Published in the International Law Practicum, Vol.14 No.1 (2001)
by Neil V. Getnick and Richard J. Dircks
At the dawn of this new millennium, we are positioned uniquely as a world community to combat bribery in international business transactions. With the passage of overlapping international laws, the U.S. is no longer alone in this approach. The convergence of these international efforts has the potential of creating an upward spiral in business conduct and governmental integrity. Building on their experience and expertise, U.S. counsel can contribute greatly to helping companies meet this challenge.
The development and promotion of transnational legal efforts directed at eradicating bribery in international business transactions is a relatively recent phenomenon. Thirty years ago, there was no such anti-bribery legislation anywhere in the world. It was not until 1977, with the passage of the Foreign Corrupt Practices Act, that the U. S. launched the first offensive against international bribery. Today, multilateral international anti-corruption efforts are underway throughout the world through such varied organizations as the United Nations, the Global Coalition for Africa, the Asia Pacific Economic Cooperation, the World Trade Organization, and the Council of Europe.
In this paper, we look briefly at the three international anti-bribery initiatives currently in force involving the U.S.: the U.S. Foreign Corrupt Practices Act, the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the Organization of American States Convention Against Corruption. We then look at the practical effects of these initiatives on international business and at the unique position held by U.S. counsel to act as both guide and architect assisting companies to cope with new anti-bribery laws.
2.U.S. Anti-bribery Efforts
1.Foreign Corrupt Practices Act: Leading By Example
In 1977, with the passage of the Foreign Corrupt Practices Act (“FCPA”) 1 , the U.S. took a revolutionary stand against the bribery of foreign officials in the context of international business transactions. After some startling discoveries by the federal government concerning the extent to which U.S. businesses utilized bribery as a means for obtaining business overseas, Congress passed the FCPA in an effort to restore citizen confidence in the integrity of U.S. business practices. 2
In essence, the FCPA prevents U.S. individuals and business entities from paying, or offering to pay, money or in kind benefits to foreign public officials in exchange for obtaining or maintaining business. In terms of content, the statute has two main thrusts: (i) anti-bribery provisions, and (ii) accounting standards designed to work in conjunction with the anti-bribery provisions. This paper will address only the anti-bribery provisions.
There are five elements of an offense under the FCPA anti-bribery provisions: 3
a. Jurisdiction: Who May Be Liable
The FCPA potentially applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. The statute refers to “issuers,” “domestic concerns,” and “persons other than issuers or domestic concerns.”
* Issuer: A corporation that has issued securities that have been registered in the U.S. or that is required to file periodic reports with the SEC. 4
* Domestic Concern: Any individual who is a citizen, national, or resident of the U.S. Any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship that has its principle place of business in the U.S., or that is organized under the laws of a State of the U.S. or a territory, possession, or commonwealth of the U.S. 5
* Other: A “person” other than an issuer or domestic concern means any natural person other than a national of the U.S. or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the law of a foreign nation or political subdivision thereof. 6
Liability for FCPA violations may be imposed on issuers and domestic concerns under either of two means of obtaining jurisdiction. Under “territorial jurisdiction,” issuers and domestic concerns may be liable for acts taken within the territory of the U.S. in furtherance of a corrupt payment to a foreign official using the U.S. mails or any means or instrumentalities of interstate commerce. 7 Under “nationality jurisdiction,” issuers and domestic concerns may be liable for any act in furtherance of a corrupt payment taken outside the U.S. 8
Liability for FCPA violations may be imposed on persons other than issuers and domestic concerns under territorial jurisdiction. That is, a foreign company or person may be liable if it causes an act in furtherance of a corrupt payment to take place within the territory of the U.S. It should be noted that these persons may be liable under the FCPA irrespective of any utilization of means or instrumentalities of interstate commerce. 9
b. Corrupt Intent
To be liable under the FCPA, the person making or authorizing the payment must corruptly intend to cause the foreign official to misuse his official position to direct business to that or some other person. 10 The FCPA prohibits corrupt payments intended: to influence any act or decision of a foreign official in his official capacity; to induce a foreign official to do or omit to do any act in violation of his lawful duty; to secure an improper advantage; or to induce a foreign official to use his influence with a foreign government or instrumentality thereof to affect any act or decision of that entity. 11
The FCPA prohibits paying, offering to pay, promising to pay, or authorizing to pay or offer, money or anything of value. 12
The FCPA prohibits corrupt payments to a foreign official, a foreign political party, a foreign political party official, and any candidate for foreign political office. The term “foreign official” is defined in the statute as follows:
The term “foreign official” means 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 of department, agency, or instrumentality, or for or on behalf of any such public international organization. 13
The statute provides a very broad definition, making the provisions potentially applicable to any public official, regardless or rank or official duty.
