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Foreign Corruption

Foreign Corruption. BY: Galya Brown Lauren Cisek Katarzyna Conolly.

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Foreign Corruption

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  1. Foreign Corruption BY: Galya Brown Lauren Cisek Katarzyna Conolly

  2. In the mid 1970’s the Securities and Exchange Commission (SEC) started an investigation that resulted in over 400 U.S. companies admitting to making questionable or illegal payments in excess of $300 million to foreign government officials, politicians, and political parties. • Out of these 400 companies, 117 ranked in the top Fortune 500 industries. • 2 major examples of these findings were: • Lockheed bribery scandal • Chiquita Brands- Bananagate scandal Overview

  3. As a result, Congress enacted the Foreign Corrupt Practices Act to bring a halt to the bribery of foreign officials and restore public confidence and the integrity of American businesses. This was later followed by an amendment in 1998 by the International Anti-Bribery Act which was designed to apply anti-bribery to the OECD members.

  4. The act was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. • The FCPA has 2 provisions: • Anti-bribery • Accounting Foreign Corrupt Practices Act of 1977

  5. Anti-bribery: Prohibits U.S Companies, citizens, foreign companies listed on a U.S. stock exchange, or any person acting while in the U.S. from corruptly paying, offering, whether directly or indirectly, money or anything of value to foreign officials, parties, or candidates. • DOJ is responsible for all criminal and civil enforcement. • Accounting: All companies whose securities are listed in the U.S. must meet accounting provisions such as: • Make and keep books & records current; accurately reflecting transactions & dispositions of assets. • Maintain adequate system of internal accounting controls. • The SEC is responsible for civil enforcement. Provisions of FCPA

  6. International Agreements combatting bribery and corruption: (signed and ratified by the US and its trading partners) OECD Anti-Bribery Convention UN Convention Against Corruption Inter-American Convention Against Corruption Council of Europe Convention

  7. Source: The James Mintz Group, “Where the Bribes Are,” 2009. http://www.fcpamap.com/The countries that have generated the most FCPA cases between 1999-2009: Nigeria (11 cases), China (10 cases), Iraq (10 cases)

  8. BAE Systems • Avon Products • Siemens • Invision Technologies • Baker Hughes • Titan Corporation • IBM Recent Cases

  9. Disregards Cultural Differences • Rice Cake expenses in Korea. • Historic traditions in some countries do not agree with legislation. • Infringes upon sovereignty of other countries • State owned or controlled entities • China • Need for “relationship” companies to win contracts in foreign countries • Decreases the Competitiveness of U.S. Companies. Major Problems with FCPA

  10. Willfulness • Corporation must engage in willful criminal conduct in order for DOJ to prosecute. • Affirmative Defenses • Payments may be lawful under the written laws of foreign country. • Lack of clarity in language/terms used in FCPA of 1977 such as: • “Anything of value” • How do you define value? • “Foreign Official” • Definition is too broad and vague • Should employees of state owned enterprises be considered as “foreign officials”?

  11. Foreign officials are defined as “officers or employees of foreign governments as well as any department, agency or instrumentality thereof… any person acting in an official capacity for or on behalf of any government, department, agency or instrumentality.” • Assumed to include employees of state-owned or controlled entities Definition of Foreign Officials

  12. Enforcement agencies interpret “foreign official” to include: • Government employees • People employed by commercial enterprises that are owned or controlled by foreign governments (“instrumentalities”) • Company may still be considered an instrumentality of the government has significant share of enterprise • Everyone employed by instrumentalities, regardless of rank Definition of Foreign Officials

  13. Because the definition is so broad, US companies are unable to determine when the FCPA applies and when they are not complying with it • Increased trade with China • Many Chinese companies are either state-owned, state-controlled or supervised by the State-owned Assets Supervision and Administration Commission of the Sate Council (SASAC) • Difficult for US companies to know how Chinese companies are defined under the FCPA • Puts American companies at a disadvantage • Difficult to identify state-owned enterprises If they are joint ventures with multinational companies Implications of Definition of Foreign Officials

  14. Cases regarding the what constitutes a “foreign official” • Lindsey Manufacturing • US vs. Carson et al. • The “Sting” Case Implications of Definition of Foreign Officials

  15. On May 10, 2011, a California federal jury convicted two of its executives, and a Mexican sales agent of participation in a scheme to bribe Mexican government officials at a state-owned utility company in U.S. v. Niriega. The court provided a list of characteristics to identify what qualifies as foreign official under FCPA. Provides a service to the citizens of the jurisdiction Government officials act as or appoint the key officers & officials The entity is being financed through governmental appropriations, or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties; The entity is widely perceived to be performing official functions. Lindsey Manufacturing

