The Deming Blog

From an FCPA compliance perspective, in determining what constitutes a bona fide business expenditure, a threshold determination needs to be made concerning whether a government official or unit of government can be paid or reimbursed for expenses that may be incurred.  In many countries, including the United States, limitations exist on what can be paid and, if so, how such payments are made.  Similarly, prior approval may also be required.

Care must be exercised in determining whether an expenditure is legitimate. Unnecessary diversions to resorts and travel upgrades to first class can be a cause for concern.   Expenditures for family members should always give rise to concern.  The analysis must be focused upon whether the expenditures in each situation are necessary business expenditures and, if so, whether what is paid is reasonable under the circumstances. An expenditure that is out of proportion or unrelated to a legitimate business purpose should serve as a basis for concern.

A variety of perspectives must be kept in mind when determining whether a bona fide expenditure is proper.   With the radical differences in living standards in various parts of the world, situations may arise where relatively modest expenditures can be viewed as improper inducements.  In those circumstances, there is a heightened need to be able to justify the legitimate basis for the expenditures that are made.  What might be viewed as customary practices in certain parts of the world are apt to be viewed as once-in-a-lifetime opportunities in other parts of the world.

Although not expressly required by the FCPA's anti-bribery provision, even good-faith offers to pay or reimburse reasonable expenses should be carefully documented and reviewed as part of an entity's compliance program.  The focus of any such determination is whether the expenditures are (1) reasonable in terms or purpose and amount; (2) made in good faith; and (3) relate directly to (a) the promotion, demonstration, or explanation of products or services or (b) the execution or performance of a contract with a foreign government or agency.

Whether the private sector is treated in the same way should not be a relevant consideration for what is reasonable.  Care needs to be exercised to ensure that practices deemed to be entirely appropriate for the private sector are not automatically extended to foreign officials.  For example, it may be an entity's practice to always fly prospective customers in first class as opposed to coach.  However, in certain contexts, an upgrade to first class could be perceived as sufficient to cause some foreign officials to be improperly influenced.  Even though it may be inconsistent with the normal way an entity treats potential customers, it may be necessary to have a different policy for foreign officials.

Under the FCPA record-keeping provisions, the manner in which information is entered into an issuer's records becomes very important under Rule 13b2-1.[1]  As set forth in the FCPA's legislative history, "[t]he purpose of the [accounting and record-keeping provisions] is to strengthen the accuracy of the corporate books and records and the reliability of the audit process . . . ."[2]

Rule 13b2-1 provides that "[n]o person shall directly or indirectly, falsify or cause to be falsified, any book, record or account subject to Section 13(b)(2)(A) of the Securities Exchange Act."[3]  Compliance with the record-keeping provisions is not limited to the accuracy of the record itself. Context and categorization can be equally important factors in determining a record's accuracy.

As pointed out in the FCPA's legislative history, "[u]nder the accounting section no off-the-books accounting fund could be lawfully maintained, either by a U.S. parent or by a foreign subsidiary, and no improper payment could be lawfully disguised."[4]  As a result, placing a transaction into an abnormal category or "burying" it in some other way may serve as a basis for an enforcement action for a violation of Rule 13b2-1 under the FCPA's record-keeping provisions.

Manipulating books or records to mask transactions by characterizing them in some oblique manner or actually falsifying a transaction can lead to serious exposure for an issuer and those individuals involved. At the same time, a record that may be limited in terms of the information provided may be adequate if properly categorized. Being recorded in a proper category may effectively fill in gaps and overcome concerns as to whether a transaction may be improperly disguised.

[1]17 C.F.R. § 240.13b1-2 (2012).

[2]S. Rep. No. 114 at 7, 95^th Cong., 1^st Sess. (1977), reprinted in 1977 U.S.C.C.A.N. 4098

[3]17 C.F.R. § 240.13b1-2.

[4]S. Rep. No. 114, supra note 2, at 11.

From the perspective of global anti-bribery compliance, international developments always need to be kept in mind. It does not matter whether an entity's compliance efforts are oriented to the FCPA, the UK Bribery Act, Canada's Corruption of Foreign Public Officials Act, or similar legal regimes.  There is a growing convergence in terms of the manner and means by which more and more countries are adopting and implementing similar legal regimes.

The convergence is largely a by-product of the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Officials in International Business Transactions (OECD Anti-Bribery Convention), the United Nations Convention against Corruption, the Inter-American Convention Against Corruption, and the Council of Europe Criminal Law Convention on Corruption.  But particularly critical to the convergence taking place is the work of the OECD's Working Group on Bribery.

