AMERICAN BAR ASSOCIATION
NATIONAL INSTITUTE ON THE FOREIGN CORRUPT PRACTICES ACT
SPECIAL FOCUS: ISSUES FACED BY SMALL AND MEDIUM ENTERPRISES
OCTOBER 17, 2006
WHAT THE
WITH RESPECT TO TRANSNATIONAL CORRUPTION
Kathryn Nickerson
Senior Counsel
Office of the Chief Counsel for International Commerce
Introduction
I am very pleased to be here today to talk about the assistance that can be provided by the U.S. Government when companies, especially small and medium sized companies, or SMEs, are faced with problems related to international commercial bribery. Although I’m going to focus on what we do at the U.S. Department of Commerce because that’s where I work, I’ll also be mentioning some very important activities performed by the Justice and State Departments as well as the staff of the Securities and Exchange Commission (SEC).
I’m going to cover subjects that fall within four main categories:
I. Small and Medium Sized Businesses and
the FCPA
Small and medium sized companies may face particular challenges in getting the information they need to comply with the FCPA. Perhaps due to their limited size and resources, many are unaware of the FCPA, let alone have any kind of compliance program. I often get calls from the public, usually SMEs or in-house counsel representing SMEs, and my own experience with these companies has confirmed to me that many such companies are often unaware of the basic requirements of the statute and the importance of such compliance programs. Some typical FCPA issues that are raised in such conversations include:
· Penalties, including alternative fines
· Liability for agents, joint venture partners
· Vetting issues for such agents and partners
· Affirmative defenses
· Facilitating payments
· Statute of limitations
· Corporate compliance programs generally, the necessity thereof, models
· Bribery agreements, FCPA clauses in contracts
From the above non-exhaustive list of examples, you can see that SMEs generally have the same questions that most firms have when it comes to the FCPA, but it’s surprising that on the 29th anniversary of the statute, these sorts of basic questions are still being asked and some companies are unaware of its existence.
So why might SMEs in particular face
problems complying with the FCPA?
Definitions for SMEs vary, but according to the Small Business Act, a small business is “one that is independently owned and operated and which is not dominant in its field of operations.” The law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences. The SBA website provides that small businesses generally have fewer than 500 employees. Some industries have fewer than 100 employees, and some have up to 1500 employees and still fall within the statutory definition of small business. http://sba.gov/size. Also, small businesses are overwhelmingly privately-owned. Publicly-traded small businesses number no more than one-tenth of one percent of small employers. Note that the FCPA accounting provisions apply only to publicly-traded companies.
Yet,
according to a 2004 USTR fact sheet, in the United States SMEs make up almost 97%
of all direct exporters, and approximately 65% of exporters are businesses with
fewer than 20 employees. Moreover,
http://www.ustr.gov/assets/Document_Library/Fact_Sheets/2004/asset_upload_file578_6758.pdf
So, given that SMEs may face more obstacles to trade, one could conclude that they may be faced with more potential bribery situations. Unlike larger firms, which may have pre-established business contacts in other countries, SMEs may be more dependent upon intermediaries, such as agents or joint-venture partners, to help their business. Using such intermediaries without an appropriate compliance program which would include procedures for vetting them can lead to FCPA problems. Even if SMEs are aware of FCPA rules, SMEs may be less likely to have the resources of time and money to perform the necessary due diligence to investigate the agent’s reputation and track record.
Of course, the FCPA applies to all companies, irrespective of size. But criminal penalties will impact a small business in far more devastating ways than a large business because the fines that may be imposed make up a much larger proportion of the business’ profits. Also, as with all companies, FCPA fines imposed on individuals may not be paid by their employer or principal. In addition, a person or firm found in violation of the FCPA may be barred from doing business with the Federal government and ruled ineligible to receive export licenses. Indictment alone can lead to suspension of the right to do business with the Federal government.
II.
Advice and Counseling for U.S. Companies
A. Counseling
by the Departments of Commerce and State
The rest of my remarks will focus on what the U.S. Government can do to assist U.S. businesses in complying with the FCPA, and doesn’t apply to just SMEs, although SMEs may use such resources (if they know about them) more often than larger companies.
At the Commerce Department, our first and foremost role is as the promoter of U.S. exports, and that is the primary reason for our involvement with the FCPA and related anti-corruption instruments, such as the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention) and the United Nations Convention Against Corruption.
Corruption can be
a barrier to international trade. However, FCPA compliance certainly should not
be a hindrance or barrier to
Neither the Commerce Department nor the State Department are law enforcement agencies, and when we are addressing a particular fact situation we make it clear that there are limits to what we can do. We certainly cannot bind the government concerning any interpretation or enforcement action with respect to the FCPA. Although we have no enforcement role, we are part of the government, and that means that if we or any other U.S. Government employee has information about a possible FCPA violation, we may arrange for the information to be transmitted to the Justice Department or the SEC as appropriate. Clearly, we cannot guarantee the confidentiality of information that is given to us about a past, ongoing or proposed violation of law.
