March 02, 2009
Most understand that bundles of cash paid to government officials in exchange for new business is a criminal act—or soon will be—in most countries. Between these blatant pay-offs and ending international marketing efforts altogether, lies a vast maze of business practices about which reasonable people can disagree. Unfortunately, as with the Sphinx of Greek mythology, the consequences for getting it wrong can be dire.
How can a company determine in advance that its actions won’t run afoul of an expanding FCPA? Enforcement agencies are reluctant to draw bright lines when the parties’ intent is a factor and, in any event, a little ambiguity can be a powerful deterrent. As a result, companies spend an inordinate portion of their compliance budgets navigating these ambiguities. One company might seek to understand, for example, whether it may contribute to an under-funded government customs department to improve local enforcement of trademark violations. Another may wish to acquire a publicly-traded foreign company without sufficient time for adequate due diligence and might reasonably want to calculate as a part of the deal their likelihood of inheriting FCPA liability for pre-acquisition conduct. Companies might want to pay travel expenses for delegates of foreign officials to attend training programs at company headquarters or may wish to fund construction of a local elementary school.
In fact, each of these questions was submitted to and answered by the U.S. Department of Justice (DOJ) under the Department’s Opinion Procedure. The Opinion Procedure enables issuers and domestic concerns to ask the U.S. Attorney General whether their proposed actions conform to current enforcement policy. The process can be illuminating and, if handled carefully, the risk low.
Requests must be submitted in writing to the Assistant Attorney General in charge of the DOJ’s Criminal Division. There must be a specific, real, prospective situation and the entity requesting the opinion must be a party to the transaction. The DOJ won’t entertain hypothetical situations and they won’t comment—in this forum—on past acts. They commit to issuing a response within 30 days of the request—the request is not considered complete, however, until the DOJ determines that it has all of the information it needs. Opinion Procedure Releases are published on the DOJ’s website. The requesting party can agree to be named in the Opinion, but the great majority asks to remain anonymous.
The DOJ’s most recent Opinion Release was in response to a request by TRACE International, Inc., a membership organization specializing in anti-bribery compliance. TRACE had scheduled a press conference in Shanghai in July 2008. Most media outlets in the People’s Republic of China (PRC) are wholly-owned by the government and so journalists working for those outlets are deemed to be foreign officials under the FCPA. PRC media outlets generally don’t reimburse their journalists for travel or meals to attend press conferences, so journalists seek these expenses from the entity hosting the conference and often won’t attend if payment isn’t offered.
TRACE first contacted the DOJ in early June with its proposed stipend and expense reimbursements for journalists attending the press conference. TRACE and DOJ benchmarked the proposed amounts separately and a negotiation followed, with communication by telephone and email at intervals. The process was surprisingly interactive and not the thumbs up or down that companies might expect. The DOJ appeared committed to reaching agreement and kept the exchange moving along briskly. Additional conditions were suggested. Some, like TRACE’s agreement to write to the journalists’ employers prior to the press conference and advise them of the stipend, were acceptable. Others, like the DOJ’s suggestion that TRACE place a sign at the registration table stating that acceptance of the stipend did not obligate the journalists to write a story favorable to TRACE, were rejected as ineffective, potentially offensive and a bit silly.
The DOJ’s Opinion Letter can be found on its website. The Opinion lists the steps that TRACE committed to take and sets forth the permissible stipend for local journalists (approximately $28) and the permitted stipend and expenses for out-of-town journalists (approximately $62 and reimbursement of economy travel payable to the journalist upon submission of a receipt and one night’s lodging, not to exceed $229, payable directly to the hotel).
The Opinion concludes with the DOJ’s usual disclaimer: “[u]nder the facts and circumstances, as represented by TRACE, the Department does not presently intend to take any enforcement action with respect to the planned provision of stipends and payment of transportation and lodging costs described in this request. Based on TRACE’s representations, the stipend and expenses TRACE intends to pay on behalf of foreign officials fall within the FCPAs promotional expenses affirmative defense in that the expenses are reasonable under the circumstances and directly related to the ‘promotion, demonstration, or explanation of [TRACE’s] products or services.’”
Is this Opinion useful to anyone other than TRACE? The DOJ concludes by saying that its “FCPA Opinion letter, and this release, have no binding application on any party which did not join in the request…” Nevertheless, these are often the only reliable clues that companies have with respect to the enforcement climate at the DOJ. Few companies fight FCPA cases—the great majority voluntarily disclose and settle. In fact there is almost no case law available.
Companies are reluctant to approach the DOJ with questions of this kind. Some cringe at the thought of putting their company’s name in front of the enforcement agency for any reason. Interestingly, one former DOJ lawyer indicated that he looked favorably on companies that engaged in the process, indicating that their question reflected a robust compliance process. Others fear that follow-on questions from the DOJ might take their company in a direction they don’t want to go. A company asking about due diligence on the intermediaries of a potential acquisition might, for example, be asked to explain and defend its current internal due diligence process. Companies can withdraw their requests if the process becomes too onerous, but this raises concerns that even the withdrawal of the request might pique the curiosity of the DOJ.
The Opinion Release Procedure is an imperfect tool and not entirely without risk, but it is a well-run company’s best option and the most reliable means to draw clues from an occasionally inscrutable Sphinx.
This article was originally published by Alexandra Wrage in Ethisphere magazine in Q4 2008.