Additional criminal and civil penalties can be imposed for failure to maintain adequate books and records and internal controls to detect, prevent and correct bribery of foreign officials. Dozens of countries have enacted similar laws, the U.K. going so far as to criminalize a company's failure to prevent bribery.
The penalties for violating the FCPA are substantial. In 2008, Siemens agreed to pay the U.S. and German authorities $1.6 billion in criminal and civil penalties. Although some of the bribery was directly traceable to "cash desks," much was simply assumed because the company lacked backup documentation justifying expenses paid to consultants abroad. In 2011, Johnson & Johnson paid $21.4 million in criminal penalties and disgorged $48.6 million in profits for payments made to surgeons overseas to influence their use of J&J's products.
Prosecutions are not limited to companies. Prosecution of individuals has increased, including that of executives who did not know their employees were engaged in bribery overseas but failed to monitor or address red flags that came to the executives' attention. Recently, two film producers were sentenced to six months in prison for their bribery of foreign officials running a film festival in Thailand, and another executive was sentenced to fifteen years for his dealings with officials at Haiti Teleco.
Conducting business in countries where bribery is widespread, while at the same time remaining compliant, can be challenging.
The first step is to understand the law. The term foreign official includes any individual who works for a foreign government or an entity owned or controlled by , or is an "instrumentality" of , a foreign government. The doctors in the J&J case, therefore, were foreign officials because they worked at state-owned hospitals and universities. Employees of CCTV, the state-run TV network in China, would also be deemed foreign officials. Providing any such worker or his family with cash, a valuable contract or a gift, to ensure that the agency's spots are played, could constitute a violation.
Also, a principal can be criminally liable for its agent's actions. An advertising agency that hires a consultant to obtain permits when shooting commercials overseas, would be criminally liable if the consultant were to bribe the foreign official in charge of issuing the permit unless the agency took real steps to prevent the bribery.
Implementing "real steps" that is , an effective anticorruption program, is the path to compliance. Indeed, under the U.K. law, having "adequate procedures" can be a complete defense to a charge of failing to prevent bribery. A comprehensive program includes a clear policy, written due diligence and approval procedures for hiring third parties acting overseas and specific anticorruption clauses for contracts with any such third parties. Before hiring any consultant acting overseas, always ask the question, "Did a foreign official recommend this consultant?" If the answer is "yes," you may think twice before retaining. Merely hiring that person may be deemed a violation.
While having a compliance program in place is an essential step, it is not enough. In 2011, IBM, which had an FCPA compliance program in place, found itself paying $10 million to the SEC due its failure to prevent employees from circumventing the policy and using, among other things, travel agencies to hide payments to foreign officials. The lesson learned is that once your program is in place, your employees must be trained and audits must be conducted to ensure the program is working.
Nicole German Di Schino assisted with this piece. She, Jacqueline C. Wolff and Linda Goldstein are attorneys with Manatt, Phelps & Phillips