Trends and climate
Trends
Have there been any recent changes in the enforcement of anti-corruption regulations?
The key law in the United States is the Foreign Corrupt Practices Act 1977, as amended in 1998.
Legislative activity
Are there plans for any changes to the law in this area?
There are no legislative plans to reduce the scope of Foreign Corrupt Practices Act liability.
Legal framework
Authorities
Which authorities are responsible for investigating bribery and corruption in your jurisdiction?
Both the Department of Justice and the Securities and Exchange Commission (SEC) have specialised units that handle Foreign Corrupt Practices Act investigations and prosecutions. The two units often work together in coordinated investigations where their jurisdictions overlap. The Department of Justice’s Foreign Corrupt Practices Act unit is located in the fraud section of its criminal division in Washington DC. The unit is responsible for all criminal prosecutions involving violations of the act. Unlike many other criminal statutes, Foreign Corrupt Practices Act violations must be coordinated with this unit. The SEC’s Foreign Corrupt Practices Act unit is housed within the SEC’s enforcement division in Washington DC. Similar to the Department of Justice’s Foreign Corrupt Practices Act unit, the SEC’s unit is responsible for all civil prosecutions involving violations of the act. As a result, a general key component of a successful resolution of a Foreign Corrupt Practices Act investigation is working with defence counsel who know and have credibility with attorneys in these units.
Domestic law
What are the key legislative and regulatory provisions relating to bribery and corruption in your jurisdiction?
The Foreign Corrupt Practices Act's anti-bribery provisions make it illegal to offer or provide money or anything of value to officials of foreign governments or foreign political parties with the intent to obtain or retain business. These provisions apply to:
- issuers;
- domestic concerns;
- agents acting on behalf of issuers and domestic concerns; and
- any person who violates the Foreign Corrupt Practices Act while in US territory.
The term ‘issuer’ covers:
- any business entity that has securities listed on a US exchange; and
- any company that has shares quoted in the over-the-counter market and is required to file periodic reports with the SEC (15 USC § 78dd-1). In this context, foreign issuers whose American Depository Receipts are listed on a US exchange are issuers for the purposes of the act, subject to certain exceptions.
The term ‘domestic concern’ is even broader and includes any US citizen, national or resident, as well as any business entity that is organised under the laws of a US state or that has its principal place of business in the United States (15 USC § 78dd-2). The term ‘person’ covers foreign nationals and entities that violate the act while in US territory (15 U.S.C. § 78dd-3). Foreign Corrupt Practices Act liability exists if a foreign national or company conspires with, aids and abets or acts as an agent of an issuer or domestic concern, regardless of whether the foreign national or company engages in any action in the United States.
The Department of Justice and the SEC have clarified the Foreign Corrupt Practices Act’s application in A Resource Guide to the US Foreign Corrupt Practices Act (2015).
International conventions
What international anti-corruption conventions apply in your jurisdiction?
The United States is a signatory to many of the international conventions against corruption, including:
- the United Nations Convention Against Corruption;
- the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions;
- the United Nations Convention against Transnational Organised Crime; and
- the Inter-American Convention Against Corruption.
Specific offences and restrictions
Offences
What are the key corruption and bribery offences in your jurisdiction?
In addition to the Foreign Corrupt Practices Act, there are a wide variety of offences that can apply to corruption, including mail and wire fraud, money laundering, antitrust and competition and other offences.
Hospitality restrictions
Are specific restrictions in place regarding the provision of hospitality (eg, gifts, travel expenses, meals and entertainment)? If so, what are the details?
There are specific limitations on gifts and hospitality provided to government officials in the United States. For example, executive branch employees are limited to $20 per occasion and $50 per source annually. Many states and other jurisdictions have their own gift and hospitality limitations. The legislative branch, including members of the Senate and the House of Representatives, have their own gift and hospitality limitations.
Facilitation payments
What are the rules relating to facilitation payments?
The Foreign Corrupt Practices Act contains an explicit exception to the bribery prohibition for any “facilitation or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official” (15 USC § 78dd-1(b) and (f)(3)). ‘Routine government action’ does not include a decision by a public official to award new business or continue existing business with a particular party. The statute lists examples of what is considered a routine government action, including:
- obtaining permits, licences or other official documents to qualify a person to do business in a country;
- processing government papers, such as visas or work orders;
- providing police protection, mail pick-up and delivery or scheduling inspections associated with contract performance or the transit of goods across the country;
- providing phone coverage, power or water, loading and unloading cargo or protecting perishable products from deterioration; and
- actions of a similar nature.
There is no monetary threshold for determining when a payment crosses the line between a facilitation payment and a bribe.
