New FCPA compliance guide empowers Asian compliance and legal staff to protect organisations, say lawyers

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By Ajay Shamdasani A recently issued guide on the U.S. Foreign Corrupt Practices Act (FCPA) will help compliance and legal personnel at firms in Asia protect their companies, said a U.S. lawyer. As the two federal regulators charged with enforcing the act, the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) issued the guide jointly. Of particular relevance to Asia were details regarding several recent cases involving public officials in mainland China. "What this [guide] does is that it reaffirms the role of compliance officers and in-house counsel as having independent and direct access to the board," said Gerald Francese, a partner with law firm DLA Piper in New York. He told Compliance Complete that it was good news for compliance managers in Asia who may worry that they do not have sufficient authority to do their job effectively. "I would say that the guide empowers compliance officers and in-house counsel to state what they need to know in order to protect their organisation." On November 14, 2012, the DOJ and SEC released their new enforcement guide to the FCPA. Its aim is to help U.S. businesses understand why the government brings cases under the anti-bribery law and help them understand how to improve their compliance, said Lanny A. Breuer, an assistant attorney general at the DOJ. His comments were made at the American Conference Institute's 28th National Conference on the Foreign Corrupt Practices Act, just two days after the document's release. Business groups such as the U.S. Chamber of Commerce had called on the agencies to provide more clarity on their enforcement of the anti-corruption law. "Compliance officers and others have, over the years, worried out loud to me that their employees live in doubt. Does the cup of coffee they bought for a contracting official violate the FCPA? Will paying for a taxi for someone who might be a foreign official land them in prison? As you will see, the guide addresses those questions and many others," said Breuer. The guidance addresses topics such as who is answerable to the law, how authorities determine whether one is a "foreign official" and the elements of an effective corporate compliance programme. Breuer said the document was "perhaps the boldest manifestation of our transparent approach to enforcement" and would help companies who want to comply with the FCPA to improve their compliance. The long awaited 120-page "Resource Guide to the U.S. Foreign Corrupt Practices Act" spells out how the DOJ and SEC will approach enforcement of the 1977 statute, which bars companies from paying bribes to foreign officials and concealing such payments with false accounting records. FCPA guide's relevance to compliance in Asia A notable feature of the guide is that it details several recent cases involving foreign officials in China. "For compliance officers who deal regularly with China, the elucidation of what it means to be a 'foreign official' in a country with state-owned enterprises is helpful," said Karl Egbert, a partner with law firm Dechert in Hong Kong. The definition extends to employees of any “instrumentality” of a government — and the guide summarises relevant factors that counsel can evaluate to determine whether a particular state-owned enterprise will be covered, he added. "This guide is an excellent roadmap for compliance officers, in-house counsel, banks and financial institutions alike," said Colum Bancroft, managing director of Kroll Advisory Solutions in Hong Kong. He told Compliance Complete that it was easy for companies in Asia to fall afoul of such U.S. legislation so they had to understand the potential liability and the penalties for violations. "The financial impact of an FCPA violation may not only have an immediate impact, but can affect future earnings for some time to come," said Bancroft. He added that those found guilty may be prevented from tendering for government contracts and also risked losing clients. To that end, some suggest that the guide should be read by all compliance, legal and risk management staff — irrespective of company or sector — because in a globalised world, all activities are interconnected and may fall within the FCPA's ambit. "It [the guide] underlines the continuing need for vigilance in compliance and the careful consideration required of these risks when conducting due diligence for potential acquisitions, mergers or joint ventures," said Chris Fordham, a managing partner at Ernst & Young in Hong Kong. Due diligence is an important measure for preventing and mitigating financial loss and corruption. Conducting comprehensive due diligence or background checks on the companies one wished to deal with was therefore essential for anti-corruption compliance, said Jennifer Lim, a case manager with IntegraScreen (a Thomson Reuters company) in Singapore. "Are they reliable and trustworthy? If so, they should have no difficulty in complying with the FCPA and UK Bribery Act (UKBA)," she said. Lim added that adequate due diligence enabled compliance and legal professionals to learn about a business' activities and accounting systems. "If you can, examine their balance sheet." A specific concern in an era of mergers, acquisition and perpetual consolidation is the issue of successor liability, which the guide covers. "This is an issue that organisations making both strategic