The FCPA Blog

Photo by Steve PunterBy Thomas Fox

The U.K. Bribery Bill, introduced in March 2009, is still on track to pass out of Parliament before the upcoming general election, expected to be in June. The Bribery Bill is a major shift in the U.K.'s overseas anti-corruption regime -- and it goes even further than the FCPA.

Because so many U.S. companies have offices or operations in the U.K., or employ U.K. citizens in their world-wide operations, this legislation exposes them to new risks of prosecution.

Unlike the FCPA, the Bribery Bill has no exception for facilitation payments. It creates strict liability for the failure of a corporate official to prevent bribery, prohibits bribery not just of government officials but also private citizens, and has criminal penalties of up to 10 years prison per offense (not 5 years as under the FCPA).

The Conservative Party tried to introduce amendments that would have allowed facilitation payments "reasonable in amount," "customary in the situation," or the "only reasonable alternative in the situation." Blogger Alan Holroyd reported that Clair Ward, the Parliamentary Under-Secretary of State for Justice, blasted the idea, saying the exceptions (which died in the debate) would have "driven a coach and horses through the policy objectives of the bill."

There's one affirmative defense for "adequate procedures." The defense would allow a corporation to put forward credible evidence that it had adequate procedures (i.e., an effective compliance program) in place to prevent its people from committing bribery offences. The Secretary of State for Justice will be required to publish guidance on "adequate procedures" when the Bill becomes law. And the Government has signaled that it will work with the U.K. business community to develop compliance standards.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. He can be reached at tfox@tfoxlaw.com

More information about the Bribery Bill can be found here.

Our subject in this space is commercial bribery. But other types of graft touch countless lives daily.

Often the most vulnerable people have to pay extra for public services they can't live without -- police protection, medical care, court decisions, water and electricity, and even their children's education.

Rochelle Meddoff's story about corruption in schools appears on the Global Graft Report here. It reminded us of the disturbing TV spot below. It's from Mozambique so the language is Portuguese. But the message is universal.

Here's the clip:

Lawyer and Fulbright Scholar Andy Spalding: The idea that deterring bribery must always be good is too simple.Yesterday's post about corruption's positive influence in poor, unfree countries brought the following comment from Andy Spalding. He's a lawyer on a year-long Fulbright Research Grant in Mumbai, India whose own view of anti-corruption laws has caused a stir.

Here's what he said:

Dear FCPA Blog,

I was delighted to read yet another article in our field written in the ever-important vein of constructive criticism.  For those of us who support the FCPA, it is tempting to categorically dismiss the suggestion that in some economies, some of the time, bribery may actually promote development.  But I'm not sure that this is the right response, for at least two good reasons:

1.  This idea has been around for a very long time.  As Carden and Verdon readily admit, theirs is a new permutation on an idea that has circulated in mainstream economics and political science for over forty years.  It grew out of the study of Soviet bureaucracy, and many of us lawyers who took undergrad majors in poli sci, econ, or history, may at least vaguely recognize names like Samuel P. Huntington.  This idea is not new, and it's not radical.  We would do well to see the FCPA, and the problem of corruption, in a broader context of human experience and intellectual inquiry.

2.  Hasn't the FCPA community understood this since 1988?  That was the year that we amended the FCPA to include the affirmative defense -- which some find counter-intuitive, or worse -- for facilitating payments.  How many of us have had the experience of describing this defense to non-lawyers in a compliance seminar, a meeting with clients, or around the dinner table, only to be met with chuckles of astonishment? The non-FCPA world believes that "a bribe's a bribe," and so did we when we originally drafted the FCPA in the mid-70s.  But ten years of experience taught us otherwise.  For those of us today who endorse the affirmative defense -- who do not believe it is a "loophole" that should be abolished, but instead strikes an important balance -- haven't we tacitly accepted at least some version of Carden and Verdon's thesis? 

We may tend to assume, perhaps unconsciously, that if bribery is bad, then deterring bribery must always be good; the logic is seductive in its simplicity.  But as Holmes taught, "the life of the law has not been logic; it has been experience."  Experience in bribery-prone countries, with all its irony and tragedy, teaches us that though bribery is indeed bad, the alternative may sometimes be worse.  Those who amended the FCPA in 1988, and myriad observers of the human condition dating much further back, understood this regrettable fact.  In today's prosecutorial zeal we may try to ignore it, but those who live and work under corrupt and inefficient regimes cannot escape it. 

With thanks,
Andy Spalding

Corruption may have been a cause of the night club fire last week in the Russian city of Perm that killed 113 people. Alexander Fridman, an entertainment producer there, told the Christian Science Monitor, “Fire inspectors found violations of the regulations a year ago, yet they didn’t come back to check whether corrections were made. Why was that? There were hundreds of people gathering at that club every night, yet they never closed it down. The basic lesson is that fire inspectors should not take bribes.”