Liability
Scope of liability
Can both individuals and companies be held liable under anti-corruption rules in your jurisdiction?
Yes. The Foreign Corrupt Practices Act applies to both natural and legal persons.
Can agents or facilitating parties be held liable for bribery offences and if so, under what circumstances?
Yes. In the United States, the law provides for a wide scope of liability, including agents, facilitating parties and independent contractors.
Foreign companies
Can foreign companies be prosecuted for corruption in your jurisdiction?
Yes. The term ‘person’ covers foreign nationals and entities that violate the Foreign Corrupt Practices Act while in US territory (15 USC § 78dd-3). Liability under the act exists if a foreign national or company conspires with, aids and abets or acts as an agent of an issuer or domestic concern, regardless of whether the foreign national or company engages in any action in the United States (Crim Div, US DOJ and Enforcement Div, US SEC, A Resource Guide to the US Foreign Corrupt Practices Act (November 14 2012) at p27).
Whistleblowing and self-reporting
Whistleblowing
Are whistleblowers protected in your jurisdiction?
Yes. Whistleblowers have both incentives and protections. The Securities and Exchange Commission (SEC) is authorised by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Foreign Corrupt Practices Act action in which over $1 million in penalties is ordered. The range for awards is between 10% and 30% of the money collected. The Office of the Whistleblower was established to administer the SEC’s whistleblower programme. Retaliation against whistleblowers is prohibited by law, and the SEC has fined companies for such action, including:
- removing the whistleblower from his or her position;
- tasking the whistleblower with investigating the conduct that he or she reported to the SEC;
- changing the whistleblower’s job function;
- stripping the whistleblower of his or her supervisory responsibilities; and
- marginalising the whistleblower.
Self-reporting
Is it common for leniency to be shown to organisations that self-report and/or cooperate with authorities? If so, what process must be followed?
Both the Department of Justice and the SEC provide the possibility of leniency for organisations that self-report and cooperate with the authorities. The decision of whether to disclose voluntarily is complex and fact dependent and has wide-ranging consequences that must be carefully considered. The primary Department of Justice policy is the Principles on Federal Prosecution of Business Organisations. In April 2016 the Department of Justice published a memorandum describing a Foreign Corrupt Practices Act pilot programme to encourage self-reporting and voluntary disclosure. The programme will be in effect until April 2017, unless extended. The SEC’s policy is contained in the Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act 1934 and the Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, commonly known as the ‘Seaboard Report’.
Dispute resolution and risk management
Pre-court settlements
Is it possible for anti-corruption cases to be settled before trial by means of plea bargaining or settlement agreements?
Yes. Foreign Corrupt Practices Act cases are often settled before trial, and sometimes even before charge or indictment with the Department of Justice and the Securities and Exchange Commission (SEC).
Defences
Are any types of payment procedure exempt from liability under the corruption regulations in your jurisdiction?
The Foreign Corrupt Practices Act provides certain affirmative defences. Under 15 USC Section 78dd-1(c)(1) “the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country”. This defence is often hard to establish; the affirmative defence specifically requires that the laws be written and expressly apply to the situation in question. Under 15 USC Section 78dd-1(c)(2), the Foreign Corrupt Practices Act permits as an affirmative defence reasonable and bona fide travel and lodging expenses that are directly related to the demonstration or explanation of products and services. The affirmative defence requires that:
“the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to… the promotion, demonstration, or explanation of products or services,” (15 USC § 78dd-1(c)(2)(B)).
The inaccurate characterisation of the expense or the failure to have adequate internal controls to ensure that it is appropriate could still violate the books and records and internal control provisions, even if there is insufficient proof that the payment was a bribe.
What other defences are available and who can qualify?
The primary defences that apply under the Foreign Corrupt Practices Act relate to whether the government can prove the corrupt intent that the statute requires or whether there is a legitimate reason for the financial arrangement that is suspected to cover a bribe.
Risk management
What compliance procedures and policies can a company put in place to assist in the creation of safe harbours?
The Foreign Corrupt Practices Act provides no safe harbour in the manner of the UK Bribery Act’s adequate procedures defence. However, the Department of Justice and the SEC often reduce fines and penalties where a company has an effective compliance programme. Under the US Sentencing Guidelines, the following factors are considered in the assessment of a compliance programme’s effectiveness:
“(a) To have an effective compliance and ethics program, for purposes of subsection (f) of §8C2.5 (Culpability Score) and subsection (b)(1) of §8D1.4 (Recommended Conditions of Probation - Organizations), an organization shall—
(1) exercise due diligence to prevent and detect criminal conduct; and
(2) otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.
Such compliance and ethics program shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct. The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.
