Thursday, August 18, 2011

America’s Trickiest Laws, Vol. I – The Foreign Corrupt Practices Act.

Our nation may be one of laws, but our laws don’t necessarily make compliance easy.  In this series, I will try to highlight “tricky” laws, or those that corporations and professionals often find confusing, inconsistently enforced or impractical given various business conditions.  In my view, these laws deserve extra attention from corporate America because they often create great uncertainty.

The Foreign Corrupt Practices Act (FCPA) is an increasingly prominent example, as the Department of Justice has been both aggressive and successful in prosecuting FCPA cases of late, including another win earlier this month in the ongoing Haiti Teleco scheme.  

On the surface, the FCPA seems pretty basic.  It has an anti-bribery provision that prohibits corruptly paying or offering to pay anything of value to a foreign official to secure an improper advantage or influence him in his official capacity.

Where the FCPA gets tricky is in five different practical areas.

First, local custom is less important than compliance with law.  The rallying cry that, “We must pay bribes in country X because others do” is not a defense.  In reality, it’s an FCPA violation waiting to happen.

Second, and occasionally at odds with the first, the FCPA has exceptions that some commentators believe are not really exceptions at all.  Grease payments made to expedite or secure routine government action are permitted.  Wait, what?  Some bribes are OK if we call them “facilitating payments”?

Third, FCPA involves “successor liability,” meaning that a company is liable for the FCPA violations of the other companies that it has acquired.  Mergers and acquisitions activity is complicated enough.  With the FCPA, compliant, ethical companies have an additional risk to address – what is the FCPA profile of the target company?

Fourth, the FCPA includes a record keeping provision, requiring careful accounting of all transactions.  This includes records relating to facilitating payments.  So, if the company’s judgment about whether those payments were compliant proves incorrect, the documentation of the violation will be in black and white.

Fifth, most companies probably do not have adequate full time staff proactively managing FCPA compliance.   While significant SEC filing requirements (e.g., 10-Ks, proxies) lead corporate legal and finance departments to staff up to regularly prepare these documents, there is no tidy equivalent in the FCPA world.

When doing business internationally, keep an eye on the FCPA.  It’s one of our “tricky” laws.

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