For The Defense, October 2010 - DRI Today

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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 Ewww. justice.gov/opa/pr/2005/May/05_crm_282.htm, and SEC Litigation Release No. 51724(May 20, 2005). In another case, the SECfiled a settled civil injunctive action againstMonty Fu, the founder and past chairmanof Syncor International Corporation,in connection with improper paymentsmade to doctors in state-owned hospitalsin Taiwan. See SEC Litigation Release No.“Anything of value” hasbeen broadly construedto include politicalcontributions, entertainment,travel, meals and lodging.20310, SEC Files Settled Books and Recordsand Internal Accounting Controls ChargesAgainst Former Chairman of Syncor InternationalCorp. (Sept. 28, 2007), http://www.sec.gov/litigation/litreleases/2007/lr20310.htm. Asthese cases illustrate, any company doingbusiness in China must determine whetherit is doing business with a state-ownedenterprise. See United States v. SSI InternationalFar East Ltd., No. 3:06-cr-00398 (D.Ore. 2006) (defendant company consentsto a deferred- prosecution agreement withthe DOJ for payments made to managersof government- owned steel mill in China).More recently, the DOJ has used theFCPA’s expansive definition of foreign officialto announce an industrywide investigationof the pharmaceutical industry.In a speech on November 12, 2009, tothe Tenth Annual Pharmaceutical Regulatoryand Compliance Congress and BestPractices Forum, Lanny Breuer warnedthat “[o]ur focus and resolve in the FCPAwill not abate, and we will be intenselyfocused on rooting out foreign briberyin your industry. That will mean investigationand, if warranted, prosecution ofcorporations to be sure, but also investigationand prosecution of senior executives.”Lanny A. Breuer, Assistant Attorney Generalfor the Criminal Division, U.S. Dep’tof Justice, Keynote Address at the TenthAnnual Pharmaceutical Regulatory and60 n For The Defense n October 2010Compliance Congress and Best PracticesForum (Nov. 12, 2009), http://www.justice.gov/criminal/pr/speeches-testimony/documents/11-12-09breuer-pharmaspeech.pdf. Mr. Breuer highlightedthe potential problems of engagingin business with foreign health care systemswhen he said that “under certaincircumstances and in certain countries,nearly every aspect of the approval, manufacture,import, export, pricing, salesand marketing of a drug product in a foreigncountry will involve a ‘foreign official’within the meaning of the FCPA.” Id.Of course, risks involving state-ownedor state- controlled enterprises are not limitedto the pharmaceutical or medical deviceindustry. In February 2009, KelloggBrown & Root LLC pled guilty to multipleFCPA- related criminal charges and settled aparallel SEC proceeding in connection withimproper payments to Nigerian governmentofficials, including employees of stateownedenterprises, the Nigerian NationalPetroleum Corporation and the Nigeria LNGLimited, to win and retain engineering, constructionand procurement contracts.Given the broad definition of “foreignofficial,” every company should knowwhether its business partners are employedby a state-owned or state- controlled enterpriseor if they perform public duties for aforeign country.Anything of ValueAlthough neither defined in the FCPA normade clear in the legislative history, “anythingof value” has been broadly construedto include political contributions, entertainment,travel, meals and lodging. Iteven includes intangible benefits, such asenhanced prestige associated with a charitablecontribution.What qualifies as “anything of value”is mutable because determining whethersomething of value has been offered or conferred,as well as its value, depends on thepersonal valuation of the receiving official.For example, an ostensibly routine businesstrip to the United States to visit a factorymay become the trip of a lifetime toa foreign official if Las Vegas and DisneyWorld are also on the itinerary. A FCPAviolation is not triggered by receipt by a foreignofficial of some objectively determinedpayment amount or a “gift” worth someobjectively determined amount.The outer reaches of “anything of value”has been highlighted in one enforcementaction involving a charitable donation, Inthe Matter of Schering- Plough Corp., FileNo. 3-11517 (June 9, 2004). In that case, theU.S. government took the position that adonation to a bona fide charitable organizationestablished to restore castles and otherhistoric sites violated the FCPA. A Polishsubsidiary donated to a foundation, and itsfounder became director of a governmenthealth fund. The donations constituted athing of value to the government healthofficial because they were subjectively valuedby the official and provided him withan intangible benefit, enhanced prestige.The Schering- Plough case shows that evendonations to bona fide charities that do notpass directly or filter indirectly to governmentofficials may violate the FCPA.Paying the expenses of certain individuals,such as travel and lodging, may also violatethe FCPA. On December 21, 2007, theSEC and the DOJ filed and settled chargesagainst Lucent Technologies Inc., whichspent over $10 million in travel, lodging,entertainment and related expenses for approximately1,000 employees of a Chinesestate-owned enterprise from which Lucentsought business. See DOJ Press Release No.07-1028, Lucent Technologies Inc. Agrees toPay $1 Million Fine to Resolve FCPA Allegations(Dec. 21, 2007), http://www.justice.gov/opa/pr/2007/December/07_crm_1028.html, andSEC Litigation Release No. 20414, SEC FilesSettled Action Against Lucent TechnologiesInc. in Connection With Payments of ChineseOfficials’ Travel and EntertainmentExpenses; Company Agrees to Pay $1.5Million Civil Penalty (Dec. 21, 2007), http://www.sec.gov/litigation/litreleases/2007/lr20414.htm. The trips were primarily for sightseeingand leisure rather than business purposes,although the expenses were notedin expense records as “factory inspections,”but in locations where no factories existed.Id. Similar trips were booked as “trainingexpenses” by UTStarcom, Inc., which latelast year resolved its FCPA matters with theDOJ and the SEC. See SEC Litigation ReleaseNo. 