G O V E R N M E N T E N F O R C E M E N T A N D C O R P O R AT E C O M P L I A N C EFCPA EnforcementActionsBy Jonathan N. RosenManaging Risksin the GlobalMarketplaceAn examination of keyprovisions of the <strong>For</strong>eignCorrupt Practices Actand specific strategiesto manage the legalrisks associated withenforcement trends.<strong>The</strong> past several years have witnessed an explosion of <strong>For</strong>eignCorrupt Practices Act (FCPA) enforcement actionsbrought by the U.S. Department of Justice (DOJ) and theU.S. Securities and Exchange Commission (SEC). Thistrend will probably continue unabated asaggressive U.S. enforcement and prosecutionis enhanced by international cooperationarising from heightened internationalanti- bribery standards and parallel investigationsin foreign jurisdictions. U.S. companiesdoing business abroad now face thegreatest level of government resources tocombat bribery since the FCPA became lawmore than 30 years ago.<strong>The</strong> global investigations of Siemens AGare illustrative. In December 2008, afterfacing action initiated by the DOJ andthe SEC, Siemens, a German company,and three of its subsidiaries pled guilty toFCPA violations. In a press release, the DOJacknowledged the assistance of the Munichpublic prosecutor’s office, which alsobrought charges against Siemens involvingcorrupt payments to foreign officials. SeeDOJ Press Release No. 08-1105, Siemens AGand Three Subsidiaries Plead Guilty to <strong>For</strong>eignCorrupt Practices Act Violations andAgree to Pay $450 Million in CombinedCriminal Fines (Dec. 15, 2008), http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html, and SEC Litigation Release No. 20829,SEC Files Settled <strong>For</strong>eign Corrupt PracticesAct Charges Against Siemens AG forEngaging in Worldwide Bribery With TotalDisgorgement and Criminal Fines of Over$1.6 Billion (Dec. 15, 2008), http://www.sec.gov/litigation/litreleases/2008/lr20829.htm. <strong>The</strong>Siemens case, involving a total penalty of$1.6 billion, was the first-ever, simultaneousresolution of domestic and foreign anticorruptioncharges.As the Siemens case demonstrates, companiesmust determine whether their foreignbusiness operations properly addresscorruption risks. <strong>The</strong> question is no longerwhether, but how, a company with foreignsubsidiaries, branch offices and thirdpartydistributors manages the FCPA risksengendered by its business operations.<strong>The</strong> stakes are clearly high for a company,its officers and its directors. A substantialpercentage of FCPA settlements have involveddeferred prosecution agreements,which, in addition to imposing unprece-58 n <strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong>■ Jonathan N. Rosen is a partner in the Washington, D.C., office of Shook, Hardy & Bacon, LLP, where he specializes in FCPAmatters. Mr. Rosen is a former federal prosecutor who led FCPA investigations and prosecutions on behalf of the United StatesAttorney’s Office in Washington, D.C. He is the publications chair of <strong>DRI</strong>’s Government Enforcement and Corporate ComplianceCommittee.
dented corporate fines, can put in place independentmonitoring relationships conferringwide latitude to monitors to review businessoperations and report to the government.However, the most remarkable trendsin FCPA enforcement are that corporateexecutives have been subject to increasedscrutiny and amplified prospects of imprisonment.As recently described by LannyBreuer, Assistant Attorney General for theDOJ Criminal Division, the “cornerstone”of the “FCPA enforcement policy” is…the aggressive prosecution of individuals.Put simply, the prospect of significantprison sentences for individualsshould make clear to every corporateexecutive, every board member, andevery sales agent that we will seek tohold you personally accountable forFCPA violations. As we focus on theprosecution of individuals, we will notshy away from tough prosecutions, andwe will not shy away from trials.Lanny A. Breuer, Assistant Attorney Generalfor the Criminal Division, U.S. Dep’tof Justice, Remarks at the ABA White CollarCrime National Institute (Feb. 25, <strong>2010</strong>),transcript available http://www.justice.gov/criminal/pr/speeches-testimony/<strong>2010</strong>/02-25-10aag-AmericanBarAssosiation.pdf.<strong>The</strong> government’s previously successfulprosecutions of Frederic Bourke, Geraldand Patricia Green and former CongressmanWilliam Jefferson, a current prosecutionof six former executives of ControlComponents Inc. for one count of conspiracyand an undercover sting against22 individuals in the military and defenseindustry all underscore the government’spolicy of holding not only corporationsbut also managers and board membersaccountable for FCPA violations.