e. Business Purpose Test
The FCPA prohibits corrupt payments made for the purpose of obtaining or retaining business for or with, or directing business to, any person. 14
2. Exceptions and Affirmative Defenses to the FCPA
Not every payment made to a foreign official falls within the scope of the FCPA. The FCPA does not apply to “facilitating” or “expediting” payments the purpose of which is to expedite or secure the performance of a routine governmental action by a foreign official, political party, or party official. 15 Routine governmental actions include: (1) obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; (2) processing governmental papers, such as visas and work orders; (3) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country, (4) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities for deterioration; or (5) actions of a similar nature. 16
It is an affirmative defense to the FCPA that (i) the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the recipient’s country, or (ii) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure incurred on behalf of the recipient and directly related to the promotion, demonstration, or explanation of products or services or the execution or performance of a contract with a foreign government or agency thereof. 17
3. Enforcement and Potential Sanctions 18
The Department of Justice is responsible for all criminal enforcement of the anti-bribery provisions 19 , and for civil enforcement against domestic concerns. 20 The Securities and Exchange Commission has the authority for the investigation and civil prosecution of both the accounting and anti-bribery provisions of the FCPA with regard to issuers. 21 There is no private cause of action under the FCPA. 22
Criminal: Corporations and other business entities that violate the FCPA face a fine of up to $2,000,000. 23 Officers, directors, stockholders, employees and agents face a fine of up to $100,000 and imprisonment of not more than five years, or both. 24
Civil: A civil action may be brought against any firm as well as any officer, director, employee, or agent of a firm, or a stockholder acting on behalf of a firm for a civil penalty of not more than $10,000. 25 Additionally, the FCPA provides for injunctive relief when it appears that the anti-bribery provisions are being, or are about to be, violated. 26
2.OECD: Anti-bribery Convention
The passage of the FCPA put American businesses at a significant competitive disadvantage in the international arena. While competitors from other countries were openly, and often handsomely, paying foreign officials in exchange for influence and business opportunities, American companies were prohibited by the provisions of the FCPA from making similar payments. 27 Over the course of the past decade, the United States has worked diligently to involve and incorporate other members of the international community in its stand against corruption and bribery. During this period of time, Transparency International, a nongovernmental organization, emerged as a further catalyst to the adoption of international anti-bribery laws and practices. These efforts, combined with increasing participation by and support from other nation states, brought the issue of corruption generally, and bribery specifically, to the fore of the international business dialogue, resulting in the passage and implementation of the Organization for Economic Cooperation and Development’s (“OECD”) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”). 28
The OECD Convention is a supply-side agreement. That is, it obligates the parties to criminalize bribery of foreign public officials in the conduct of international business. It is directed at those who offer, promise, or pay a bribe. The OECD Convention seeks to effect changes in the conduct of companies in exporting nations. It provides the member countries with the freedom and autonomy to craft the implementation of the OECD principles, so long as the terms of the convention are met.
The OECD Convention was signed on December 17, 1997 and came into force on February 15, 1999. 29 It has been signed by all twenty-nine OECD members and Argentina, Brazil, Bulgaria, Chile, and the Slovak Republic. As of September 8, 2000, twenty-six countries had deposited an instrument of ratification with the OECD, with all but three having adopted implementing legislation. 30
As noted, the framework of the OECD Convention provides for the unique implementation of the Convention by each member country. Given the nature of the OECD Convention, a significant concern of all members is that other members are acting in accordance with the terms of Convention. Monitoring and compliance in this regard is undertaken by the Working Group on Bribery, an OECD entity comprised of all OECD Convention signatories. The Working Group on Bribery is charged with reviewing implementing legislation and monitoring the means and efficacy with which that legislation is carried out. The cooperative nature of the Working Group provides an international follow-up mechanism that considerably strengthens the OECD Convention overall and makes it a formidable force in opposition to international corruption.