21357, SEC Charges California TelecomCompany with Bribery and Other FCPA Violations(Dec. 31 2009), http://www.sec.gov/litigation/litreleases/2009/lr21357.htm.The FCPA contains an affirmative defenseto a violation charge for expenditures
for the “promotion, demonstration, or explanationof products or services” or the“execution or performance of a contract.”15 U.S.C. §§78dd-1(c)(2)(A) to -1(c)(2)(B).However, a company must show that the expenseswere “reasonable” and “bona fide”and “directly related” to a business purpose.The Schering- Plough, Lucent andUTStarcom cases alert business leaders tothe fact that FCPA enforcement will subjecta wide variety of business practices toreview. To use an affirmative defense forbusiness expenditures, companies mustretain some control over the expendituresto ensure that they have legitimate businesspurposes.Obtain or Retain BusinessOne common misperception about theFCPA is that improper payments must berelated to securing government contracts.In fact, the FCPA is more broadly focused onpayments that grant companies improperadvantages over competitors, regardless ofwhether government contracts are, in fact,in play. As a result, business leaders mustunderstand the administrative and regulatorypractices of the foreign countrieswhere they do business.United States v. Kay, 359 F.3d 738 (5thCir. 2004), was the seminal decision thatclarified the breadth of the FCPA’s “obtainor retain” violation element. In Kay, thecourt held that payments to lower corporatetaxes and custom duties could violatethe FCPA. In other words, the FCPA doesnot simply criminalize making paymentsto secure government contracts. Paymentsoffered for many other purposes also areillegal under the FCPA.Since the Kay decision, the SEC andthe DOJ have initiated several FCPAenforcement matters involving improperpayments to obtain various foreign governmentlicenses, permits and certifications.In July 2009, for example, Helmerich& Payne Inc. consented to a two-year,deferred- prosecution agreement with theDOJ under which it would pay a fine of$1 million dollars, and it settled a parallelaction with the SEC by consentingto a disgorgement of $375,681, includingprejudgment interest, in connection withimproper payments made through custombrokers to custom officials in Argentinaand Venezuela to expedite the importationand exportation of certain equipmentand other materials. See DOJ Press ReleaseNo. 09-741, Helmerich & Payne Agrees toPay $1 Million Penalty to Resolve Allegationsof Foreign Bribery in South America(July 30, 2009), http://www.justice.gov/opa/pr/2009/July/09-crm-741.html, and SEC NewsDigest, Enforcement Proceedings, In theMatter of Helmerich & Payne, Inc. (July 30,2009), http://www.sec.gov/news/digest/2009/dig073009.htm.Business executives must understandthe FCPA- related violation risks associatedwith routine business activities such asexporting products into foreign markets.The following is a list of relevant questions:• Does local law require a license, permitor certification?• Is a company relying on a third partyto obtain various licenses, permits orcertifications? If so, has the companyperformed due diligence to ensure complianceby that third party with theFCPA?For over 25 years, LMI has provideddefendants with award winningrecord acquisition, medical recordanalysis, complex litigation anddocument management services,all delivered via LM[I]SIGHT,our secure client site designedexclusively for the defense.Our experienced medical and legalprofessionals stand ready to deliver theinsight you need, when you need it.• Who is interacting with foreign officialsto obtain licenses, permits or certifications?Has that employee requested anyunusual reimbursements?• Will the company issue payment to alicensing agency or to an individual official?Issuing payments to individuals isinadvisable.• Have the licensing agencies providedinvoices or other supportingdocumentation?Any Acts Within the Territoryof the United StatesIn 1998, several amendments expandedthe power of the Foreign Corrupt Practices.As a result, a foreign business or individualbreaks the law under the Foreign CorruptPractices Act if they cause, directly orthrough another, an act to further a corruptpayment that takes place within theUnited States.Recently, the government has aggressivelypursued FCPA criminal prosecu-Elizabeth B. Juliano, Founder & Chief Executive Officer1 9 8 4-2 0 0 9CELEBRATING 25 YEARSTRANSFORMING INFORMATION, DELIVERING INSIGHTwww.medicineforthedefense.com1 800.778.5424For The Defense n October 2010 n 61
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