(b) Due diligence and the promotion of an organizational culture that encourages ethical conduct and a commitment to compliance with the law within the meaning of subsection (a) minimally require the following:
(1) The organization shall establish standards and procedures to prevent and detect criminal conduct.
(2) (A) The organization's governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program.
(B) High-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program, as described in this guideline. Specific individual(s) within high-level personnel shall be assigned overall responsibility for the compliance and ethics program.
(C) Specific individual(s) within the organization shall be delegated day-to-day operational responsibility for the compliance and ethics program. Individual(s) with operational responsibility shall report periodically to high-level personnel and, as appropriate, to the governing authority, or an appropriate subgroup of the governing authority, on the effectiveness of the compliance and ethics program. To carry out such operational responsibility, such individual(s) shall be given adequate resources, appropriate authority, and direct access to the governing authority or an appropriate subgroup of the governing authority.
(3) The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.
(4) (A) The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subparagraph (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals' respective roles and responsibilities.
(B) The individuals referred to in subparagraph (A) are the members of the governing authority, high-level personnel, substantial authority personnel, the organization's employees, and, as appropriate, the organization's agents.
(5) The organization shall take reasonable steps—
(A) to ensure that the organization's compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct;
(B) to evaluate periodically the effectiveness of the organization's compliance and ethics program; and
(C) to have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization's employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation.
(6) The organization's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.
(7) After criminal conduct has been detected, the organization shall take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization's compliance and ethics program.
(c) In implementing subsection (b), the organization shall periodically assess the risk of criminal conduct and shall take appropriate steps to design, implement, or modify each requirement set forth in subsection (b) to reduce the risk of criminal conduct identified through this process.”
Record keeping and reporting
Record keeping and accounting
What legislation governs the requirements for record keeping and accounting in your jurisdiction?
The Foreign Corrupt Practices Act’s books and records provisions require issuers to make and keep accurate books, records and accounts that, in reasonable detail, accurately and fairly reflect the issuer's transactions and disposition of assets. The act's internal control provisions require that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting violations. The act’s internal control provisions require issuers to:
“Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that—
(i) transactions are executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general or specific authorization,” (15 USC Section 78m(b)(2)(B)).”
Congress added a definition of ‘reasonable assurances’ which further clarified that issuers were not being held to an absolute standard of adequacy of controls. The new Section 13(b)(7) defined ‘reasonable assurances’ as “such... degree of assurance as would satisfy prudent officials in the conduct of their own affairs” (15 USC § 78m(b)(7)).
What are the requirements for record keeping?
Under the Foreign Corrupt Practices Act’s books and records provisions, an issuer of securities must “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer”.
Reporting
What are the requirements for companies regarding disclosure of potential violations of anti-corruption regulations?
There is generally no affirmative duty of disclosure of Foreign Corrupt Practices Act violations in the United States. Some specific regulations require disclosure in narrow circumstances, such as where a US government contract is obtained by means of a bribe payment.
Penalties
Individuals
What penalties are available to the courts for violations of corruption laws by individuals?
Violations of the Foreign Corrupt Practices Act can lead to substantial civil and criminal penalties. Under the anti-bribery provisions individuals face criminal fines of up to $100,000 per violation and five years' imprisonment. Under the accounting and record-keeping provisions individuals face criminal fines of up to $5 million per violation and 20 years' imprisonment. Under the Alternative Fines Act, the actual fine may be up to twice the benefit that the defendant sought to obtain from making the corrupt payment. Further, the Securities Exchange Commission may seek to impose civil penalties of up to $10,000 per violation and disgorgement. Additional penalties can include:
- injunctions;
- forfeiture of assets;
- disgorgement of profits; and
- suspension (or in some cases debarment) from doing business with the government.
Companies or organisations
What penalties are available to the courts for violations of corruption laws by companies or organisations?
Violations of the Foreign Corrupt Practices Act can lead to substantial civil and criminal penalties. Under the anti-bribery provisions, companies face criminal fines of up to $2 million per violation. Under the accounting and record-keeping provisions, companies face criminal fines of up to $25 million per violation. Under the Alternative Fines Act, the actual fine may be up to twice the benefit that the company sought to obtain from making the corrupt payment. Further, the Securities Exchange Commission may seek to impose civil penalties of up to $10,000 per violation and disgorgement. Additional penalties can include:
- injunctions;
- forfeiture of assets;
- disgorgement of profits; and
- suspension (or in some cases debarment) from doing business with the government.
Further, some companies that have settled Foreign Corrupt Practices Act violations with the government have had to defend civil lawsuits alleging violations of the Racketeer Influenced and Corrupt Organisations Act that were premised on Foreign Corrupt Practices Act violations.
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