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FCPA Blog Daily News

Entries in Agents (71)

Friday
Feb252011

Will Tesler Make A Deal?

Will Jeffrey Tesler follow Jack Stanley and Wojciech Chodan in a plea deal? Here are some reasons why he might . . . .

Click to read more ...

Thursday
Nov112010

News From The Neighborhood

We check in with the D&O Diary, the FCPA Prof, lawgents.com, and the WSJ online.

Click to read more ...

Monday
Oct112010

Schlumberger's Signing Bonus 

Schlumberger, the Wall Street Journal reported, paid a $500,000 signing bonus to an intermediary in Yemen. Are signing bonuses for agents illegal under the FCPA? We take a look.

Click to read more ...

Wednesday
Sep012010

Lobbyists Aren't Always Foreign Officials

In FCPA Opinion Procedure Release No. 10-03 issued Wednesday, the Requestor -- a U.S. limited partnership -- is working with a foreign government on "an innovative natural resources project with a novel approach," and needs help dealing with that government.

The consultant it retained -- a U.S. partnership and its U.S. owner -- is registered as an agent of the foreign government under the Foreign Agents Registration Act, 22 U.S.C. § 61. The consultant "has extensive contacts in the business community and the government in the foreign country, has previously and currently holds contracts to represent the foreign government and act on its behalf, including performing marketing on behalf of the Ministry of Finance, and lobbying efforts in the United States."

While working for the Requestor, the consultant won't be doing any lobbying for the foreign government. And those employees of the consultant still working for the foreign government will be walled off from the Requestor's business. In addition to other controls, the consultant won't have authority to make any decisions on behalf of the foreign government in connection with the Requestor's business. Under local law, according to an opinion the Requestor received, the consultant and its employees aren't officials of the foreign government, and the consultant can legally contract with the Requestor while continuing its other work with the foreign government.

Because the consultant is an agent of the foreign government, and sometimes acts on its behalf, the consultant and its employees could be “foreign officials” for purposes of the FCPA. But in this case, the DOJ said, "the consultant and its owner are not acting on behalf of the foreign government and therefore are not foreign officials."

By walling off the consultant's employees, fully disclosing the relationships to the relevant parties, making sure the relationships are permitted under local law, and putting in place the various contractual obligations to limit the consultant's work for the foreign government, the DOJ was satisfied "the consultant is not a foreign official as defined by the FCPA, 15 U.S.C. § 78dd-2, and the Department would not take enforcement action based solely on payments to the consultant."

In the opinion, the DOJ continued its helpful practice begun earlier this year of listing prior releases that may be relevant. It cited:

• Release 80-02 (Oct. 29, 1980), concerning an employee of a foreign subsidiary of a U.S. corporation who planned to run for political office;

• Release 82-02 (Feb. 18, 1982), about paying a “finder’s fee” to a Nigerian citizen employed in Nigeria’s foreign consulate;

• Release 86-01 (July 18, 1986), about employing foreign members of parliament; and

• Release 94-01 (May 13, 1994), about hiring a foreign official to provide consulting assistance.

FCPA Opinion Procedure Release No. 10-03 (September 1, 2010) can be downloaded here.

All other Releases can be downloaded here.

Thursday
Apr082010

Pulling The Strings

The criminal informations against Innospec and Daimler AG contained counts based on 18 U.S.C. §2. That's not the FCPA, the Travel Act, money laundering, or the conspiracy statute. What is it?

It's the aider and abettor law. Whoever causes someone else to commit a federal crime -- counsels, commands, induces, or procures its commission -- is punishable as a principal

As a principal means the aider and abettor is subject to the same penalties for the crime committed by its agent, as though the principal -- the puppet-master -- had committed the crime itself. Innospec and Daimler each caused a subsidiary to violate the FCPA; therefore they were charged as an aider an abettor of those FCPA violations.

Aiding and abetting isn't an independent crime. The statute provides no penalty; it only abolishes the distinction between common law notions of "principal" and "accessory." United States v. Kegler, 724 F.2d 190, 200 (D.C. Cir. 1983).

