Chamber Seeks "Compliance Defense" to FCPA, Other Reforms

According to the report, more FCPA enforcement actions are being brought than ever before, fines and penalties have risen dramatically, and the government has shown an increased willingness to seek jail terms for individual defendants. In spite of the rise in enforcement and investigatory action, judicial oversight and rulings on the meaning of the provisions of the FCPA is still minimal.

The report expresses the opinion that the FCPA is ripe for much needed clarification and reform through improvements to the existing statute. Such improvements, which are best suited for Congressional action, are aimed at providing more certainty to the business community when trying to comply with the FCPA, while promoting efficiency and enhancing public confidence in the integrity of the free market system as well as the underlying principles of the U.S. judicial system.

In its report, the Institute recommends the following FCPA reforms:

Add a “Compliance Defense” for Firms that Have Procedures in Place

The FCPA does not provide a compliance defense, i.e., a defense that would permit companies to fight the imposition of criminal liability for FCPA violations, if the individual employees or agents had circumvented compliance measures that were otherwise reasonable in identifying and preventing such violations.

The report recommends adopting the compliance defense recognized by the United Kingdom, which provides a specific defense to liability if a corporate entity can show that it has “adequate procedures” in place to detect and deter improper conduct.

Limit a Company’s Liability for the Prior Actions of an Acquisition or Merger

Under the current enforcement regime, a company may be held criminally liable under the FCPA not only for its own actions, but for the actions of a company that it acquires or becomes associated with via a merger (even if those acts took place prior to the acquisition or merger and were entirely unknown to the acquiring company).

Clear parameters need to be placed on successor liability in the FCPA context. At a minimum, a corporation, irrespective of whether or not it conducts reasonable due diligence prior to and/or immediately after an acquisition or merger, should not be held criminally liable for such historical violations. The report notes that it is also important to more clearly delineate what constitutes “sufficient due diligence.” Guidance could be created, akin to Section 8 of the U.S. Sentencing Guidelines, that spells out the general

due diligence steps that are warranted.

Add a “Willfulness” Requirement for Corporate Criminal Liability

There is an anomaly in the current FCPA statute — although the language of the FCPA limits an individual’s liability for violations of the anti-bribery provisions to situations in which she has violated the act “willfully” — it does not contain any similar limitation for corporations.

The “willfulness” requirement should be extended to corporate liability, at the very least to the anti-bribery provisions. The statute should also preclude unknowing de minimis contact with the U.S. as a predicate for jurisdiction: the defendant should either have to know of such contact or the contact, if unknown, should have to be substantial and meaningful to the bribery charged (and thus foreseeable).

Limit a Company’s Liability for Acts of a Subsidiary

While the DOJ has not yet taken such action, the SEC routinely charges parent companies with civil violations of the anti-bribery provisions based on actions taken by foreign subsidiaries of which the parent is entirely ignorant. This approach is contrary to the statutory language of the anti-bribery provisions, which — even if they do not require evidence of “willfulness” — do require evidence of knowledge and intent for liability

The report notes that as the scope of this potential liability is not definitively established, it is a source of significant concern for U.S. companies with foreign subsidiaries. A parent’s control of the corporate actions of a foreign subsidiary should not expose the company to liability under the anti-bribery provisions where it neither directed, authorized nor even knew about the improper payments in question.

Clarify the Definition of “Foreign Official”

The statute defines a “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.” However, the text of the statute does not define “instrumentality”.

The FCPA should be modified to include a clear definition of “instrumentality.” Such a definition could indicate the percentage ownership by a foreign government that will qualify a corporation as an “instrumentality”; whether ownership by a foreign official necessarily qualifies a company as an instrumentality and, if so, whether the foreign official must be of a particular rank or the ownership must reach a certain percentage threshold; and to what extent “control” by a foreign government or official will qualify a company as an “instrumentality.”

¹The FCPA prohibits U.S. companies and companies operating in the U.S. from paying bribes to foreign government officials, politicians, and political parties for the purpose of obtaining business opportunities abroad.

(See ITT’s Online Archives or 11/04/10 news, 10110411, for BP summary on SEC’s approval of a whistleblower proposed rule that would affect FCPA too. See ITT’s Online Archives or 11/04/10 news, 10110414, for BP summary of OECD report that says FCPA enforcement to increase, include targeted sweeps. See ITT’s Online Archives or 11/04/10 news, 10110412, for summary on DoJ official’s statements that 2010 could be a record year for FCPA enforcement.)

(Report, dated October 2010)