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Caveats for Companies Seeking Business Abroad: A Forecast of Stepped-Up Enforcement

February 24, 2009

Recent reports of corporate felony guilty pleas to business corruption charges with penalties commonly running into the hundreds of millions of dollars reflect a ramped up - and  continuing - aggressiveness by prosecutors in the United States and abroad to investigate and enforce anti-bribery laws internationally without regard to industry or country. At the heart of the ramped-up global attention lies an evolving commitment by more and more governments to hold business organizations to account for bribing government officials and for failing to institute and execute muscular anti-bribery compliance programs. Indeed, these criminal and civil cases - and, most important, the Justice Department's involvement - did not terminate with agreements to plead guilty and pay hundreds of millions of dollars in penalties. 

In an increasing number of cases the Justice Department has been requiring  companies to retain independent compliance monitors for as long as four years to oversee the implementation and execution of "robust" compliance programs and to report both to the company and Justice Department. The costly and intrusive government-imposed requirement of a corporate monitor is but one component of an increasingly aggressive enforcement campaign that can be expected to continue, and even expand to "new" industries that have been unaccustomed to the Justice Department's scrutiny for violations of anti-bribery laws. This year, financial services and several tech industries can be expected to join energy, pharmaceutical and medical supplies and contracting and consulting services, among other industries, in attracting the attention of the Justice Department and the Securities and Exchange Commission.

As examples within the last year have illustrated, the Justice Department and its foreign counterparts have redoubled their efforts to enforce the Foreign Corrupt Practices Act (FCPA) and similar anti-bribery laws abroad, which prohibit, among other things, businesses - and their employees - from bribing government officials and others in order to gain business advantages. In addition to United States enforcement (through the Justice Department and Securities and Exchange Commission), public prosecutors' offices overseas are stepping up their initiatives to enforce anti-bribery laws developed under the OECD Convention on Bribery. For example, Germany, Great Britain and several other nations are pursuing individual cases against corporations and are actively cooperating with United States authorities in investigating and prosecuting foreign bribery cases. This international law enforcement initiative is expected to continue and even expand as more foreign governments seek to address corporate criminal liability.

Law enforcement agencies also are expanding their sights beyond the select  industries they traditionally have focused on in enforcing anti-bribery laws. Historically, the Department of Justice, SEC and foreign prosecutors' offices have focused their anti-bribery lens on several industries: (i) oil, gas, and energy; (ii) transportation; (iii) telecommunications; (iv) medical supplies and pharmaceutical; and (v) contracting and consulting services. But at a recent conference, a Justice Department official announced that its Fraud Section, which investigates FCPA violations, would be examining financial services, biotech, and software/high tech industries during the upcoming year. Indeed, the Department of Justice may already be preparing to take action with respect to an FCPA case in the financial services industry. Just recently, Morgan Stanley reported in a public filing that it uncovered possible FCPA violations by one of its employees in a real estate subsidiary in China.

In addition, although business deals in certain regions of the world continue to attract the attention of FCPA enforcement authorities, no global area appears to be immune from the investigative spotlight on business schemes - even at the employee level – aimed at bribing officials for coveted contracts.  Indeed, the corporate employer - perhaps thousands of miles and multiple layers of management away - can still be held to account for the criminal conduct of a single employee. Businesses with operations - including any commercial dealing, contracting, distribution, sales, acquisition, joint ventures or production of goods or services - in China, Russia, Iraq, Africa and the Middle East, among other locales, will most likely continue to come under increased scrutiny, subjecting U.S.-based companies to potential liability for conduct that violates the FCPA. The proverbial red flag often is raised in the eyes of the Justice Department and the SEC for business operations that are conducted in these countries and regions. Consequently, business organizations should exercise heighted care and an aggressive and rigorous due diligence - preferably in consultation and coordination beforehand with experienced and knowledgeable counsel - before embarking on business ventures in such locales.

Finally, to enforce FCPA violations more aggressively, the Department of Justice is applying enhanced global investigatory techniques, while benefiting from the mutual legal assistance and other cooperation it is receiving from its partners abroad, as well as more traditional law enforcement tools, such as use of confidential informants, search warrants and wiretaps. The Department also is increasing its staff of dedicated FCPA enforcement prosecutors and FBI agents. Accordingly, all business organizations seeking to do business in foreign jurisdictions, regardless of their industry, should take heed and seriously consider assessing the merit of their existing FCPA compliance programs now and, in the absence of such a program, implement and maintain a genuine and "robust" program that complies not only with the FCPA, but also with the anti-bribery laws wherever they are doing business. A prerequisite of such actions is gaining a full understanding of the elements of the FCPA and any pertinent foreign anti-bribery laws, and their application to the company’s business plans. By taking prophylactic measures now, corporations seeking to do business abroad can promote their long-term business interests by helping to safeguard against possible liability for FCPA and other anti-bribery violations.