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FCPA Myths and Misconceptions, Debunked (Part 2: Enforcement)

FCPAMisconception [1]As noted in the previous post [2] is this series, FCPA misconceptions are dangerous. For compliance programs to mitigate risks as intended, everyone in the organization needs to understand them consistently. Compliance officers need to be alert for common myths or misunderstandings related to what the FCPA requires. Part 1 of this series describes common misconceptions related to FCPA compliance – this post highlights enforcement-related misconceptions.

1. “This is just a facilitating payment.” One of the most frequent areas of FCPA misunderstanding relates to the facilitating payments exception. It is not uncommon to hear someone describe a $15,000 customs payment or a $9,000 immigration payment as a “facilitating payment,” when they clearly are not. The facilitating payments exception is quite limited. To qualify, a payment must be made to expedite or secure a “routine government action” and the official action must be non-discretionary (i.e., the official must have no legal basis to refuse to provide the service). While there is no statutory value limit on facilitating payments, in practice it would be very difficult to justify a four-figure payment as a facilitating payment.

The lack of statutory specificity seems to encourage creative interpretations of the facilitating payments exception. To address this, compliance officials should be careful to point out that any sizeable payment, even one that might arguably fit within the exception, can invite the scrutiny of enforcement officials. This means that, even if a company were to prevail in its view that a large payment qualifies for the exception, that victory would come only after the disruption and expense of a formal investigation. Moreover, other international anti-corruption laws, like the UK Bribery Act, still prohibit facilitating payments.

2. “But the payment was extorted.” Legitimate extortion payments can constitute exceptions to the FCPA – the FCPA Guidance [3] provides that “payment[s] made in response to imminent threats to health and safety do not violate the FCPA.” If an official holds a gun to an employee’s head or is about to poke the employee with a dirty needle at immigration, bribe payments will not be considered FCPA violations.

The problem occurs when companies try to stretch the exception to other types of threats. Commercial necessity does not trigger the exception. Holding goods at customs unless an employee pays a bribe would not qualify. Therefore, all explanations of economic coercion should be considered suspect. A general rule of thumb, as provided in the FCPA Guidance, is whether the payor “could have turned his back and walked away.”

3. “The employee used his or her own funds, not the company’s.” Suggesting that improper payments benefitting a company were not made with company funds raises a lot of questions, including “why?” Very few employees are willing to spend their own money on behalf of their employer. Employees paying bribes for a company’s benefit likely have a plan for getting paid back. This could be through fraud or theft. They may have made other arrangements with account managers, third parties or their supervisors. The fact that an employee is making personal payments to benefit the company, and that a company’s compliance program is not preventing such activity, could also be evidence of controls failures at the company, which could constitute FCPA “internal controls” violations themselves. Moreover, if the company is ultimately benefiting, the government could assert that the company was part of a conspiracy to violate the FCPA.

4. “We’re not a big company. The government won’t apply the FCPA to us.” It is true that large multi-national corporations are regularly in the crosshairs of FCPA enforcement. But smaller companies can be subject to enforcement too. In fact, smaller companies are often more vulnerable because they are more likely to go out of business as a result of an FCPA investigation. For example, in 2013, the Wall Street brokerage firm Direct Access Partners was caught up in an investigation, described here [4], and it only had 30 employees. As a result, the firm went out of business. The small Philadelphia-based export company, Nexus Technology, pled guilty [5] to conspiracy to violate the FCPA and went out of business.

5. “The FCPA applies only to large payments.” Not so. There is no materiality threshold for an FCPA violation. Moreover, FCPA actions have been built on a series of smaller payments that, in the aggregate, amount to significant expenditures. This can include not only payments of money, but things like gifts and entertainment [6] as well. For example, Diageo gave rice cakes and other gifts in South Korea ranging in value from $100 to $300 per recipient that, in the aggregate, amounted to $64,184 over four years (that action involved payments in other countries too). The current “princeling” investigation into the activities in China of various banks does not appear to deal with specific monetary payments; instead, it focuses on firms that provided jobs to children of high ranking Chinese officials.

Even if authorities are less likely to prosecute companies for individual smaller payments, the detection of smaller payments can prompt wider investigations to determine whether those small issues are actually systemic. These investigations, in themselves, can be costly and disruptive. Thus, by assuming that authorities are only interested in large payments, companies run the risk of ignoring the full picture.

The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.

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