Because 18 U.S.C. §2 applies to all crimes under U.S. law, the FCPA doesn't contain an explicit aiding and abetting provision. As mentioned, a person convicted of aiding and abetting is punishable to the same extent as if he had committed the crime himself. So aiding and abetting an FCPA antibribery offense, for example, is punishable by up to five years in prison.

It's not necessary in an aiding and abetting offense that the bribe be actually paid or that it be successful, only that the third party (the puppet) violated the FCPA by offering, promising, or authorizing the unlawful payment or gift. See 18 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a).

Friday
Mar192010

Executive Action At Innospec

Photo by MJCdetroitWhat stands out about Innospec's FCPA guilty plea yesterday is the hands-on role former top managers had in the criminal activity. For nearly a decade they used bribery as just another sales tool, a manipulative and cynical revenue spinner, and did what they could to cover it up.

By 2000, the company's flagship product, TEL, an additive used only in leaded gasoline, was in trouble. The market was drying up after the U.S. and other countries ordered the switch to cleaner, healthier unleaded fuels. But under their go-team bosses, Innospec's salesmen and agents began paying bribes to move TEL into mainly third-world markets.

The SEC's complaint said "Innospec’s former management did nothing to stop the bribery, and in fact authorized and encouraged it."

An email from a former agent in October 2005 to Innospec’s then business director and another executive said Iraqi officials were demanding a 2% kickback on sales. The e-mail said: “We are sharing most of our profits with Iraqi officials. Otherwise, our business will stop and we will lose the market. We have to change our strategy and do more compensation to get the rewards.” 

The Business Director authorized over $195,000 in bribes, and in an e-mail discussing the wording of the invoice, said: "The fewer words the better!”

Innospec acted like a classic corrupter. According to the SEC complaint, it paid lavish travel and entertainment expenses for Iraqi officials, including a seven day honeymoon. It handed out mobile phone cards and cameras and paid thousands in cash for “pocket money.”  It even paid bribes to ensure the failure of a 2006 field test of MMT, a fuel product manufactured by a competitor.

In Indonesia, the bribes to push TEL sales came when the country was planning to go unleaded. At government-linked BP Migas, Innospec paid “special commissions” to a Swiss account and a “one off payment” of $300,000. The greed was mutual. The SEC said one Indonesian official indicated he would assist Innospec in landing TEL sales but he wanted more than just “cents” in return.

The case is far from over. The DOJ said as part of its guilty plea, the company "agreed to fully cooperate with the Department of Justice and other U.S. and foreign authorities in ongoing investigations of corrupt payments by Innospec employees and agents."

Download a copy of the SEC's civil complaint here.

View the DOJ's March 18, 2010 release here.

Copies of the criminal information, sentencing memorandum, and plea agreement can be download from our post here.

Monday
Mar012010

BAE Pleads Guilty

BAE Systems plc (BAE or BAES) pleaded guilty today in U.S. federal court in the District of Columbia to one count of conspiracy.

It admitted conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was sentenced to pay a $400 million criminal fine.

BAE had announced the settlement with the DOJ and the U.K.'s Serious Fraud Office on February 5. The U.S. settlement was subject to today's court approval. See our post here.

In its release, the Justice Department said from 2000 to 2002, BAE "represented to various U.S. government agencies, including the Departments of Defense and Justice, that it would create and implement policies and procedures to ensure its compliance with the anti-bribery provisions of the FCPA, as well as similar, foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-bribery Convention. According to court documents, BAES knowingly and willfully failed to create mechanisms to ensure compliance with these legal prohibitions on foreign bribery. According to court documents, the gain to BAE from the various false statements and failures to make required disclosures to the U.S. government was more than $200 million."

See our post here for a copy of the criminal information against BAE. Exhibit A is a letter John Weston, BAE's chief executive, wrote on November 16, 2000 to U.S. Secretary of Defense William Cohen promising that BAE was not knowingly violating the  Foreign Corrupt Practices Act and other antibribery laws. 