Russia's red tape is terrible. The country ranked 182 out of 183 on the World Bank's 2010 Doing Business Index in the category of "Dealing with Construction Permits." It takes an average of 704 days to obtain the permits needed to build a warehouse in Russia; the OECD average is 157 days. Such extreme bureaucratic delays mean petty corruption is the only way to keep things moving.

The Christian Science Monitor said, "Amid Russia’s decaying infrastructure and often jury-rigged new construction, the potential for accidents [such as the nightclub fire] abound because laws are not enforced, experts say." A professor at Moscow's Institute of Architecture said most public buildings are hazards. “As long as we have this practice of paying bribes rather than making the needed improvements," he said, "nothing will change."

The story said 18,000 Russians die each year in fires, several times the rate in most developed countries. The U.S., with twice Russia's population, had 3,500 fire fatalities in 2008.

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More on the indictment of Joel Esquenazi and Carlos Rodriguez (reported here). The two Florida residents were identified by the DOJ as the president and a former vice president respectively of "Company X." The company is Terra Telecommunications Corp., formed in Nevada on July 1, 1996 and domesticated in Florida in 2002. A copy of its Florida business registration can be downloaded here. Thanks to the U.S. readers who provided this information.

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Women in Kabul marched against corruption. As reported by the LA Times and others, hundreds of women on Wednesday held a peaceful but noisy street protest. They want President Karzai to remove from his government anyone connected to corruption and the drug trade. "These women are being very brave," said the protest leader, her face hidden by a burka. "To be a woman in Afghanistan and an activist can mean death. We want justice for our loved ones!" The protest group called itself the Social Association of Afghan Justice Seekers. A spokesperson said "our people have gone into a nightmare of unbelieving" because of the disputed election and the fact that "the culture of impunity" still exists despite Karzai's vow to eliminate it.

Virginia-based DynCorp International said payments by its subcontractors to speed up visas and permits may have caused the company to violate the Foreign Corrupt Practices Act. In its November 12, 2009 quarterly report (Form 10-Q here), it said it found about $300,000 in payments by subcontractors to "expedite the issuance of a limited number of visas and licenses from foreign government agencies." The company didn't include any details about the project involved or the subcontractors referred to in the disclosure. It said it had self-reported the payments to the Justice Department and Securities and Exchange Commission a week earlier and hired outside counsel to conduct an investigation.

On November 23, 2009, the company said in a further filing (Form 8-K here) that "Curtis L. Schehr’s employment as Senior Vice President, Chief Compliance Officer and Executive Counsel of DynCorp International LLC, DynCorp International Inc.’s wholly-owned subsidiary, was terminated without cause."

Schehr, 50, had been in the job since May 2009. Before that he was Dyncorp's Senior Vice President & General Counsel from October 2006.

The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials to obtain or retain business. Indirect payments typically pass through the hands of an overseas partner, agent, or subcontractor, then end up with the foreign official for an unlawful purpose.

But the FCPA includes an exception for payments for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official." See 15 U.S.C. §§78dd-1 (b) and (f) (3) [Section 30A of the Securities & Exchange Act of 1934]. Examples in the statute of so-called facilitating payments include those for "obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country" and "processing governmental papers, such as visas and work orders."

Aren't those the payments Dyncorp disclosed? Maybe not. As we've said before, the facilitating payments exception won't apply if there was no legitimate routine governmental action pending for which a bribe was paid. Action obtained or sought to be obtained by subornation of the official’s duty is not an action ordinarily and commonly performed by a foreign official. So if the visas and licenses mentioned in Dyncorp's disclosure weren't already pending or set to be issued, payments "to expedite" them could be outside the exception. And while the FCPA doesn't limit the size of facilitating payments, the $300,000 disclosed by Dyncorp suggests a quid pro quo for something more than routine governmental action.

DynCorp International Inc. has about 14,000 employees worldwide and reported revenue last year of $3.21 billion. According to its website, the company has "recruited, trained, and deployed more than 6,000 highly-qualified civilian peacekeepers and police trainers to 11 countries, including Haiti, Bosnia, Afghanistan, and Iraq, for the [U.S.] Department of State." It provides "logistics and contingency support to the United States military around the world, including major contract task orders in Afghanistan and Kuwait to augment U.S. Army logistics capabilities, as well as support for Africa Union peacekeepers in Somalia."

After the Iraqi government refused to renew Blackwater's license to operate there, Dyncorp replaced it in a contact to supply helicopters for U.S. diplomats in Baghdad. The Wall Street Journal reported that the contract has been delayed "well into next year as DynCorp's aircraft weren't suited to the job."

DynCorp International Inc. trades on the New York Stock Exchange under the symbol DCP.