2. OECD Convention Implementation in the U.S.
In order to implement the OECD in the U.S., Congress amended the FCPA through the International Antibribery and Fair Competition Act of 1998 (“IAFCA”). 31 The terms of the OECD Convention required the following expansions of the FCPA:
- The definition of bribery was expanded to include “any improper advantage.”
- The definition of “foreign public official” was expanded to include officials of “public international organizations.”
- Nationality jurisdiction was included in addition to territorial jurisdiction.
- Potentially liability was expanded to include persons other than domestic concerns and issuers; i.e. foreign companies and nationals acting within the U.S.
- The FCPA penalty disparity between U.S. nationals and foreign nationals was eliminated. 32
Section 6 of the IAFCA directs that the Secretary of Commerce submit a report, each year for six years following the IAFCA, to the Senate and the House of Representatives assessing progress on the implementation of the OECD Convention and addressing other related matters. As of July 2000, two such reports had been submitted to Congress.
3.Organization of American States: Inter-American Convention Against Corruption
On March 29, 1996, the Organization of American States (“OAS”) adopted the Inter-American Convention Against Corruption (“IAC”). On that day, the IAC was opened for signature by OAS member states. The IAC entered into force on March 3, 1997, thirty days after the deposit of the second instrument of ratification. As of September 2000, twenty OAS member states had ratified the IAC. 33
The stated purposes of the IAC are: (1) “to promote and strengthen the development by each of the States Parties of the mechanisms needed to prevent, detect, punish and eradicate corruption”; and (2) “to promote, facilitate and regulate cooperation among the States Parties to ensure the effectiveness of measures and actions to prevent, detect, punish, and eradicate corruption in the performance of public functions and acts of corruption specifically related to such performance.” 34 The IAC specifically identifies acts of corruption, including transnational bribery, that signatories must criminalize within their own countries. With respect to bribery, the IAC is both a “supply-side” and “demand-side” agreement insofar as it requires signatories to criminalize solicitation and acceptance of bribes by a government official. 35
The ratification and implementation of the IAC by OAS member countries is a further important step toward the development and acceptance of an international anti-bribery standard. The IAC underscores the value and necessity of cooperation between nations in this regard. 36
2. IAC Ratification and Implementation in the U.S.
Although signed by the U.S. in June 1996, the IAC was not approved by the U.S. Senate until July 27, 2000. It was recently ratified by President Clinton in September 2000. Pursuant to the terms of the IAC, it will enter into force for the U.S. on the thirtieth day following the deposit of the U.S.’s instrument of ratification with the OAS General Secretariat. 37
In approving the IAC for ratification, the U.S. Senate specifically noted its understanding that “the kinds of official corruption which are intended under the Convention to be criminalized would in fact be criminal offenses under U.S. law . . . . the United States does not intend to enact new legislation to implement Article VII of the Convention.” 38 Therefore, implementation of the IAC in the U.S. will not require any change in government law or law enforcement.
3.Goals of U.S. Anti-Corruption Policy
In May 2000, the U.S. federal government, through the Department of State, and in consultation and cooperation with the Department of Commerce, the Department of Justice, the Department of the Treasury, the Office of Government Ethics, and the Agency for International Development, issued a brochure in which it listed the “Key Goals of U.S. International Anticorruption Policy.” 39 These goals may provide a contextual framework from which to analyze all contemporary U.S. anti-corruption efforts and legislation. They are as follows:
- Promote full ratification, implementation, and enforcement of the OECD Bribery Convention by all signatories.
- Promote ratification by U.S. of the Inter-American Convention Against Corruption and full ratification, implementation, and enforcement by all hemispheric partners.
- Nurture stability in democratic institutions and strengthen the rule of law in transitional economies.
- Promote global and regional anti-corruption norms and initiatives that deter and punish corruption.
