Orange County Branch Newsletter

March 2015

Law and CE News

Managing Risky Business Across U.S. Borders

With the increasing interconnectivity of the global market, firms are reaching across borders to take advantage of business opportunities made possible through ease of communication and travel. Business practices in other countries are based on different traditions and cultural norms and, sometimes, what is acceptable, or even expected in another country may be illegal for a U.S. business. The Foreign Corrupt Practices Act (FCPA) is a federal statute aimed at preventing U.S. companies from gaining an unfair advantage in their business dealings outside of the U.S., and it is enforced by the Department of Justice and the Securities and Exchange Commission. It is therefore imperative to have an understanding of the principles of the FCPA when engaging in business outside of the U.S.

What Does the FCPA Prohibit?

The FCPA is basically an anti-bribery law. Bribery under the FCPA is simply defined as a quid pro quo transaction between one person and a foreign official. The activities prohibited under the FCPA relate to “corruptly” securing an unfair advantage or influencing a foreign official’s acts or duties in their official capacity to get or keep business. The broad definition of what acts count towards influencing or gaining an unfair advantage is noteworthy: offering, promising, giving, paying, or even authorizing the giving of anything of value all count toward those acts prohibited by the FCPA. Violating the FCPA can lead to civil penalties and criminal penalties if the actor knows they are doing, in common parlance, a “bad” act.

A key predicate for a violation is that it is done “corruptly.”   As used in the FCPA, it means there must be an intent to have the official misuse his or her position. Note however, you may not have to actually give a bribe, or even try to give a bribe. Violations have been based on internal communications alone where a company president merely expressed an intent to bribe an official. The FCPA can also be implicated to penalize firms and actors doing business outside the U.S. who purposefully ignore bribery by third parties. For instance, if a petroleum engineering firm looking to secure work on a pipeline uses a third party intermediary to help with its efforts, it cannot look the other way if that third party bribes local officials to secure work on the project. Even though the engineering firm is itself not engaging in any acts prohibited by the FCPA, it can still be liable for violating the act by knowingly standing by while others do so on its behalf, or with the end result benefiting the engineering firm.

The FCPA also applies to acts incidental to engaging in work abroad.  For example, even after a U.S. business secures work abroad, any bribe to obtain visas, clear foreign customs, or other actions of greasing the wheels to slide by official requirements would also be a violation of the FCPA.

How to Abide by the FCPA

While the FCPA covers a broad set of prohibited acts, its prohibitions are generally intuitive: don’t enter into quid pro quo transactions with foreign officials. The trickier aspect is how to manage projects and business in which a local third party actor is involved. This requires more extensive risk management than many firms generally consider when entering into relationships with foreign counterparts. A good way to avoid inadvertent FCPA violations is through contractual terms.

When negotiating contracts with foreign consultants, firms can include provisions that shield them from FCPA violations. A few examples of such provisions are:

  1. Authority to audit the foreign consultants financial records periodically in order to ensure that they are not violating the FCPA.
  2. Termination of the agreement if an audit discloses prohibited payments to foreign officials.
  3. Representations by the consultant that it will not engage in acts prohibited by the FCPA.
  4. Prohibitions on making any payments or offers of anything of value to foreign officials to secure work.
  5. Indemnification (including defense) owed to the firm for any act done by the consultant in violation of the FCPA.

These are just a few examples of contractual terms that may aid in preventing liability under the FCPA. Moreover, similar contractual terms can help send a message that questionable actions will not be tolerated. Finally, having these types of contractual provisions in writing can be evidence of a firm’s lack of intent to engage in “corrupt” acts forbidden by the FCPA.

The expanding global marketplace provides U.S. companies with a range of opportunities, but these opportunities also involve the potential for liability of the FCPA, which carries serious penalties. A first step in avoiding these penalties is to know that a decision to engage in business overseas should include consideration that such business is above board and fair.

Please contact us at the Oakland, South Pasadena, Orange, or San Diego offices to discuss further.

David Barker, Esq. | d[email protected]

Liam K Malone, Esq. | I[email protected]

Collins Collins Muir + Stewart LLP
2173 Salk Avenue, Suite 250 | Carlsbad, CA 92008
Phone: (760) 274-2110    | Fax:  (760) 274-2111

Nothing contained in this article should be considered legal advice. Anyone who reads this article should consult with an attorney before acting on anything contained in this or any other article on legal matters, as facts and circumstances will vary from case to case.