Corruption poses a significant legal and economic risk for corporations doing business around the world. The Foreign Corrupt Practices Act of 1977 (FCPA) is a federal law prohibiting US citizens and permanent residents, both public and private US companies and certain non-US individuals and entities from bribing foreign government officials to obtain a business advantage. The Securities Exchange Commission (SEC) and the Department of Justice (DOJ) investigate, settle and prosecute violations of the FCPA occurring both domestically and internationally. Companies that operate directly or through affiliated or unaffiliated parties, particularly in developing and transitioning countries, may be vulnerable to FCPA enforcement actions and should ensure compliance.

Recent FCPA actions have reinforced the government's priorities. In November 2012, the DOJ and SEC jointly released A Resource Guide to the U.S. Foreign Corrupt Practices Act (Resource Guide), which outlined non-binding FCPA guidance (For more information on the Resource Guide, see Legal Update, New FCPA Guidance Released by the DOJ and SEC). Both the Resource Guide and recent government enforcement activities remind businesses that:

Government agencies have broadly interpreted the application of parent-subsidiary liability under the FCPA. According to the recently released Resource Guide, the SEC and DOJ apply a broad agency theory to parent-subsidiary relationships to determine if FCPA liability exists for the parent based on the subsidiary's action. Whether or not a parent specifically authorized, directed or controlled the actions of a subsidiary, if the government finds that an agency relationship of general control exists, the parent may be liable for FCPA violations committed by the subsidiary.

For example, in an enforcement action against United Industrial Corp., the SEC brought anti-bribery charges against the parent company based on the actions of its subsidiary. The SEC apparently based liability on the parent's general control over the subsidiary, rather than establishing the parent's authorization, direction and control of the illicit actions. The SEC's allegations relied on the facts that:

This case, along with the agencies' position on parent-subsidiary liability outlined in the recent Resource Guide, is a reminder that businesses are vulnerable to FCPA enforcement actions not only for their own actions, but also the actions of their subsidiaries.

The Resource Guide also specifically states that the SEC and DOJ will bring enforcement actions against businesses that attempt to conceal the use of third parties to make illegal bribes to foreign officials, including:

Businesses should ensure that they are properly vetting unaffiliated third parties by conducting thorough risk-based due diligence when entering into third-party relationships.

The FCPA applies to persons and entities with formal ties to the US, which includes both US issuers and the broader category of domestic concerns. However, the DOJ and the SEC interpret the FCPA to also confer jurisdiction over foreign companies and foreign nationals who directly or indirectly engage in any act in furtherance of a corrupt payment while in the territory of the US, regardless of whether they use the US mails or a means of interstate commerce. Therefore, wholly foreign entities and actors may be liable under the FCPA if, in the furtherance of a foreign bribery scheme, they:

A recent decision from the US District Court for the Southern District of New York addresses the reach of the SEC and DOJ over wholly foreign activities and individuals under the FCPA.

In SEC v. Straub the court found personal jurisdiction existed over three foreign executives of a Hungarian telecommunications company, even though the executives' only contacts with the US were that:

(No. 11 Civ. 9645 (S.D.N.Y. Feb. 8, 2013).)

This decision indicates that personal jurisdiction exists where executives engage in conduct that is purposefully directed at the US in some way, even where the activities and individuals are wholly foreign.

For more information see, Legal Update, SDNY Decision May Broaden Jurisdiction Over Foreign Nationals Under FCPA.

The Resource Guide lists factors that the government considers when determining whether to charge a corporation or negotiate another resolution. Chief among these factors are a company's:

Both the DOJ and the SEC have a variety of possible methods to resolve FCPA investigations at their disposal, the most costly and time-consuming of which consist of DOJ criminal indictments and SEC civil actions. Both agencies can resolve investigations without resorting to these drastic measures by using:

While the DOJ commonly enters into non-prosecution agreements, the SEC recently entered into a non-prosecution agreement to resolve a FCPA investigation for the first time. The SEC specifically noted that it will confer substantial and tangible benefits on companies that respond appropriately to FCPA violations and cooperate fully with the government. Both agencies cited voluntary disclosure and cooperation with the government's investigation as reasons for their decision not to prosecute. For more information on this case, see Legal Update, SEC Reaches First FCPA Non-Prosecution Agreement with Ralph Lauren Corporation.

Ideally no bribery or corruption will take place in any part of a business's operations. However, in the event that a company discovers the existence of bribery or corruption, the Ralph Lauren agreement presents a road map to less expensive and more straightforward resolution, which includes:

Because the SEC and the DOJ consider the existence and effectiveness of the company's pre-existing compliance program in determining how to resolve FCPA violations, companies should ensure that a comprehensive FCPA anti-corruption policy is in place throughout their global operations.

For a sample FCPA anti-corruption policy with helpful drafting notes, see Standard Document, Foreign Corrupt Practices Act Anti-Corruption Policy.

For more information on FCPA regulation and compliance, see Practice Note: Overview, The Foreign Corrupt Practices Act: Overview and Foreign Corrupt Practices Act Compliance Checklist.