Anti-corruption procedure in the USA: an expert analysis


At the end of 2016, when US government activity typically would have slowed, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) vaulted Foreign Corrupt Practices Act (FCPA) enforcement to an unprecedented level. In the final two weeks of December, DOJ and SEC announced a series of new actions including massive FCPA cases against the Brazilian company Odebrecht S.A., involving up to $4.5bn in penalties, and the Israeli company Teva Pharmaceutical Industries Ltd., Involving $519m in penalties. These matters are notable not just for the alarming penalties imposed on non-US companies for activities almost entirely outside the US, but also for what they might signal regarding US FCPA enforcement moving forward. Companies based outside the US that do business in the US should examine their anti-bribery compliance programmes to ensure that they are preventing violations of their own country’s laws and the FCPA as effectively as they can.

FCPA overview

The FCPA is the primary US federal law prohibiting bribery of non-US public officials. Its provisions generally fall into two categories: provisions prohibiting bribery of non-US officials; and accounting provisions.

The anti-bribery provisions generally prohibit making, offering, promising or authorising the transfer of anything of value, directly or indirectly, to a non-US government official or employee, including employees of state-owned companies, or a political party or candidate for political office, with the intent to get or maintain business. The US government interprets the anti-bribery provisions very broadly, as demonstrated by recent actions against companies that allegedly ‘bribed’ public officials by hiring officials’ relatives as interns, reportedly to influence officials’ decisions in allocating business.

The anti-bribery provisions can apply to a variety of companies and individuals, including when any aspect of a scheme occurs in the US. US jurisdiction arguably could be based merely on emails or funds travelling electronically within the US, such as a payment of a bribe in funds that traveled through a US account.

The second group of FCPA provisions generally requires companies with stock traded on a US stock exchange, or that otherwise have to file certain reports with the SEC, to maintain accurate accounting books and records and to maintain internal accounting controls sufficient to provide reasonable assurances that transactions are executed properly. This includes non-US companies with American Depositary Receipts (ADRs) traded on a US exchange.

The potential penalties for companies’ FCPA violations are substantial, including enormous fines, disgorgement of proceeds of unlawful activity, and prison for individuals. FCPA convictions could also lead to companies being barred from contracting with the US government.

Companies rarely fight FCPA charges in court because a loss after trial could be devastating. Companies instead typically seek leniency. Even with ‘leniency,’ however, penalties are severe. In addition, to receive leniency, the US government requires companies to provide evidence against their own employees who participated in the misconduct.

Odebrecht S.A. and Braskem S.A.

According to DOJ, Odebrecht, a Brazil-based construction conglomerate, paid over $700m in bribes since 2001 to government officials and political parties to obtain business in Brazil and a number of other countries, but not in the US. Odebrecht’s affiliate Braskem, a Brazil-based petrochemical company, reportedly paid approximately $250m in bribes in Brazil between 2006 and 2014.

DOJ described the joint resolutions as “the largest-ever global foreign bribery resolution.” In agreements with DOJ and SEC, as well as agreements with authorities in Brazil and Switzerland, Odebrecht agreed that an appropriate fine is $4.5bn, although Odebrecht reportedly can pay only $2.6bn. The US stands to receive 10% of the total payments Odebrecht makes, Switzerland will receive 10%, and Brazil will receive 80%. Braskem separately agreed to a total penalty of $632m, with the US to receive 15%, Switzerland to receive 15% and Brazil to receive 70%.

The division of Odebrecht’s and Braskem’s payments, with the US positioned to take a significant share, is particularly remarkable considering that the alleged misconduct involved public officials and contracts outside the US Connections to the US are very limited. DOJ alleged that Odebrecht’s schemes included meetings in the US and the movement of funds through US accounts. Braskem has ADRs listed on the New York Stock Exchange but otherwise is not accused of engaging in unlawful activity in the US.

Teva Pharmaceutical Industries Ltd.

On 22 December 2016, a day after announcing the Odebrecht and Braskem resolutions, DOJ and SEC announced resolutions with Israeli company Teva, the world’s largest manufacturer of generic pharmaceutical products and Teva’s wholly-owned Russian subsidiary. According to DOJ, Teva paid bribes to government officials in Russia, Ukraine and Mexico. Teva agreed to pay a criminal fine of $283m and to disgorge $236m of proceeds, for a total penalty of $519m.

Again, the government’s allegations describe very limited conduct in the US. The allegations include that emails were sent through a server located in the US and that some funds used in the scheme moved through US bank accounts. However, like Braskem, Teva has ADRs that are traded on the New York Stock Exchange.

Potential impact

These cases highlight the high costs for non-US companies subject to US jurisdiction that violate the FCPA. Additional examples are not difficult to find. Of the ten FCPA actions with the largest penalties, only three were brought against US-based companies.[i]

Robust FCPA enforcement will continue in the current US administration. Even if the administration takes a friendlier approach to corporations, as some are predicting, nothing suggests that US authorities would now resist the opportunity to collect the nearly $1bn the US is netting at year-end in its cases against Odebrecht, Braskem and Teva. A new administration could easily defend such actions as ‘favourable’ to US companies. Considering that Brazil and Switzerland stand to recover over $1bn in penalties in these cases, we expect to see greater collaboration among authorities in anti-bribery enforcement moving forward.

Recommendations for non-US companies

It is critical for companies doing business in the US or listed on US exchanges to examine their anti-corruption compliance programmes. An effective programme begins with a strong Code of Conduct and sound policies. Policies should be supplemented with clear and consistent communication from management, along with training for employees and contractors who expose the company to risk. Companies should assess internal accounting controls and make improvements where necessary.

Anti-corruption due diligence should be performed before acquiring other companies or entering into joint ventures; acquisition and joint venture contracts should include anti-bribery representations and warranties. Companies should conduct similar diligence, and insist on similar provisions, with sales agents, distributors, and others who represent the company to public officials and other third-parties.

No compliance programme is guaranteed to prevent unlawful conduct. Companies with robust compliance programmes, however, are in the best position to assert that any unlawful conduct was entirely unauthorised and does not reflect the company’s values. As importantly, a robust compliance programme can demonstrate to US authorities that the company is in fact determined to comply with the FCPA and compete lawfully, bolstering arguments for leniency.

John C. Kocoras

About the author
John C. Kocoras is a Partner at McDermott Will & Emery LLP. He leads sensitive internal investigations, assists clients with global Foreign Corrupt Practices Act (FCPA) compliance, defends companies and individuals in criminal and regulatory investigations, and represents parties in complex commercial litigation.

Further information
www.mwe.com

[i] http://www.fcpablog.com/blog/2016/12/29/reconsidered-odebrecht-and-braskem-are-on-our-fcpa-top-ten-l.html

Leave a Reply

Your email address will not be published. Required fields are marked *

7 + one =

*