Last week, the DOJ and SEC issued their long-anticipated Resource Guide regarding the agencies’ FCPA enforcement. Over a year in the drafting, the 120-page Guide addresses, among other things, (1) the definition of a foreign official, (2) gifts and entertainment, and (3) the “hallmarks” of an effective corporate compliance program.
While the Guide, as anticipated by many observers, does not represent a departure from the agencies’ prior positions and does not provide new insights to active FCPA practitioners and observers, it does offer a useful one-stop summary of the agencies’ enforcement positions that are worthy of careful review.
Emphasizing the importance of an Effective Compliance Program
The Guide highlights the importance of effective anti-corruption compliance programs and identifies the basic elements the DOJ and SEC consider when evaluating such programs. The Guide notes that DOJ and SEC understand that “no compliance program can ever prevent all criminal activity by a corporation’s employees,” and that they do not hold companies to a standard of perfection. It reiterates the agencies’ prior claims that companies will receive meaningful credit if they implement in good faith a comprehensive, risk-based compliance program, even if that program does not prevent an infraction in a low-risk area because greater attention and resources had been devoted to a higher-risk area.
For example, the adequacy of the program may influence whether or not charges should be resolved through a deferred prosecution agreement (DPA) or non-prosecution agreement (NPA), as well as the length of any DPA or NPA, the term of corporate probation, the penalty amount or the need for a monitor versus self-reporting. Conversely, the Guide warns that a company that fails to prevent an FCPA violation on an economically significant, high-risk transaction because it neglected to perform due diligence at a level commensurate with the size and risk of the transaction is likely to receive reduced credit based on the quality and effectiveness of its compliance program.
Clarifying who is a “foreign official”
The Guide provides a non-exhaustive list of factors considered by DOJ and the SEC in determining whether a government “instrumentality” constitutes a foreign official under the FCPA. The list, which echoes the agencies’ prior opinions, includes such factors as the foreign government’s degree of control over the entity, the circumstances surrounding the entity’s creation and the purpose of the entity’s activities. The Guide adds that while no one factor is dispositive, an entity is unlikely to qualify as an instrumentality if a foreign government does not own or control a majority of its shares, unless other indicia of substantial control are present.
This clarification is significant, as it marks the first time DOJ or SEC has provided an ownership threshold to assist corporate counsel in assessing an instrumentality’s status. The indicia of substantial control have been broadly construed by the agencies in the past, however, so companies should refrain from overreliance on the ownership threshold introduced by the Guide.
Focusing on intent of gifts, travel and entertainment
The Guide also provides what it considers clarifications regarding gifts, travel, entertainment and other things of value for foreign officials. To violate the FCPA, such things of value must be given with corrupt intent—that is, the intent to improperly influence the government official. The Guide thus instructs that DOJ and SEC are unlikely to investigate the provision of taxi fare, cups of coffee or company promotional items of nominal value. In fact, neither agency has ever pursued an investigation based solely on such conduct in the past.
One could, however, criticize the Guide for failing to address what constitutes a “reasonable” meal or entertainment expense under the law. While DOJ and SEC have made clear that $10,000 meals or entertainment expenses are unreasonable, they have not provided guidance for situations closer to the line that are more likely to vex corporate counsel.
Encouraging M&A due diligence
The DOJ and SEC may also decline to pursue an enforcement action when a company has taken steps toward FCPA compliance, including in the context of mergers and acquisitions. The Guide encourages a company engaging in such corporate restructuring to conduct thorough FCPA and anti-corruption due diligence, conduct FCPA-specific audits of a newly acquired or merged business and implement FCPA-specific code of conduct and compliance training programs as quickly as practicable.
Reaffirming value of self-reporting, cooperation and remedial efforts
The Guide reaffirms what has long been conventional wisdom, namely that both DOJ and SEC place a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA matters.
In addition to considering whether a company has self-reported, cooperated and taken appropriate remedial actions, DOJ and SEC also consider the adequacy of a company’s compliance program when deciding what, if any, action to take. The program may influence decisions made regarding whether or not charges should be resolved through a DPA or NPA (as well as the appropriate length of any DPA or NPA), the term of corporate probation or the penalty amount.
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The Guide collects DOJ’s and SEC’s prior opinions and releases and provides helpful clarifications and hypothetical case studies for corporate counsel. The Guide, however, is just that—a guide—and is explicitly not binding on courts or even the agencies themselves. And few observers had expected more.