Despite its assurances, BAE "made a series of substantial payments to shell companies and third party intermediaries" without due diligence or proper corporate controls. Some of the payments were to "marketing advisors" whose identity BAE actively concealed from the U.S. government. It also did not disclose some of the payments.

The DOJ said,

For example, after May 2001, BAES contracted with and paid certain advisors through various offshore shell companies beneficially owned by BAES. BAES also encouraged certain advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES admitted that it established one company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships, including who the advisor was and how much it was paid; to create obstacles for investigating authorities to penetrate the arrangements; to circumvent laws in countries that did not allow such relationships; and to assist advisors in avoiding tax liability for payments from BAES.

Unlike the SFO's early February release and charging documents, the DOJ referred to BAE's bribery of Saudi Arabian officials for the al-Yamamah contract -- an $80 billion deal signed in the mid-1980s for the sale of jet fighters.

In today's release, the DOJ thanked the SFO for "the significant assistance provided by the U.K.’s Serious Fraud Office, and further expresses its gratitude to that office for its ongoing partnership in the fight against overseas corruption."

A copy of the U.S. criminal information and the government's sentencing memorandum in U.S. v. BAE Systems plc can be downloaded here and here.

Sunday
Dec132009

MAN Group Fined €150.6 Million For Bribery

German truck maker MAN Group said on Friday that two subsidiaries will pay fines of €75.3 million each to German authorities to resolve corruption charges first disclosed in May this year (here). The fines were imposed against MAN Nutzfahrzeuge AG (the commercial vehicles division) and MAN Turbo AG (the compressors / turbines division) by the public prosecutors' office in the Munich District Court. The company announced at the same time a €20 million settlement with German authorities for unpaid taxes. MAN's releases about the settlements are here and here.

The company separately disclosed (here) that two executive board members of MAN Turbo had resigned "to clear the way for new management." Dr. Gerhard Reiff had been on the board since 2005 and Dr. Stephan Funke since 2007.

MAN's internal investigation uncovered suspicious payments of €51.6 million relating to around 80 transactions. The payments were found in a number of countries and most were through agents and other intermediaries. The company said it has fired 20 employees and is considering suing them for damages. It didn't disclose the countries involved or who may have received illegal payments in the form of "so-called referral commissions." The internal investigation involved "around 70 lawyers, auditors and tax experts . . . working since mid-May to analyze the suspicious payments made in the last ten years at all of MAN’s subgroups."

MAN is Germany's second largest truck, bus and diesel-engine manufacturer behind Daimler AG. It reported revenue in 2008 of €14.9 billion and has 51,000 employees worldwide.

The company said it launched a compliance initiative in July. It said it will disclose to prosecutors any future suspected bribery cases and cooperate with them, establish a revamped compliance office on January 1, 2010 reporting directly to the executive board, provide hands-on compliance training to all employees in sales, purchasing, and marketing jobs, use an IT system designed to reveal any suspicious payments, abolish "referral commissions," and impose due diligence requirements on all agents. MAN said it will also continue talks with various anti-corruption NGOs about joint projects.

The company is listed on the German DAX and its largest shareholder is Volkswagen. MAN AG's ADRs trade on the over-the-counter pink sheets under the symbol MAGOY.PK. It hasn't disclosed any investigations by the U.S. Justice Department or SEC.

Wednesday
Dec022009

Tesler Fights Extradition; Jefferson Appeals

The London lawyer accused by the U.S. of being a middleman in KBR's bribery of Nigerian officials appeared in court last week to fight extradition. Jeffrey Tesler, 61, a U.K. citizen, was indicted in February by a federal grand jury in Houston. He was charged with one count of conspiring to violate the Foreign Corrupt Practices Act and ten substantive FCPA offenses. If convicted on all counts, he faces up to 55 years in prison. U.K. police, acting at the request of U.S. authorities, arrested Tesler in March.

