Virginia-based DynCorp International said payments by its subcontractors to speed up visas and permits may have caused the company to violate the Foreign Corrupt Practices Act. In its November 12, 2009 quarterly report (Form 10-Q here), it said it found about $300,000 in payments by subcontractors to “expedite the issuance of a limited number of visas and licenses from foreign government agencies.” The company didn’t include any details about the project involved or the subcontractors referred to in the disclosure. It said it had self-reported the payments to the Justice Department and Securities and Exchange Commission a week earlier and hired outside counsel to conduct an investigation.
On November 23, 2009, the company said in a further filing (Form 8-K here) that “Curtis L. Schehr’s employment as Senior Vice President, Chief Compliance Officer and Executive Counsel of DynCorp International LLC, DynCorp International Inc.’s wholly-owned subsidiary, was terminated without cause.”
Schehr, 50, had been in the job since May 2009. Before that he was Dyncorp’s Senior Vice President & General Counsel from October 2006.
The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials to obtain or retain business. Indirect payments typically pass through the hands of an overseas partner, agent, or subcontractor, then end up with the foreign official for an unlawful purpose.
But the FCPA includes an exception for payments for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official.” See 15 U.S.C. §§78dd-1 (b) and (f) (3) [Section 30A of the Securities & Exchange Act of 1934]. Examples in the statute of so-called facilitating payments include those for “obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country” and “processing governmental papers, such as visas and work orders.”
Aren’t those the payments Dyncorp disclosed? Maybe not. As we’ve said before, the facilitating payments exception won’t apply if there was no legitimate routine governmental action pending for which a bribe was paid. Action obtained or sought to be obtained by subornation of the official’s duty is not an action ordinarily and commonly performed by a foreign official. So if the visas and licenses mentioned in Dyncorp’s disclosure weren’t already pending or set to be issued, payments “to expedite” them could be outside the exception. And while the FCPA doesn’t limit the size of facilitating payments, the $300,000 disclosed by Dyncorp suggests a quid pro quo for something more than routine governmental action.
DynCorp International Inc. has about 14,000 employees worldwide and reported revenue last year of $3.21 billion. According to its website, the company has “recruited, trained, and deployed more than 6,000 highly-qualified civilian peacekeepers and police trainers to 11 countries, including Haiti, Bosnia, Afghanistan, and Iraq, for the [U.S.] Department of State.” It provides “logistics and contingency support to the United States military around the world, including major contract task orders in Afghanistan and Kuwait to augment U.S. Army logistics capabilities, as well as support for Africa Union peacekeepers in Somalia.”
After the Iraqi government refused to renew Blackwater’s license to operate there, Dyncorp replaced it in a contact to supply helicopters for U.S. diplomats in Baghdad. The Wall Street Journal reported that the contract has been delayed “well into next year as DynCorp’s aircraft weren’t suited to the job.”
DynCorp International Inc. trades on the New York Stock Exchange under the symbol DCP.
This certainly is an interesting story. As noted in the article, the facilitating payment exception comes to mind. However, another reason for disclosure could be that the payments themselves were legitimate facilitating payments but were booked as something else – like "IT Services" or "Office Supplies," possibly by a third party intermediary. One of the problems with the FCPA facilitating payments exception and a common pitfall is the failure to record the payments for what they are – smaller bribes. This is particularly problematic if a third party makes the payment in country where there is no facilitating payment exception under the local law. That local third party intermediary has no cover under local law for properly disclosing the payment so that its principal may comply with the FCPA. It may also be the case that the payments were "ok" under the FCPA — i.e. they were facilitating payments that were properly booked. But as the facilitating payments, no matter who actually made them, would certainly violate the local law the country where the payments were made, it may be the case that a third country investigation has been instituted and the DOJ and SEC are precautionary in nature. The speculation continues in that it may be the case that the Company has "best practices" internal controls, particularly with respect to relations with third party intermediaries, that were not followed in some regard such that the payments were made without the level of oversight the company would have expected. All these theories turn on the slippery slope that is the FCPA facilitating payments exception.
I have never understood the "routine governmental action" exception. To me, this seems a morass almost as thick as the affirmative defense one. I struggle to come up with plausible explanations for why payments to police for "protection" or to a clerk for doing something, even if routine for him, are permissible, he is required to do them anyway. I haven’t read this actual case in detail yet, but I’d think any counsel advising a client on how to be in compliance would do well to limit, or even skip, discussion of the "routine governmental action" defense, but ask questions about current practices for which further review might allow specific actions.
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