On January 12, 2012, the OECD Working Group issued its Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Japan. The report was critical of Japan's lack of enforcement of its implementing legislation. It called on Japan to increase its efforts to investigate and prosecute foreign bribery cases. In addition, it called on Japan to establish a legal basis for confiscating the proceeds of bribing foreign officials and to make it a crime to launder the proceeds of foreign bribery.

The OECD Working Group also called on Japan's Ministry of Economy, Trade, and Industry (METI), the ministry that has responsibility for Japan's foreign bribery offence, to take a stronger role in ensuring the effective implementation of the OECD Anti-Bribery Convention.  In addition to promoting enhanced enforcement efforts, METI was also called on to take a more active role in encouraging the use of anti-compliance programs by Japanese companies.

Given the history of the OECD Working Group in pressing parties to the OECD Anti-Bribery Convention to take corrective measures, increased activity can be expected from Japan.  The degree to which increased activity can be anticipated remains to be seen.  However, METI is already in the process of seeking insights from U.S. and U.K. practitioners as well as the U.S. and U.K. subsidiaries of Japanese parent companies.

The FCPA's anti-bribery provisions differ from most other fraud statutes in that they require that the intent be corrupt.[1]  "Corrupt intent" is defined as "having an improper motive or purpose."[2]  The legislative history of the anti-bribery provisions makes clear that, like the domestic bribery statute,[3] the prohibited conduct occurs only when a payment or offer of payment is made to induce the intended beneficiary to in some way misuse his or her official position.

"Corruptly" as used in the anti-bribery provisions signifies "a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position."[4]  "[A] person acts 'corruptly' if he or she acts with a 'bad purpose'."[5]  The thing of value must be given or offered with the intent to influence as opposed to be simply given whether or not the public official carries out his or her official duties.[6]

"Corrupt intent" as used within the context of the anti-bribery provisions derives from the domestic bribery statute.[7]  In the domestic context, "corrupt intent" requires a higher degree of intent than that required for violating the provisions prohibiting gratuities to public officials.[8]  It "incorporate[s] a concept of the bribe being the prime mover or producer of the official act."[9]  It is this element of quid pro quo that distinguishes the heightened criminal intent requisite under the bribery sections of the statute from the simple mens rea required for violations of the gratuity sections of the domestic bribery statute.[10]

[1]United States v. Kozeny, 582 F. Supp. 2d 535, 541 (S.D.N.Y. 2008).

[2]Id. (citing S. REP. No. 114, 9^th Cong., 1^st Sess. 10 (1977), reprinted in 1977 U.S.C.C.A.N. 4098). S.Rep. No. 114 provides:

The word "corruptly' is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position in order to wrongfully direct business to the payor or his client, or to obtain preferential legislation or a favorable regulation. The word "corruptly" connotes an evil motive or purpose, an intent to wrong-fully influence the recipient. It does not require that the act be fully consummated, or succeed in producing the desired outcome.

[3]18 U.S.C. § 201 (2011).

[4]Schrieber, 327 F.3d 173, 183 (2d Cir. 2003).  As explained in United States v. Liebo, 923 F. 2d 1308, 1312 (8^th Cir. 1991), '[a]n act is 'corruptly' done if done voluntarily and intentionally, and with a bad purpose of accomplishing either an unlawful end or result, or a lawful end or result by some unlawful method or means. The term 'corruptly' is intended to connote that the offer, payment, and promise was intended to induce the recipient to misuse his official position." Cf. Bryan v. United States, 524 U.S. 184, 191, 118 S. Ct. 1939, 141 L. Ed. 2d 197 (1998) (approving a similar definitions of "willful").

[5]Schrieber, 327 F.3d at 182 (citing United States v. McElroy, 910 F.2d 1016, 1026 (2d Cir. 1990)).

[6]United States v. Strand, 574 F.2d 993, 996 (9^th Cir. 1978) (distinguishing between intent required for bribery as opposed to an illegal gratuity in domestic bribery statute).

[7]Stichting Ter Behartiging Van de Velangen Van Ouddaandeelhouders In Het Kapitaal Van Saybolt Int'l B.V. v. Schreiber, 327 F.3d 173, 184 (2d Cir. 2003) 

[8]United States v. Hsieh Hui Mei Chen, 754 F.2d 817 (9^th Cir.), cert. denied, 471 U.S. 1139, 105 S. Ct. 2684, 86 L. Ed. 2d 701 (1985).

[9]United States v. Brewster, 506 F.2d 62, 82 (1974).

[10]See id., 506 F.2d at 72; United States v. Alessio, 528 F.2d 1079, 1082 (9^th Cir.), cert. denied, 426 U.S. 948, 96 S. Ct. 3167, 49 L. Ed. 2d 1184 (1976).