According to a Press Association report, Tesler argued in the City of Westminster Magistrates' Court that his case is already under investigation by the U.K.'s Serious Fraud Office and shouldn't be duplicated by American prosecutors.

Tesler's lawyer, Bill Clegg QC, also said Tesler's case isn't linked to the U.S. "No person who was alleged to have received a bribe was promised a bribe in the U.S.A. No money to pay any bribes originated from any U.S. bank account. Mr Tesler, who it is alleged arranged the bribes, had never visited the U.S. in relation to the alleged conspiracy." The alleged bribes, Clegg said, were handled by a Gibraltar company and paid through Swiss bank accounts.

The U.S. indictment charged Tesler with using his Gibraltar company, Tri-Star Investments, to funnel about $132 million in bribes to Nigerian officials. The payments were intended to secure contracts worth more than $6 billion to build liquefied natural gas facilities on Nigeria's Bonny Island. The DOJ said Tesler was acting for a joint venture known as TSKJ, equally owned by KBR, Technip, SA of France, Snamprogetti Netherlands B.V. (a subsidiary of Saipem SpA of Italy) and JGC of Japan.

The Crown's lawyer, David Perry QC, said U.S.-based companies were involved and money had been channelled through U.S. bank accounts. According to a report in the Guardian, Perry said the allegations against Tesler could be criminal offenses "in Britain as well as the U.S., so extradition could take place under normal legal rules."

In the indictment, the U.S. made this claim of jurisdiction:

At all times relevant to this Indictment, Tesler was an "agent" of an "issuer" within the meaning of the FCPA, Title 15, United States Code, Section 78dd- 1, an "agent" of a "domestic concern" within the meaning of the FCPA, Title 15, United States Code, Section 78dd-2, and an "agent" of a "person" within the meaning of the FCPA, Title 15, United States Code, Section 78dd-3.

The London court continued Tesler's extradiction hearing.

 *   *   *

Down But Not Out. Former congressman William Jefferson, sentenced last month to 13 years in prison for corruption and conspiring to violate the Foreign Corrupt Practices Act, managed to file his notice of appeal on time. It was touch-and-go after Jefferson, 62, filed for bankruptcy in August, saying he owes his criminal defense lawyers more than $5.7 million. But two of the lawyers are sticking with him.

The Times Picayune reported that attorneys Robert Trout and Amy Jackson received approval last week from the trial judge, T.S. Ellis III, for the court to pay Jefferson's legal fees for the appeal. The lawyers won't get their full rates but a lower amount equivalent to court-appointed public defenders. Ellis also approved their request for the court to pay for a transcript of the six-week trial, probably about $26,000.

Jefferson is free on bail pending his appeal. It's expected to take at least a year. Judge Ellis said he released Jefferson because his defense raised an argument that's untested in the appellate courts. Jefferson says he was acting as a private citizen, while a corruption statute he was convicted under applies only to public acts by elected officials. The judge also said he regretted not making the jury's verdict form more specific. (See our post here.)

Jefferson was convicted on 11 charges -- conspiracy, soliciting and taking bribes, depriving citizens of honest services, money laundering and racketeering. He was acquitted of five charges, including Count 11 of the indictment -- the only substantive FCPA charge he faced.

Sunday
Nov292009

Dyncorp Reports Payments, Removes Compliance Officer

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.

Monday
Nov232009

Ex-ABB Manager Arrested, Mexican Agent Pleads Guilty

The Justice Department announced on Monday (November 23) the arrest of the former general manager of a Sugar Land, Texas-based ABB subsidiary for his alleged role in a conspiracy to bribe Mexican government officials. The bribes were allegedly intended to secure contracts with the Comisión Federal de Electricidad (CFE), a Mexican state-owned utility company. The DOJ also said a Mexican citizen who acted as a middleman pleaded guilty in the case and is cooperating in the investigation.

