ABA Section of Business Law

ABA Section of Business Law
Business Law Today
July/August 1999

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U.S. antibribery law goes global

Standards tightening up

By LUCINDA A. LOW and TIMOTHY P. TRENKLE

Low is a member and Trenkle is an associate at Miller & Chevalier in Washington.

Bribery is a strong word. Some say that a pay-off in some foreign countries is a requirement for doing business there. If tougher U.S. laws have placed American companies at a disadvantage, change is at hand. Other countries are getting tougher, too.

In 1977, following revelations that U.S. companies had made massive pay-offs in search of overseas business, Congress enacted the U.S. Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, 78dd-2, 78m) (the FCPA, or act). The act criminalized the bribery of a foreign public official in order to obtain or retain business, and required publicly traded companies to keep accurate books and records and adopt internal controls to prevent the diversion of assets or other improper use of corporate funds.

Coupled with a prior ban on the tax deductibility of bribes (Internal Revenue Code, § 162(c)), the FCPA completed a fundamental shift in the rules of doing business abroad. In its wake, U.S. companies, some more willingly than others, developed internal compliance programs, changed their approach to third-party relationships, and adopted other safeguards to prevent violations of the law.

While the act provided U.S. companies with a shield against requests for improper payments, in some cases it also put them at a competitive disadvantage. As U.S. companies trading and investing abroad faced increased foreign competition in the 1980s, the absence of any parallel anti-bribery restrictions on foreign companies (excluding those few subject to U.S. law by virtue of listings on U.S. stock exchanges) meant that U.S. companies stood to lose business to foreign competitors willing to bribe or to close their eyes to the practices of their partners or agents. Although estimating such losses is difficult, a 1995 U.S. study approximated losses at $45 billion in lost contracts alone. (Statement of Michael Kantor, U.S. Trade Representative, Feb. 22, 1996.)

Internationalizing antibribery rules had long been a goal of U.S. policymakers. In 1988, as part of the Omnibus Trade and Competition Act that produced some minor amendments to the FCPA (Pub. L. No. 100-418, 102 Stat. 1107, 1415-25 (1988)), Congress mandated the administration to attempt to negotiate multilateral antibribery rules. Although such efforts had failed in the 1970s, by the 1990s, changed world perceptions of the costs of corruption made possible what had previously been unthinkable.

The result has been an almost breathtaking wave of anticorruption activity in the multilateral arena. Public international financial institutions, led by the World Bank, have taken steps to combat corruption in their project lending. (See World Bank, Guidelines: Procurement under IBRD Loans and IDA Credits at 7 (Aug. 1996) and Addendum (Sept. 19, 1997); Inter-American Development Bank, "IDB Strengthens Procurement Policies," Press Release (Jan. 29, 1998); European Bank for Reconstruction and Development, Guidelines for Sound Business Standards and Corporate Practices , Pub. No. 2829, 27/08/97 (Sept. 1997)).

In 1996, Latin American countries signed the first international anticorruption treaty — the Inter-American Convention Against Corruption, which came into force in 1997 and now has 12 parties. (Inter-American Convention Against Corruption, March 29, 1996, 35 I.L.M. 724 [the OAS Convention].)

The Council of Europe adopted a convention in November of 1998 (Criminal Law Convention on Corruption, Nov. 4, 1998) and the European Union has one in progress (European Union Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of the Member States of the European Union, O.J. No. C195, 25.06.1997, May 26, 1997).

Most important to U.S. companies from a competitive standpoint, however, is the work of the Organization for Economic Cooperation and Development. In 1996, the OECD called on member countries to eliminate the tax deductibility of bribes. OECD Council Re. C(96)27/FINAL on the Tax Deductibility of Bribes to Foreign Public Officials (April 11, 1996), reprinted at 35 I.L.M. 1311. And in December 1997, all OECD member countries except Australia (which has since signed) and five observer states signed the Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions (Dec. 18, 1997, 37 I.L.M. 1 (1998) [the OECD Convention]).

The OECD Convention is a short and highly targeted instrument. Basically, it calls on member states to criminalize foreign official bribery to obtain a business advantage in terms similar but not identical to the U.S. FCPA (Article 1(2)). In addition, the convention calls on countries to impose books and records and internal control requirements (Article 8), and to make foreign bribery a predicate offense for money laundering laws to the same extent as domestic bribery (Article 7). It also requires member states to cooperate in the investigation and prosecution of offenses (Article 9).

The convention contains two alternative entry-into-force provisions. Under the first, ratification by five of the world’s 10 largest exporting countries, representing 60 percent of world trade, by Dec. 31, 1998 would be sufficient for the convention to enter into effect (Article 15(1)). The drafters aimed this provision at securing the participation of a "critical mass" of the "supply side" countries. A more liberal entry-into-force provision became available after 1998 (Article 15(2)), but because it would not ensure a critical mass, the United States, which has been a driving force behind the OECD’s work in this area, pushed for ratification under the first alternative.