On the other hand, although we can’t provide fact specific advice like law firms do, we can provide informal, general counseling that firms often find useful concerning the provisions of the FCPA, other countries’ antibribery laws, and international anti-corruption instruments such as the OECD Antibribery Convention, the Inter-American Convention Against Corruption (or OAS Convention), the Council of Europe Criminal Law Convention on Corruption and the United Nations Convention Against Corruption -- all of which we have worked on.
We also counsel companies through a number of publications
designed to assist
The adoption of compliance programs by companies is a key
factor in reducing international corruption. Although many of the larger U.S. companies
routinely educate and train their employees about the importance of good
corporate behavior and stewardship through such compliance programs, the OECD
Phase 2 Report of the United States implementation of the OECD Antibribery
Convention noted in 2002 (see http://www.oecd.org/dataoecd/52/19/1962084.pdf)
that many SMEs apparently did not. As a result, the U.S. Government is taking
steps to ensure that more such businesses are aware of such programs and the
importance of adopting them. Particularly
helpful for SMEs is the section in the State Department Brochure on elements of
a compliance program, which provides that such programs should include:
While recognizing that no one program will suffice for all companies, even small exporters should at least have a policy on the subject of not giving bribes or otherwise violating U.S. and domestic law while engaging in international business. To further assist such SMEs, the Department of Commerce has produced a practical guide for businesses involved in international trade, entitled Business Ethics: A Manual for Managing a Responsible Business Enterprise in Emerging Market Economies, available on-line at www.ita.doc.gov/goodgovernance. This manual is intended to aid enterprises in designing and implementing a business ethics program that meets emerging global standards of responsible business conduct. This manual provides a wealth of information on the subject of ethics and corporate compliance for all enterprises, and is particularly helpful to the SMEs and those new to international trade. Included among the subjects in the manual is practical information on the FCPA, other international corruption instruments as well as the value of corporate compliance programs.
There is also a joint Commerce-Justice brochure summarizing the antibribery provisions of the FCPA, which is reprinted in the State brochure I just mentioned and available separately on our website, at http://www.osec.doc.gov/ogc/occic/tabi.html. The joint FCPA brochure was updated after the 1998 amendments to the FCPA implementing the OECD Antibribery Convention. It has been useful to many companies, especially small firms and those that are new to exporting.
The Departments of Commerce and Justice and staff from the Securities and Exchange Commission also participate in numerous seminars and conferences on the FCPA and related corporate compliance issues sponsored by professional associations and industry groups, many of which are attended by outside and in-house counsel representing SMEs. In addition, the Department of Justice has required companies to implement rigorous compliance programs as part of plea agreements and consent judgments in FCPA matters. (For example, see the Consent and Undertaking in the Metcalf & Eddy case, at, http://www.usdoj.gov/criminal/fraud/fcpa/Appendices/Appendix%20E.htm#Appendix%20E)
Finally, more helpful information for international practitioners is contained in the annual Commerce and State Department Reports to Congress on the implementation of the OECD Antibribery Convention, the last of which was completed in 2004. This information is contained on our website, at http://www.osec.doc.gov/ogc/occic/tabi.html, as well as that of the U.S. Department of Commerce Trade Compliance Center, at www.tcc.export.gov/bribery.
B. Department
of Justice Opinion Procedure
The
Department of Justice will provide FCPA advice to
Activities for which the Department of Justice has issued an opinion stating that the conduct conforms with its current enforcement policy will be entitled to a presumption of compliance in any subsequent enforcement action under the FCPA.
There are a number of positive aspects of the Justice Opinion Procedure. For example, the discussions that often occur between Justice and counsel for the company concerning the application can give counsel an indication of the legal and factual issues that the company needs to be concerned about. I understand that the give-and-take in these discussions often serves to make it unnecessary to take the opinion procedure to a final written conclusion.
It is important to note that an FCPA opinion issued by Justice has no application (i.e., no presumption will apply) to any party which does not join in the request for the opinion nor to any facts not described in the request. Only a well-informed private practitioner can decide whether the procedure will be helpful to an individual client with a particular set of facts and issues.
For more information on the Justice FCPA
opinion procedure, as well as published opinions already issued, I recommend
that you visit the Department of Justice Fraud Section’s very comprehensive
website at: http://www.usdoj.gov/criminal/fraud/fcpa.html
At various conferences I’ve spoken at over the years, I’ve often asked
businesses whether or not they use the Justice Opinion Procedure. Some have
informed me that they are aware of the procedure and they either have used it
or might use it. But some have said that it takes time and often business
decisions need to be made more quickly than the procedure can afford. In my
view, it’s regrettable that the procedure hasn’t been more widely used, as the
published opinions provide another great resource from the U.S. Government for
guidance on the statute. Unfortunately, if companies do not use the procedure,
there will be fewer published opinions to guide companies. (Another reason
there may be fewer published opinions is because if Justice notifies the requester of its intention to issue a negative
response, the requester may (and typically does) withdraw the request before
the formal answer).
III. Assisting
with Due Diligence Information on Specific Companies
A.