and financial acquisitions must address," said Kyle Wombalt, a partner with law firm Herbert Smith Freehills in Hong Kong. The guidance also provides anonymous examples of cases that the SEC and DOJ have declined to prosecute, he told Compliance Complete. "It gets into the factors considered in making declination decisions, which is something compliance officers and lawyers will find interesting," he said. The guide also provides six useful hypotheticals addressing a range of issues. "The hypotheticals address, among other things, the issue of travel and entertainment for foreign officials, the FCPA's jurisdictional reach, gift-giving, facilitation payments and successor liability," said Wombalt. He added that the hypotheticals were also worth looking at because they addressed the use of third party agents and consultants, "which is always an interesting and problematic issue, especially in Asia". While the information in the guidance is not new law, it did provide additional colour, said Wombalt. "It has not and cannot address many difficulties faced by compliance officers in the region, namely addressing inconsistencies between the FCPA and local, domestic anti-corruption laws," he stressed. Likewise, while Dechert's Egbert acknowledged that the guide contained little that was new, it would be useful to compliance managers and internal lawyers. "We now know that you can, hypothetically, take foreign officials to a baseball game in Michigan without violating the FCPA," he said. "Of course, it’s important to keep in mind that the guide isn’t a binding statement of law. Still, I think the hypotheticals do a good job of taking a technical area of the law and applying it to real world scenarios," said Egbert. There is also the guide's utility as a compliance checklist. Richard Cassin, a lawyer who helps clients comply with the FCPA and has his own blog dedicated to the statute, lauded the guide. He described the document as "a great checklist for compliance and enforcement" and "a very detailed position paper on the government's view of the FCPA". He said that interpretations of the FCPA are usually "filtered by pundits, academics, lawyers and others with their own point of view," adding: "Now we have the government's view, in its own words. That's a huge help." Synergies with the UK Bribery Act While touting the FCPA for the guidance it offered companies in what to cover in their compliance policies, Geoff Nicholas, a registered foreign lawyer with law firm Freshfields, Bruckhaus & Deringer in Hong Kong, told Compliance Complete that the document appeared to draw on the guidance given in the UK in relation to the UKBA. "In contrast to the FCPA, adequate procedures do provide a defence [under the UKBA]," he said. Yet, Nicholas added: "Together this provides useful guidance to compliance officers, while still providing them with the latitude to adapt such policies to the risks faced by and the culture of their businesses." An unstated principle is that like the UKBA, the FCPA is an outward looking law. Yet, many Asian companies failed to recognise the extraterritorial effect of such legislation, said Kroll's Bancroft. "Local governments are increasingly collaborating with the U.S., UK and other regulators to allow them to access assets on the ground. In cases where Asian multinational corporations have operations overseas, orders can often be obtained to seize these assets. As a result, it is no longer possible to hide behind geographical barriers." The FCPA seeks to level the playing field for U.S. businesses abroad, much like the UKBA attempts to do for British businesses abroad, said DLA's Francese. "The guidance also serves to align the U.S. FCPA with the UKBA and that's a good thing. The more commonality there is between the two statutes, the easier such laws will be to implement," he emphasised. What the guide is not Yet, the guide is not without its critiques regarding specific guidance and whether the U.S. government considers itself bound by what is in its pages. "First, it [the guide] doesn't really represent any new thinking or real guidance to corporations on how to avoid violations. Second, the government states as 'fact' in the guidance several positions which have not been legally tested in a court of law, but merely represent the government's advocacy positions in various legal proceedings," said Rajat Soni, associate vice president for litigation solutions at Pangea3 (a Thomson Reuters company), a legal services outsourcing firm in Mumbai. "In this sense, the guide is somewhat more of an advocacy piece, rather than an objective statement of the law applicable to the FCPA," he warned. Perhaps the "most important words" in the guide are in its footnote — it states that the guidance is non-binding and does not limit the enforcement intentions or litigating positions of the DOJ and SEC, said Mike Koehler, an assistant professor at the Southern Illinois University School of Law. "What FCPA enforcement needs at this critical juncture is not non-binding enforcement agency guidance, but limited structural reforms such as a compliance defense and abolition of non-prosecution and deferred prosecution agreements," he said. Koehler added that the only policy shift represented by the new guide was that the SEC and DOJ's enforcement positions that were "previously scattered" are now "on paper in one document and accessible to all." (Additional reporting by Emmanuel Olaoye in Washington, D.C., and Brett Wolf in St. Louis, Missouri)