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Why We Keep Plugging

It's a familiar and unwelcome moment. Those on the other side of the table spot the FCPA compliance language for the first time:

The joint venture and all its personnel shall comply in all respects with the requirements of the United States Foreign Corrupt Practices Act.
Faces darken. The mood in the room goes sour.

"What's this?" they ask. "U.S. law doesn't have anything to do with our joint venture."

You start explaining: "The FCPA outlaws public bribery by Americans outside the United States. American companies are obligated to comply wherever they do business. Part of that is making sure their overseas partners don't pay bribes . . . "

"Excuse us," they say. "Our new joint venture isn't an American company and we're not Americans. Forget it. Anyway," they add, "our country has its own anti-corruption laws. And we always obey THEM."

It's going to be a long day. Lots of long days.


Reactions overseas to the FCPA range from mild irritation to vein-popping outrage. It's understandable. The law is sometimes seen as another example of America's arrogance and overreaching, a violation of sovereignty -- legal imperialism at its worst, and high-handed global moralizing. But that's a bum rap. Really.

The FCPA's aim isn't to change the world. It's to stop U.S. companies and their people from bribing foreign officials to obtain or retain business. That's clear from the early debates. Congress didn't want Americans bribing foreign government officials. Doing that, lawmakers and regulators said, distorts competition, ruins reputations, harms local populations and interferes with the foreign policy of the U.S. government.

But people always look for loopholes and shortcuts, so the FCPA takes that into account. It outlaws bribes to foreign officials that are paid directly or indirectly. And it's the indirectly part that causes so much upset overseas.

The FCPA says you can't hire an agent to pay bribes for you. You can't use joint venture partners for the dirty work either. You can't use a brother-in-law or charitable foundation or any other circuitous route. Bribes to foreign officials that originate from your hand are always your responsibility, no matter how indirectly you try to pass them on.

So when American companies go abroad, they have to make sure their business partners -- suppliers, subcontractors, professional advisors, agents and, of course, joint venture partners -- don't pay bribes to foreign officials to help the business. Taking steps to prevent that is required by an effective compliance program. Companies that don't try to stop intermediaries from paying bribes have no real defense under the FCPA when problems happen.

Does explaining all this (and a lot more) to overseas business partners help? Does it soothe their bruised pride and wounded nationalism? Yes, it usually helps, but the process isn't easy. Let's face it -- the FCPA makes people mad. Take due diligence: What contacts have you had for the past five years with any government or government-controlled entity? Are you now paying or have you ever paid bribes to anyone in any government? Can we ask your lawyer, banker, accountant and business associates if you're trustworthy? Those sorts of questions never sound friendly.

To get deals done overseas, though, it's necessary to explain what the FCPA is, what it's meant to accomplish, and how it works. That's good compliance and good business -- and worth fighting for.

So what's better? Spending a few extra hours or days at the negotiating table to do the right thing at the start, or spending years or even a lifetime trying to repair the terrible damage that an FCPA offense can cause?


Reader Comments (3)

What a great way to start a partnership.

What do you think about using different language? It's always annoying to say "you have to comply with US law." It's another to say that you aren't allowed to offer or give anything of value to a government official, wherever located, to induce them to misuse their authority to give you an improper advantage.

If the JV partner has a problem with that language, then you have a bigger problem. And it avoids the "comply with US law" aspect of it.

But given that as long as the contract exists and you keep collecting revenue, the DOJ thinks there's no statute of limitations issue because receiving revenue from a tainted contract is a continuing act of the bribery to get the contract, how can you not make sure that you have some contractual protections?

Although, in my experience, I haven't met anyone who's willing to bribe someone but isn't willing to lie about it.

Contracts don't get you anything. But you still have to have the language.

July 17, 2008 | Unregistered CommenterHoward

Good post.

July 18, 2008 | Unregistered CommenterMiguel

I certainly agree with your comment that the FCPA is partially motivated by a desire to prevent U.S. companies and their people from bribing foreign officials to obtain or retain business. However, I think you perhaps overstate the degree to which the Justice Department and SEC were motivated solely by US ramifications; they also no doubt were motivated by a moralistic view foreign policy. There is obviously so single 'purpose' behind any piece of legislation produced by so many disparate forces. Consider, however, that in President Ford's message transmitting the proposed Foreign Payments Disclosure Act (a precurser to the FCPA) one stated benefit was for the US to be able to provide "moral leadership in the area of ending 'improper business practices'" and that presidents Ford and Carter sought to develop a multinational code of corporate conduct. (Greanias & Windsor, The Corrupt Foreign Practices Act, 50 (1982)).

"In the same way that a foreign policy more closely reflecting basic American values would redound to the benefit of the nation, so, too, the employment of American corporations to fulfill this foreign policy would presumably, in the end, redound to their benefit...." Id.

The FCPA's aim was, to some degree, to try to change the world.

July 21, 2008 | Unregistered CommenterJake

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