The
Commercial Service of the U.S. Department of Commerce (USCS) has several
programs that may assist
But suppose you or your client have already found a potential partner, either on your own or through the Department of Commerce. You may not want to approach such a foreign company before first acquiring some basic background in case this information would change your mind about starting a relationship in the first place. The Department of Commerce Commercial Service can provide you with this background under its International Company Profile (ICP) Program. The ICP Program provides you with background reports on foreign companies in over 80 countries. The U.S. Commercial Service worldwide network of specialists can investigate the financial strength of a company and provide useful information gleaned from the local press, industry contacts, and other sources. For example, the U.S. Commercial Service can provide a detailed financial report on a prospective overseas sales representative or partner in 10 business days or less, including a listing of the company's key officers and senior management, banking relationships and other financial information about the company; and market information, including sales and profit figures, and potential liabilities.
The
U.S. Commercial Service will also provide you with an opinion as to the
viability and reliability of the overseas company or individual you have
selected, as well as an opinion on the relative strength of that company's
industry sector in your target market. These reports are so valuable that they
are often required by many banks and government export financing organizations.
The price is $500 per ICP, depending
on local market cost factors. The USCS doesn’t offer ICP in countries where Dun
& Bradstreet or other private sector vendors are already performing this
service.
It’s
also always a good idea to consider having a detailed face-to-face conversation
with a Commercial Service Officer stationed in the
For more information on these and other
related programs, you can contact the U.S. Commercial Service directly through
its offices in every major
B.
As a provider of services to the exporting community, the U.S. Government has adopted its own anti-corruption programs. These supplement the FCPA and in certain ways go beyond the requirements of the FCPA.
1. Advocacy
Support
The
U.S. Departments of Commerce and State provide worldwide support for qualified
In
October 1996, the Commerce and State Departments revised their advocacy guidelines
to require an anti-corruption agreement from companies seeking
A firm seeking USG advocacy support must agree in writing:
(1) that it and its affiliates have not and will not engage in the bribery of foreign officials in connection with the matter for which advocacy assistance is being sought;
(2) that it and its affiliates maintain and enforce a policy that prohibits the bribery of foreign officials.
The firm must further acknowledge that failure to comply with the terms of this agreement may result in the denial of advocacy assistance.
In
some respects this policy reaches conduct that is not prohibited by the FCPA.
For example, the advocacy guidelines require a firm seeking support to certify
not only as to its conduct, but also as to the conduct of its affiliates.
We specifically intend the term "affiliate" in the Advocacy
Guidelines to include foreign parent firms. The conduct of the foreign
parent covered by the certification includes conduct that in many cases falls
outside of the jurisdiction of the FCPA--such as bribery of a foreign official
where there is no link to the
Why
did we do this? Some
Since we established this requirement, over 1,200 firms have signed the antibribery agreement in connection with applications for advocacy assistance.
If you would like U.S. Government advocacy
support for a bid on a foreign government procurement, the
2. Trade
Missions
We have a similar
policy with respect to Commerce-led trade missions. In a statement issued in
1998, the Secretary of Commerce made an anti-corruption agreement a condition
precedent for companies wishing to participate in our trade missions. Just as
with advocacy assistance, a company wishing to participate in a trade mission
must now certify that it and its affiliates:
(1) have not and will not engage in the bribery of foreign officials in connection with the company's participation in the mission; and
(2) maintain and enforce a policy that prohibits the bribery of foreign officials.
Since this requirement was established, we estimate that over 1,250 firms have signed the antibribery agreement in connection with an application to participate in a Commerce-led trade mission.
IV. Options When Foreign Competitors Bribe
What can be done about the ongoing bribery of foreign public officials by competing foreign firms? We know it is going on, although bribery and corruption are hard to uncover and even harder to prove, as my colleagues from the Justice Department will tell you. There are corruption problems in customs clearances and duties as well as investment licenses and permits, and I am in no way minimizing the crippling effect these forms of corruption have on economies and trade. However, most large transborder bribery allegations are connected to foreign government contracts in several sectors, including military procurement, energy, telecommunications, construction, and transportation. In fact, for the period from May 1, 2004 to April 30, 2005, the U.S. Government estimates that competition for over 53 contracts valued at approximately $15 billion may have been affected by bribery involving foreign firms. Bribery in these types of business transactions is particularly dissuasive to SMEs who can least afford to expend the extensive resources often required to make bids, especially if they must take the chance that the outcome of their efforts will not be determined entirely by commercial considerations.
So
what are a
In some situations, if the procurement or
bribe payment has not actually been completed, it may be appropriate to
inform a foreign government that we are aware of the potential corruption of
the transaction, in order to try to obtain a "clean" procurement
process for any
At a minimum, we want to put countries on
notice that we are watching and expect action. So if you think you are about to lose or have already lost business
to a foreign competitor because of a bribe to a foreign public official, don't
assume that your Government can't do anything about it. We firmly believe that
informing other governments of bribery by persons falling within their
jurisdiction is an effective way to ensure that cases will be brought against
this pernicious practice that we have outlawed since 1977.
***
Contact information for the speaker:
Kathryn Nickerson
Senior Counsel
Office of the Chief Counsel for
International Commerce
Telephone: 202-482-0937
Fax: 202-482-4076
E-mail: occic@doc.gov