Is It a Bribe...or Not?

By 
• JOE PALAZZOLO
 

The Foreign Corrupt Practices Act is among the statutes most feared by companies with global operations. It can also be one of the most confusing.

Since 2008, the U.S. Justice Department and Securities and Exchange Commission have extracted billions of dollars in criminal and civil penalties over alleged violations of the 1977 law, which bars U.S.-based or U.S.-listed companies from bribing foreign officials in exchange for business and requires them to keep accurate books and records.

But the line between legitimate business expense and bribe is sometimes hard to apprehend, and the U.S. government takes an expansive view of the statute's reach.

How well do you know the FCPA? Take this quiz, adapted from guidance published by the Justice Department and the SEC last year, to find out.

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Daniel Hertzberg

1. Gas Corp. is a large energy firm based in New York and listed on the New York Stock Exchange. It enters into a joint venture with a private European company, Euro Gas Ltd., to bid on a contract to develop an oil field in Nigeria.

Senior vice presidents at Gas Corp. and Euro Gas meet in New York and decide to hire a consultant, Middleman Inc., to funnel payments on the joint venture's behalf to a deputy oil minister with influence over the bidding process. The payments are invoiced as consulting fees, but Middleman Inc. passes most of the money to the deputy minister. The joint venture wins the contract.

Which entities are liable under the FCPA?

A) Gas Corp.

B) Gas Corp. and Euro Gas

C) Middleman Inc.

D) All of the above

Answer: All of the above. Gas Corp. is both based in the U.S. and listed on a U.S. stock exchange, either of which means it is bound by the FCPA. Euro Gas is liable because its executives made the decision to pay the bribe while they were in New York. And Middleman Inc., even though it never took any actions in the U.S., could be charged with conspiring with the other two companies to violate the FCPA. (Euro Gas could be charged in the same conspiracy, even if its executives had never stepped foot in New York.)

***

2. At a trade show in Shanghai, Widgets Co., a Kansas City, Mo., company that wants to expand its presence in Asia, invites current and prospective customers out for drinks and pays the bar tab. Those invited include midlevel executives at companies owned or controlled by the Chinese government.

Is this a violation of the FCPA?

Answer: No, the FCPA doesn't prevent companies from promoting their businesses or providing legitimate hospitality. However, be mindful that the Justice Department and the SEC consider employees of state-owned enterprises to be foreign officials, meaning it is illegal to bribe them under FCPA.

***

3. After drinks, Widgets Co. executives invite executives at one of China's state-owned utility companies to the U.S. to talk about a lucrative contract with the utility on which the American firm is bidding.

Widgets pays for the officials to fly first class with their spouses to Las Vegas and puts them up in a casino hotel for a week before meeting with the Chinese executives on the final day of the trip to discuss the contract.

Is this a violation of the FCPA?

Answer: Yes. The trip can barely be said to have a legitimate business purpose. It is extravagant and clearly meant to curry favor with the Chinese executives, who have influence over whether Widgets wins the contract.

***

4. Mining Corp., a mining company listed on the New York Stock Exchange, just identified a new mineral deposit in Afghanistan. The company needs to build a road from the deposit to a nearby port and hires a local agent to help it secure the necessary permits from Afghan authorities.

The agent informs Mining Corp.'s international vice president that he plans to make a one-time small cash payment to an Afghan clerk, so the clerk will stamp and file the permit applications quickly. In the past, the clerk has sat on such applications for months. The vice president authorizes the payment.

Does the payment violate the FCPA?

Answer: No. The FCPA contains an exception for "facilitating payments"—a euphemism for grease bribes—that are paid to obtain a routine service. In other words, Mining Corp. is paying the clerk to do something the clerk is supposed to do—file applications for permits. A note of caution, however: Facilitating payments may be illegal in the country in which they are paid, and they have to be recorded accurately in a company's books and records.

***

5. A few months later, the agent tells Mining Corp.'s vice president that he can't get an environmental permit for the road because the planned route would cut through protected wetlands. Mining Corp. could build the road around the wetlands for about a million dollars more. Or, the agent says, the company could make a $3,000 cash payment to the director of the country's natural-resources department, who in return will sign the permit so the road can be built on the wetlands. The vice president authorizes the payment.

Is this a violation of the FCPA?

Answer: Yes. The payment is clearly designed to influence the director, a foreign official, into using his power improperly. Unlike the clerk, the director has discretion to approve or reject the application.

Your score

5 out of 5: You're practically a compliance officer.

4 out of 5: Your company provides good FCPA training.

3 out of 5: You ignored your company's FCPA training.

2 out of 5: You've probably paid a bribe without
even knowing it.

1 out of 5: You've been living under a rock.
In Antarctica.

0 out of 5: Seriously?

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