- Ensure transparency in government procurement procedures to enhance openness, disclosure and predictability.
- Develop ethical and administrative codes of conduct that can promote the highest levels of professionalism and integrity in government.
- Engage the business community to join the U.S. and other governments in promoting corporate governance, transparency, and integrity in business operations.
- Foster an active civil society that is involved in participatory governance and upholds democratic principles. 40
4.Corporate Compliance Programs: Effective Governance From Within
The ultimate effect and value of international anti-corruption efforts will be determined by the implementing legislation of the various nation states, the enforcement of that legislation, and the monitoring ability of the international community to ensure compliance with both the letter and spirit of the agreement.
As each nation passes its form of international anti-bribery legislation, every business within that nation will be required to comply with that legislation. The successful transition from former business practices to bribery-free business practices will require significant efforts directed at systemic reform. The eradication of bribery as a means of doing business will require new corporate perspectives, as well as practical changes.
It is incumbent upon each company to take the responsibility for assuring that it is in compliance with all applicable laws. To do this, a company should establish a corporate compliance program focused on the international bribery law or laws to which that company is subject. A successful corporate compliance program (“CP”) will educate the company employees as to what the new law says and under what situations it applies. The CP should also guide the employees with regard to what is expected from each of them under the new law. Finally, the CP should provide company management with immediate access to relevant information concerning corporate operations under the new law. This access to information will best position the company to discover and deal with problematic situations. While CPs are unique mechanisms, developed and crafted to fit a specific company under a certain statutory framework, every CP should have certain hallmark characteristics. Among those characteristics are the following:
- Written Corporate Policy and Procedures: Each company’s CP should be written in a clear and concise manner so that it is easily understood by all employees.
- Executive/Management Involvement: On one level, all CPs must be “top-down” directives. Management must understand and convey the importance of corporate compliance to the employees. The CP is destined to fail in an environment where it is not respected at the highest levels of the organization.
- Employee Involvement: At the same time, successful CPs are often best served from the “bottom-up”. All employees must have ready access to the CP and training and education as to its significance. Further, organizations should encourage employee contributions and suggestions during the development and maintenance of the CP. More often than not, the employee in the field has an informative and relevant perspective. Continuous input from employees is essential in allowing the CP to grow and adapt to changing business practices.
- Dedicated Resources: The company must be willing to dedicate sufficient resources, in terms of time, money, and personnel to develop and implement a valuable CP.
- Controls: The CP must incorporate means by which the company can prevent future violations of the law. Such controls might include employee certifications or employee spending caps.
- Monitoring: The written corporate policies and procedures will be worthless unless there is strict monitoring to ensure adherence to both.
The development of a successful CP is a creative task; one that must be company specific, tailored to specific needs and desires. There is no formula to follow when developing a CP. This is especially true when developing a CP for compliance with a new law or treaty.
2.U.S. Counsel: Unique Expertise
As foreign businesses look to develop CPs in response to new multilateral anti-bribery legislation such as the OECD Convention or the IAC, those businesses should look to capitalize on the unique expertise of U.S. counsel in this area. For the past twenty-three years, attorneys in the U.S. have been crafting CPs in response to the FCPA. The dual focus of these CPs has been (1) adherence to the law, and (2) maximization of profits. Thus, although there is no CP formula, U.S. counsel are seasoned in this area and are familiar with the pitfalls associated with anti-bribery compliance. Furthermore, U.S. counsel have successfully guided American companies through the specifics of FCPA compliance while assisting those companies to grow and compete on an international level. This expertise should be utilized by newly regulated foreign companies to develop CPs that allow for profitable operations within the bounds of the law.
The U.S. led the way in fighting bribery in international business transactions with the passage of the Foreign Corrupt Practices Act in 1977. The relatively recent adoption of the OECD Anti-Bribery Convention and OAS Inter-American Convention Against Corruption, provides worldwide recognition and support for this effort. This common international view and approach can create an upward spiral in business conduct and governmental integrity. U.S. counsel can play a particularly important role in helping to achieve these goals by applying the experience gained and lessons learned in guiding U.S. companies to operate profitably within the bounds of anti-bribery laws.