  16. Clarifying the definition of foreign official • “foreign official” is defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof . . . or any person acting in an official capacity for or on behalf of any such government or department, agency or instrumentality. . .” • Therefore we would like to propose an amendment to the existing Foreign Corruption Practices Act that further clarifies the definition of foreign officials Policy Proposal

  17. Clearly defined to include the following: • The percentage ownership by a foreign government that will qualify a corporation as an “instrumentality” • Whether ownership by a foreign official necessarily qualifies a company as an instrumentality • If so, whether the foreign official must be of a particular rank or the ownership must reach a certain percentage threshold • To what extent “control” by a foreign government or official will qualify a company as an “instrumentality.” 

  18. Furthermore we propose that this issue be brought up in the next round of the WTO. • Therefore all countries can come into a consensus as to what constitutes not only on the specific term: foreign official; but also come into an international agreement to prevent foreign corruption and bribery Including the WTO

  19. It would provide the Courts for a clearer definition of the term foreign officials, and would leave less room for interpretation. • U.S. Business would be able to more easily identify entities or employees that could be considered “foreign officials,” under the FCPA. • Increase U.S. ease of doing business abroad • Decrease the number of cases brought to the courts for lack of clarity of definitions. • Could save American companies time and money by decreasing the number of cases they are involved in. Pro’s

  20. Narrowing the definition of “foreign official” under the statute might be interpreted as a permission to bribe employees of those companies and thus weaken internationally recognized significance of FCPA • The Department of Justice argues that narrowing the definition of “foreign officials” is unnecessary and ignores congressional intent • By working through the WTO, US lawmakers will lose the ability to determine how “foreign official” is defined on a case-by-case basis Con’s

  21. The purpose of the proposal is not to encourage bribery but to clarify the current legislation • Due to increased international trade collaboration with the WTO would put all companies on a common ground without taking away power from the Department of Justice Counter-Arguments

  22. On US and Foreign Trade Policies • The US, as the most experienced prosecutor of foreign bribery, has a lot to bring to the table to share with other countries • The US has made huge progress in building international coalitions to fight bribery and corruption. Because of this, bribery and corruption have been positively battled by many international treaties. Therefore, the US, by establishing clear rules with regard to the term “foreign official,” will encourage other international agencies to address this issue • Even though anticorruption instruments are not traditionally recognized as trade agreements, they play a significant role in supporting open trade, leading to sustained economic growth

  23. On the Private Sector • American companies would be able to more easily identify entities or employees that could be considered “foreign officials” under this statute • Lower risk of noncompliance with the FCPA regulations Impact of Proposal

  24. References Foreign Corrupt Practices Act. Bribery Provisions. http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf Ingber, Matthew. "Litigation: Who Is a Foreign Official under the FCPA?" InsideCounsel. 02 June 2011. Web. 19 Nov. 2011. http://www.insidecounsel.com/2011/06/02/litigation-who-is-a-foreign-official-under-the-fcp McBride, Thaddeus, and Reid Whitten. "Federal Judge Upholds DOJ's Expansive Application Of FCPA : Government Contracts, Investigations & International Trade Blog." Government Contracts, Investigations & International Trade Blog : Government Contracts Lawyer & Attorney : Sheppard Mullin Law Firm : Bids, Licenses, Awards, Conflict of Interest. 11 May 2011. Web. 18 Nov. 2011. http://www.governmentcontractslawblog.com/2011/05/articles/fcpa/federal-judge-upholds-dojs-expansive-application-of-fcpa/. Lee, Judith A., and James D. Slear. “Unique problems with FCPA compliance in the People's Republic of China.” Business Law Today 16, no. 5 (2007). http://apps.americanbar.org/buslaw/blt/2007-05-06/slear.shtml "Proposed Amendments to the FCPA." Infosec Island. 06 Nov. 2010. Web. 19 Nov. 2011. https://www.infosecisland.com/blogview/9263-Proposed-Amendments-to-the-FCPA.html The United States Department of Justice. Foreign Corrupt Practices Act. http://www.justice.gov/criminal/fraud/fcpa/ Trade Compliance Center. Bribery. http://tcc.export.gov/Bribery/index.asp U.S. Department of State. Corruption and Bribery. http://www.state.gov/e/eeb/cba/gc/ U.S. Securities and Exchange Commission. Division of Enforcement. http://www.sec.gov/divisions/enforce.shtml United States Department of Commerce. Transparency and Anti-Bribery Initiatives. http://www.ogc.doc.gov/trans_anti_bribery.html

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