<strong>The</strong> purpose of this article is to identifykey provisions of the FCPA and specificstrategies to manage the legal risks associatedwith FCPA enforcement trends.<strong>The</strong> FCPA’s Anti-bribery Provisions<strong>The</strong> FCPA criminalizes bribing a foreignofficial to secure business. In particular, theFCPA prohibits paying, offering or authorizingpayment of money or anything ofvalue to a foreign official for the purposes ofinfluencing any act or decision or securingan improper advantage to obtain or retainbusiness. See 15 U.S.C. §§78dd-1 to -3.<strong>The</strong> FCPA’s anti- bribery provisions applyto (1) “issuers,” defined as a company andits agents with a class of securities registeredwith the SEC or required to filereports with the SEC; (2) “domestic concerns,”defined as a company and its agentswith a principal place of business in theUnited States or organized under U.S. law,and any other U.S. citizen or resident alien;and (3) “other persons,” meaning foreignpersons acting within U.S. territory.Business leaders surely recognize thatthe FCPA prohibits offering a suitcase ofcash to a foreign ministry official to securea government contract. Yet, it may surprisemany business executives to learn that theFCPA more broadly applies to almost limitlesscircumstances involving administrativeand regulatory matters. To protectagainst FCPA liability, business leadersshould understand firmly the recent enforcementtrends concerning the followingelements of a FCPA violation: (1) “foreign official,”(2) “anything of value,” (3) “obtain orretain business” and (4) “any acts within theterritory of the United States.”<strong>For</strong>eign Official<strong>The</strong> FCPA’s definition of a “foreign official”is very broad. Under the FCPA, a foreignofficial does not have to be elected oreven appointed to a government ministryor agency. An individual can be deemed aforeign official even though he or she is notconsidered a foreign official under local law.<strong>The</strong> definition of “foreign official” includes“any officer or employee of a foreigngovernment or any department agency, orinstrumentality thereof… or any person actingin an official capacity for or on behalf ofany such government or department, agencyor instrumentality….” 15 U.S.C. §78dd-1(f)(1). In other words, a person may qualify asa foreign official simply by virtue of his orher employment with an “instrumentality”of a government—a term that is neither definedby the FCPA nor clarified by the act’slegislative history. Once a foreign companyis deemed an “instrumentality” of a foreigngovernment, every employee of that companyis a foreign official under the FCPA.Generally, businesses must monitorall internal operational interactionswith host governments or state-ownedor state- controlled enterprises. An entitymay become an “instrumentality” whenOnce a foreigncompany is deemed an“instrumentality” of a foreigngovernment, every employeeof that company is a foreignofficial under the FCPA.the government holds the majority of anenterprise’s subscribed capital, controlsthe majority of an enterprise’s shareholdingvotes or can appoint a majority of themembers of an enterprise’s administrativeor managerial body or supervisory board.An entity may also be deemed a state instrumentalityif that entity performs a “publicfunction.” A public function may be inferredfrom preferential subsidies or otherprivileges that indicate that an entity doesnot function on a normal commercial basis.Dangers particularly exist for pharmaceuticaland medical device companiesthat make payments to doctors employedby state-owned or state- controlled hospitals.In June 2008, after voluntarilydisclosing and cooperating with governmentinvestigators, AGA consented to athree-year, deferred- prosecution agreementwith the DOJ and agreed to pay a$2 million criminal penalty in connectionwith improper payments made byAGA’s Chinese distributor to physiciansemployed by Chinese government- ownedor government- controlled hospitals. SeeDOJ Press Release No. 08-491, AGA MedicalCorporation Agrees to Pay $2 MillionPenalty and Enter Deferred ProsecutionAgreement for FCPA Violations (June 3,2008), http://www.justice.gov/opa/pr/2008/June/08-crm-491.html. Diagnostic ProductsCorporation agreed to settle a FCPAenforcement action in connection withimproper payments to physicians and laboratorypersonnel employed by governmentownedhospitals in China. See DOJ PressRelease No. 05-282, DPC (Tianjin) Ltd.Charged With Violating the <strong>For</strong>eign CorruptPractices Act (May 20, 2005), http://<strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong> n 59
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