The DOJ charged John Joseph O'Shea, 57, of Pleasanton, California, in an 18-count indictment returned by a federal grand jury in Houston on November 16. He was charged with one count of conspiracy to violate the Foreign Corrupt Practices Act (18 U.S.C. § 371), 12 counts of violating the FCPA (15 U.S.C. § 78dd-2 et seq), four counts of international money laundering (18 U.S.C. § 1956), and one count of falsifying records in a federal investigation (18 U.S.C. § 1519).

Although not named in the DOJ release or charging documents, ABB has confirmed that O'Shea was its employee. Fortune carried this statement from the company: "The individual is a former employee of an ABB unit in Texas. He was terminated in the fall of 2004. ABB continues to cooperate with U.S. authorities."

O'Shea hired Fernando Maya Basurto, 47, of Mexico City, to act as the Texas unit's sales agent in Mexico. Under his contract, Basurto received a percentage of sales as his commission. In December 1997, CFE awarded the Texas business unit a contract, known as the SITRACEN contract, to upgrade the backbone of Mexico's electrical network system. The SITRACEN contract generated more than $44 million dollars in revenue for ABB's Texas business unit. In October 2003, CFE also awarded it a multi-year contract for maintenance and upgrades of the SITRACEN contract that generated more than $37 million in revenue.

According to the indictment, O'Shea and Basurto agreed to pay 10 percent of the revenues from the SITRACEN contract to officials at CFE. And for the Evergreen contract, O'Shea authorized more than $900,000 in bribes to CFE officials. He also took a kickback of 1 percent. The indictment alleges that O'Shea, Basurto and others covered up the bribery after ABB fired O'Shea. They fabricated documents that "purported to be evidence of a legitimate business relationship between the Texas business unit and the Mexican companies that provided the false invoices." The indictment described emails between Basurto and O'Shea in which they discussed creating fake correspondence and a phony contract.

ABB discovered the alleged bribery and fraud during an internal investigation. It self-disclosed the payments and related activities to the Justice Department and the Securities and Exchange Commission and helped with their investigations.

Basurto was first arrested in Dallas in April on a criminal complaint charging him with conspiracy to structure transactions and structuring transactions to evade currency reporting requirements. He was later indicted on the same charges on June 10, 2009. As part of his plea deal, the DOJ filed a superseding criminal information charging him with one count of conspiracy to violate the FCPA, to launder money, and to falsify records. The information said jurisdiction over Basurto was based on his being "an agent of a domestic concern, as that term is defined in the FCPA, 15 U.S.C. § 78dd-2(h)(1)."

He pleaded guilty on November 16 in Houston. He faces up to five years in prison and a fine of $250,000 or twice his gain or the victim's loss caused by his crimes. The Justice Department hasn't announced his sentencing date.

Basurto's indictment gave details of the bribes. It said, for example:

Basurto would maintain control over all of these funds [from the Texas business unit] and would, at CFE Official C's instruction, wire funds from these accounts to a Merrill Lynch brokerage account. CFE Official C would then cause some of these funds to be further transferred to the son-in-law of CFE Official N and to the brother of CFE Official C. Basurto would follow additional instructions from CFE Official C concerning the "Good Guys" funds, including giving CFE Official C approximately $20,000 in cash.

For O'Shea, the conspiracy and falsification of records counts each carry a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost. Each of the 12 substantive FCPA counts carry a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The four international money laundering counts each carry a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The indictment also gives notice of criminal forfeiture.

 The DOJ said German authorities assisted in the investigation. Payments allegely were made to the CFE officials through German banks and accounts there.

In July 2004, ABB and two subsidiaries disgorged $5.9 million and paid a $10.5 million penalty for FCPA violations involving Nigeria, Angola and Kazakhstan. In a 2007 earnings release, ABB said it disclosed to the DOJ and SEC "suspect payments made by employees of company subsidiaries in Asia, South America and Europe, in particular Italy. These suspect payments were discovered as a result of ABB's internal audit and compliance program." See our post here.

As the DOJ says, an indictment is merely an accusation, and O’Shea is presumed innocent until and unless proven guilty beyond a reasonable doubt.

View the DOJ's November 23, 2009 release here.

Download the November 16, 2009 criminal indictment in US v. John Joseph O'Shea here.

