Compliance Program

Adjunct Professor, Fordham University Law SchoolAdjunct Professor, School of Transnational Law, Peking

University

917-822-2447cbasri@yahoo.com