Pfizer recently agreed to pay out over $60 million to settle U.S. government investigations into whether the company paid bribes to boost business overseas in violation of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. §§78dd-1, et seq. The investigations prompted several pharmaceutical companies to develop anti-bribery compliance programs to identify foreign doctors and healthcare workers who may qualify as “foreign officials.” To avoid heavy business costs like those suffered by Pfizer, any company doing business overseas should familiarize itself and comply with the FCPA.
The FCPA was enacted in the 1970s when an SEC investigation uncovered that 400 U.S. companies made questionable or illegal payments in excess of $300 million to foreign public officials. It created criminal and civil sanctions for bribing a foreign public official. The FCPA provisions falls under two main categories: 1) anti-bribery and 2) accounting. The accounting provisions generally require corporations covered by the FCPA to make and keep books and records to accurately reflect the corporation’s transactions and to create and implement a system of internal accounting controls. The anti-bribery provisions prohibit any U.S. individual or firm and certain issuers of securities, from bribing a foreign official or politician to act, or refrain from acting in violation of his official capacity, or otherwise misuse his official capacity in order to 1) obtain or retain business for or with any person or 2) direct business to any person. (Note that the Department of Justice interprets “obtaining or retaining business” broadly so that it covers more than a mere award or renewal of a contract.) The FCPA criminalizes the act of bribery, whether the bribery achieves its purpose or not. Bribery under the FCPA includes an offer, gift, promise to give or authorization of the giving of anything of value.
However, an individual, firm or an issuer covered by the FCPA may assert two affirmative defenses if charged with bribery of a foreign official or politician. First, the individual, firm or issuer may argue that the payment, gift, offer, or promise of anything of value was lawful under the written laws and regulations of the foreign official’s and politician’s country. Second, it could argue that the payment, gift, offer or promise was a reasonable and bona fide expenditure incurred by or on behalf of a foreign official or politician. Additionally, the expenditure was directly related to 1) the promotion, demonstration or explanation or products or services or 2) the execution of performance of a contract with a foreign government or one of its agencies.
Businesses and individuals should comply with the FCPA because it imposes heavy sanctions. From the outset, the Department of Justice may, in its discretion, bring a civil action to enjoin the bribery in a U.S. district court with proper jurisdiction. A U.S. firm or issuer found to be in violation of the FCPA may be fined up to $2,000,000. An officer, director, employee or agent of a U.S. firm or issuer found to be in violation may subject to a $10,000 civil penalty but a willful violation would result in fines up to $100,000 or imprisonment up to five years, or both.
Also, just because you are not a U.S. individual or firm does not necessarily mean you don’t have to worry about foreign anti-bribery law. First, the FCPA also applies to foreign firms and persons who take any act in furtherance of such a bribe while in the U.S. Second, other countries have similar provisions to the FCPA where they have signed onto the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Convention”). Signatory nations to the Convention have agreed to enact domestic laws to criminalize, sanction and prevent bribery of foreign public officials.
To avoid the high costs, a globalized company should pay attention to the FCPA and laws similar to the FCPA, especially in countries where a state government is an active player in the market. As precaution, a company should ascertain 1) whether the party with whom it is doing business is a “foreign official” and 2) whether the payment is a “bribe” or “improper payment” under the FCPA or a similar law. For a more thorough summary of the FCPA anti-bribery provisions, see the Department of Justice’s “Lay-person’s guide” to the FCPA.