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A Flurry of FCPA Enforcement
I have written several times over the past months about the importance of FCPA (US Federal Corrupt Practices Act) compliance, and of the penalties associated with failure to implement and manage a successful risk management program in accordance with the Act’s strict requirements. In the past couple of weeks, the government has brought several new high visibility cases against companies for violations, again highlighting the significantly increased enforcement activities undertaken by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC), the two agencies which enforce the Act.
For those who may be less than familiar with the Act, the U.S. Federal Corrupt Practices Act is a domestic anti bribery and anti corruption law broadly applying to US and US based companies, with strong extraterritorial reach. It applies to all US companies as well as their employees and suppliers, and contains a strong record keeping component which likewise applies to suppliers.
Because of the reach of the law, and the fact that suppliers (and agents, distributors, too) are covered, companies in the employee mobility industry must be certain to understand the requirements and have in place, active, monitored, compliance programs in order to forestall criminal and civil complaints.
Especially important are the record keeping requirements, which should be an integral part of internal auditing of every company making payments or buying or selling services overseas. More and more international companies are requiring employee mobility service companies to demonstrate the strength of their FCPA compliance programs as a part of the RFP and contract process.
Las Vegas Sands Corp
Last week, Las Vegas Sands Corp revealed in its annual report that it was facing probes by both the SEC and DOJ over potential violations of the Act in its Macau casino operations. One of the issues under investigation is how Sands came to hire its chief lawyer in Macau, which is now a part of China.
The company said in its filing that it believes the investigations stem from allegations raised by the former CEO of Sands China Ltd. -- the division that oversaw the company’s Macau casinos -- in a lawsuit filed in Nevada last October. In the complaint, the CEO claims he was wrongfully fired in part for resisting demands by Sands that the company "continue to use the legal services of a Macau attorney despite concerns that his retention posed serious risks under the criminal provisions of the [FCPA]." The complaint can be found at ; even though it makes dozens of other allegations arising from other areas of law, it lays out in detail enough to warrant an internal and government FCPA investigation, according to the company filing. The allegations revolve around alleged straight out business bribery; interestingly, the suit does not contain a Dodd-Frank whistleblower claim, but is based primarily on contract law. The case is a good example of how FCPA investigations can be triggered by employment issues.
In 2007, a senior vice president of Alcatel – Lucent began serving a three year sentence in US federal prison for violation of the Act. He was convicted of funneling over $14 million of his employer's money to government employees in Costa Rica, in order to guarantee purchases from the state owned electrical and telecom company. As the investigation of that offense was being conducted, it became clear that Alcatel – Lucent's subsidiaries in Honduras, Malaysia, and Taiwan were also violating the Act, and had paid at least $1 million in bribes to officials of those countries. The company just signed a deferred prosecution agreement with the Department of Justice admitting it had profited by about $50 million from the business acquired from the bribes, which occurred between 2001 and 2006. For these violations, the company has agreed to pay over $125 million in fines.
Also last week, IBM entered into a consent decree with the SEC, admitting violations of the Act, and agreeing to pay a $10 million fine in the civil case. According to the degree, from 1998 to 2003, employees of IBM Korea -- a joint venture in which IBM held a majority interest -- made payments to various government officials in South Korea, the purpose of which was to increase the sale of IBM products to the Korean government. During that time, several government officials were paid approximately $207,000 in bribes, including improper gifts and payments of travel and entertainment expenses.
Furthermore, the decree continues, from 2004 until 2009 employees of IBM (China) Investment Company Limited and another IBM subsidiary engaged in the widespread practice of providing overseas trips, entertainment, and gifts to Chinese government officials. At least 100 IBM (China) employees were involved. Apparently the IBM employees set up a slush fund at a travel agency which paid for improper trips taken by Chinese government officials, and the employees also gave laptops and other equipment to these and other officials.
In this filing, IBM agreed that despite its extensive international operations, it lacked sufficient internal controls designed to protect prevent or detect these violations of the Act. In addition, it failed to keep accurate books and records as required. The failure to keep these records is a separate violation of the Act, and can be prosecuted even in the absence of proof of actual corrupt behavior.
Although the fine seems surprisingly small for a company the size of IBM, the SEC can also refer individuals to the Department of Justice for criminal investigation, and the reputational damage to IBM as well as the ongoing injunction contribute to a significant penalty.
This case is particularly useful to analyze, because of the difficulty of doing business in China, which is a culture where the differences between “gifts” and “bribes” is often hard to distinguish. Any company doing business in China should be familiar with the excellent article “FCPA Compliance in China and the Gifts and Hospitality Challenge” by F. Joseph Warin, Michael S. Diamant, and Jill M. Pfenning published in the Virginia Law and Business Review ( ). While it does not provide definitive answers, it identifies and discusses the issues, which have become even more important after the IBM consent decree.
U.S. Chamber of Commerce
Finally, the U.S. Chamber of Commerce, which five months ago released a paper that called on Congress to amend the Act to reduce its “onerous" impact on US businesses, just a hired former Attorney General Michael Mukasey to lobby Congress to amend the Act. Two of the Chamber’s recommendations are to more carefully define who constitutes a "foreign official" especially distinguishing between government employees and employees of state – owned companies, and to add a provision which would allow companies with active compliance programs to escape criminal liability based upon the actions of rogue employees.
This flurry of activity should spur members of the employee mobility industry to continue to examine and fine tune their compliance programs for activities conducted outside of the US, and for activities conducted by service providers or contractors in the foreign countries.


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