Feb 08, 2010

Companies Should Examine Compliance Efforts in Wake of Recent FCPA Enforcement Actions

Companies with operations or sales activity in foreign countries should take note of the arrest last month of 22 corporate executives and employees on federal criminal charges relating to attempted bribery of foreign officials. The arrests represented the largest criminal prosecution ever under the federal Foreign Corrupt Practices Act (FCPA). The FCPA prohibits U.S. individuals and companies, and certain foreign individuals and companies acting in the U.S., from offering payment or anything of value to foreign government officials in order to obtain or retain business. In general, these prohibitions are interpreted very broadly.

The arrests were the result of an elaborate FBI undercover sting operation targeting executives and employees of companies in the U.S., Israel, and the United Kingdom. These companies included Smith & Wesson and several smaller companies. According to the indictments, the individuals who were arrested believed they were paying bribes to an official of an African country in order to obtain a contract to supply small arms to the country’s presidential guard. The bribes were to be paid via a “commission” payment to a sales agent, with the understanding that the sales agent would funnel a portion of the “commission” to a government official who could influence the award of the contract. In reality, the sales agent was an undercover FBI agent. All but one of the arrests were made in Las Vegas at a large trade show for the firearms industry.

These historic arrests highlight a trend toward aggressive FCPA enforcement. In fact, in the press release announcing the arrests, one senior official of the FBI’s Criminal Investigative Division stated that “investigating corruption at all levels is the number one priority of the FBI’s Criminal Investigative Division.” Assistant Attorney General Lanny Breuer added that “would-be FCPA violators should stop and ponder whether the person they are trying to bring might really be a federal agent.” Other countries, which have traditionally lagged the U.S. in making anti-bribery laws a priority, are also stepping up anti-bribery enforcement.

The stepped-up anti-bribery enforcement trend in the U.S. and other countries may pose a particular risk to middle market and smaller companies. These companies typically have less experience in foreign markets and lack formal FCPA compliance programs. It is clear from recent FCPA enforcement trends, including the arrests described above, that enforcement agencies are not giving a pass to smaller companies with regard to FCPA compliance. Any company with operations or sales activity outside the U.S. (and in particular companies contracting directly with foreign governments or agencies) should:

  • refrain from making payments or providing anything of value to foreign officials, whether directly or through agents or other intermediaries,
  • make it clear to employees, agents and business partners that the company has a “zero tolerance” culture with regard to payments to foreign officials,
  • develop and maintain a good FCPA training and compliance program,
  • carefully vet foreign agents and joint venture partners, and be alert to suspicious transactions, and
  • include appropriate FCPA compliance language in contracts with foreign agents and partners.

Further, all companies should be careful about making any commission payments to foreign agents known to have close family or business ties to government officials. They should also be wary if commissions are more than would be expected under normal commercial terms, if there are unusual payment terms (such as cash payments or payments to offshore accounts), or a reluctance on the part of the recipient of the payment to provide proper invoices and other customary documentation.

If your company would like more information about developing an FCPA compliance program, please contact Emily Avant at or 404-815-3661. Please note that the FCPA is one of many U.S. trade controls that could affect your company. Smith, Gambrell & Russell, LLP is prepared to conduct a compliance audit of your company to assist you in your international trade compliance efforts.

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