Download the November 16, 2009 superseding criminal information in US v. Fernando Maya Basurto here.

Download Basurto's plea agreement with the Justice Department here.

Wednesday
Mar042009

Sounding Off About Third Party Compliance

Our posts about extending codes of conduct to third parties (here and here) attracted some thoughtful comments from readers. We first heard from Pete from DC, an old friend of the FCPA Blog. He helps out whenever he senses we're in over our head. This time he wisely tied the issue of third-party compliance to audit rights. Here's what he said:

Dear FCPA Blog,

I recall the post you did earlier (here) about audit rights - it's bad to have them and not use them if something pops up. In regard to imposing compliance requirements, it occurs to me that you have the same issue. The DOJ said in FCPA Opinion Procedure Release 04-02 that part of their expectation is "Independent audits by outside counsel and auditors, at no longer that three-year intervals, to ensure that the Compliance Code, including its anti-corruption provisions, are implemented in an effective manner."

If you extend your compliance program to third parties, you need to have audit rights and the guts to use them. Furthermore, the audit rights can't be limited to financial data relating to the third party's business - it has to be completely "open kimono," with access to the business partner's own compliance policies, contracts, etc. That's a tough sell, but if it's a high-risk country / industry / entity, it may be the only way to truly mitigate FCPA risk.

Cheers,

Pete from DC

Another reader took a darker view -- that is, using third-party compliance to "paper over" red flags that come up with intermediaries. We wouldn't recommend that medicine to anyone, but here's what our reader said about it:
Dear FCPA Blog,

Your post doesn't address one of the main reasons why ethical standards and law compliance provisions are extended to third parties in the first place.

Many times these extensions are made for commercial reasons in the contracts with the third parties. One of the key risk considerations with contracts involves avoiding competing commercial obligations that conflict with a compliance or ethical requirement for the company. For example, this dilemma could arise if there is a red flag that a contractor may be passing on a payment to a foreign official, but there is also a competing contractual obligation to make that payment.

A well drafted contract will provide the company with an "out" if it is concerned that one of its contractors may violate the FCPA or other law even if those laws are not actually applicable to the contractor. Therefore, contracts typically incorporate by reference those requirements where third party contractors can create liability for the company. Besides the FCPA, these can include references to other U.S. laws such as export controls, sanctions and anti-boycott as well as the company's own policies.

It's important to know the commercial as well as the compliance rationale behind the so-called extension. Including these provisions in contracts is a good and increasingly common commercial practice that helps to achieve the long term aims of anti-corruption and other legislation through commercial influence. If the inclusion of these standards results in a greater exposure to the companies who include them, that's definitely a "con" and surely an unintended consequence.

Sincerely,

Anonymous

We also heard from Doug Cornelius at the Compliance Building blog. Doug's posts about compliance and business ethics are part of our daily diet. His comment raised a neat point about the dangers of inconsistent standards. He said:
Dear FCPA Blog -

Dealing with key third party vendors is a difficult area. As Rebecca Walker points out (here), there is potential liability of you do it wrong.

I have found the situation where vendors are a bit behind you in their focus on compliance or ahead of you. But since every company has different needs for compliance, you end up with different policies. As a result, you have a battle of policy forms.

There are no easy answers.

I find the first step to be letting your key vendor know that you care about these issues.

Yours truly,

Doug Cornelius / Compliance Building

That's some of what we've heard (the printable parts, anyway) on the subject of third-party compliance. The topic stirs plenty of interest, warnings and fear. That makes sense. Most Foreign Corrupt Practices Act offenses involve intermediaries, and yet most executives don't think their companies are dealing successfully with third-party risks. That was the conclusion from KPMG's 2008 Anti-Bribery and Anti-Corruption Survey that we talked about here, and the recent survey by the Society of Corporate Compliance & Ethics. That one found that most companies don't disseminate their internal codes of conduct to third parties or require third parties to certify to their own codes.

So the problem of third party compliance is still looking for a solution.
.