Jonathan Herman

Why the Foreign Corrupt Practices Act is NOT BAD for Business

Jonathan Herman
  • Compliance programs created to detect and prevent FCPA violations enable companies to operate with integrity in corrupt markets

In today’s market, consumers and investors want to know if a company is operating in a socially responsible manner. Compliance programs help companies identify, detect and prevent corrupt practices before they happen. With a strong compliance program, companies can confidently assure their shareholders that they are operating with integrity. Additionally, companies have the added benefit of knowing such programs mitigate their liability if they are ever charged with a FCPA violation.[i]

Bill O’Rouke, a 35-year Alcoa employee and head of operations in Russia from 2005-2008 has said:

[Alcoa was bringing in a 40 million USD furnace] The trucks are rolling in. They are bringing up the furnace from Germany. They come into the town and they get stopped by the local authorities. The demand is made: ‘I see all this money coming into my city. I want some.’ We informed the authorities that we were not going to pay, that the furnace can rust before they would get a kopeck, and hoped that they would be enlightened. At the same time, we did dispatch people to try to make them enlightened and let them realize we were going to put his city on the map of the world, to make aerospace plate—“your country needs this product.” We told them, “Sorry, we’re not going to pay you,” and it wasn’t moving. That’s why we were only spending $20 million out of the $100 million budget the first year. Maybe they realized you just don’t get money from these people. So the second year, we spent $120 million; the third year, we spent $200 million. We started to spend the money without interference. But it worked, by sticking to our guns. People must have realized, ‘You don’t get money from them. Let it go. We’ll get it other ways.’[Emphasis added].[ii]

  • The FCPA applies equally to US and Foreign Companies listed on a US stock exchange

The FCPA was not designed to hurt US companies. The FCPA has always applied to any company listed on a US stock exchange.[iii] Furthermore, in 1998, the jurisdiction of the FCPA was broadened in order to cover even more foreign companies.  The FCPA now applies to any foreign companies or any person who causes, directly or through agents, an act in furtherance of a corrupt payment to take place in within the territory of the United States.[iv]

  • Of the 10 largest settlements 8 have been foreign companies[v] 
 

Rank

Company

Country

Settlement

Year

1

Siemens

Germany

$800 million

2008

2

KBR/Halliburton

USA

$579 million

2009

3

BAE

UK

$400 million

2010

4

Snamprogetti Netherlands B.V./ENI S.p.A

Holland/Italy

$365 million

2010

5

Technip S.A.

France

$388 million

2010

6

JGC Corporation

Japan

$218.8 million

2011

7

Daimler AG

Germany

$185 million

2010

8

Alcatel-Lucent

France

$137 million

2010

9

Panalpina

Switzerland

$81.8 million

2010

10

Johnson & Johnson

USA

$70 million

2011

 
    • Routine business transactions are not a violation of the FCPA

    The FCPA does not inhibit or criminalize routine business transactions.[vi] The FCPA explicitly states that the Act does not apply to “to any facilitating 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.”[vii] Furthermore, payments that are 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 [either] the promotion, demonstration, or explanation of products or services [or] the execution or performance of a contract with a foreign government or agency thereof” are not subject to the FCPA.[viii]

    [i] Foreign Corrupt Practices Act: Hearing on 15 U.S.C. §78dd-1 and §78dd-2(f) Before the H. Subcommittee on Crime, Terrorism and Homeland Security, 112th Cong. 4 (1977) (statement of Greg Andres, Acting Deputy Assistant Attorney General Criminal Division).

    [ii] Joe Palazzolo, Alcoa Exec Says Business Leaders Should Stick Up For The FCPA, Wall Street Journal Blog: Corruption Currents, June 24,2011.

    [iii] Andres,supra note 1. at 3.

    [iv] 15 U.S.C §§77dd-3(a)(2000))

    [v] The FCPA Blog Copyright © 2007 - 2011 by Richard L. Cassin and Cassin Law Publishing

    [vi] Cortney C. Thomas, The Foreign Corrupt Practices Act: A Decade of Rapid Expansion Explained, Defended and Justified, 29 Rev. Litig. 439,446( 2010).

    [vii] 15 U.S.C. §§78dd-1(b),78dd-2(b), 78dd-3(b).

    [viii] 15 U.S.C. §§78dd-1(c),78dd-2(c)(2), 78dd-3(c)(2).