Although it went down to the wire, this goal was accomplished. Of the top 10 exporters, five deposited their instruments of ratification in 1998 — the United States, Canada, Germany, Japan and the United Kingdom. In addition, five other OECD members — Iceland, Norway, Hungary, Finland, and Bulgaria — also ratified, bringing the total number of parties at the end of 1998 to 10. (Korea, Greece and Austria deposited instrument of ratification in 1999.) The convention entered into force on Feb. 15, 1999.

Most of these countries (with the exception of the United Kingdom, which claims its existing law covers transnational bribery, although it plans to amend the law at a future date in conjunction with anticipated criminal law reform) have also enacted implementing legislation. As a result, the U.S. FCPA, after 21 years, has surrendered its status as the sole transnational bribery law in the world. Unilateralism has given way to multilateralism. Multilateralism does have a price, however, and that price is an expanded FCPA and a playing field that has improved significantly, but has not been completely leveled.

The expansion of the FCPA — On Nov. 10, 1998, President Clinton signed into law the International Anti-Bribery and Fair Competition Act of 1998 (Pub. L. 105-366, 112 Stat. 3202 (1998)) (the 1998 Amendments), which expanded the FCPA in several important respects. To appreciate the likely effect of the 1998 Amendments, it may be helpful to review briefly the FCPA.

Prior to the 1998 Amendments, the FCPA’s antibribery provisions contained the following basic elements of an offense:

• use of mails or other instrumentality of U.S. interstate commerce in furtherance of

• a payment of — or an offer or promise to pay — money or anything of value

• made by an issuer or domestic concern

• to:

(1) any "foreign official;"

(2) any foreign political party or party official;

(3) any candidate for foreign political office; or

(4) any other person (such as an agent, partner or intermediary) while "knowing" that the payment or promise to pay will be passed on to one of the above

• made "corruptly"

• for the purpose of:

(1) influencing an official act or decision of that person;

(2) inducing that person to do or omit to do any act in violation of his or her lawful duty; or

(3) inducing that person to use his or her influence with a foreign government to affect or influence any government act or decision

• in order to obtain, retain or direct business to any person. (15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3.)

The OECD Convention, in contrast, defines the offense of "bribery of a foreign public official" as:

• intentionally offering, promising or giving any undue pecuniary or other advantage, whether directly or through intermediaries;

• to a foreign public official;

• in order that the official act or refrain from acting in relation to the performance of official duties;

• in order to obtain or retain business or other improper advantage in the conduct of international business. (OECD Convention, Article 1(1).)

While the two provisions are similar, the convention differs from the FCPA in a number of important respects. It contemplates coverage of "any person" acting in a country’s territory, not just nationals (domestic concerns). It also aims at payments made to secure "any improper advantage," not just payments to "obtain, retain or direct business to any person." The convention adopts a broader definition of foreign public official, which includes officials of public international organizations as well as officials of a country’s government.

In these three respects — the jurisdictional reach, the "any-improper-advantage" provision, and the definition of foreign public official — the convention’s offense is facially broader than the original FCPA’s antibribery offense. It is narrower, on the other hand, in its failure to proscribe payments to political parties, party officials and candidates for office alongside the proscription of payments to officials. (The OECD has pledged to continue work on this issue in the future.) Although the convention will cover payments to such persons in some cases, such as, in one-party states or intermediaries (Professor Mark Pieth, chairman, OECD Working Group on Bribery, remarks at Symposium on the Implementation of the OECD, Brugge, Belgium, Oct. 8, 1998), the omission creates a potentially important loophole in the Convention.

The 1998 Amendments to the FCPA modify its antibribery provisions in five significant respects, four of which were driven by the desire to conform the FCPA to the OECD Convention. (The 1998 Amendments do not affect the books and records and internal control provisions of the FCPA. 15 U.S.C. § 78m.) The 1998 Amendments:

• broaden the jurisdictional reach of the act over non-U.S. persons acting within the United States;

• broaden the jurisdictional reach over U.S. persons acting outside the United States;

• expand the FCPA to cover payments made to secure "any improper advantage," incorporating a broader definition of business activities covered by the FCPA;

• expand the definition of "foreign officials;" and

• eliminate the exemption of certain non-U.S. nationals from criminal penalties.

In keeping with the terms of the Senate’s advice and consent, the 1998 Amendments also provide for monitoring of the convention’s ratification and implementation process. While the amendments do not fundamentally alter the FCPA, each of the five statutory changes has potentially significant consequences for U.S. companies doing business abroad.

In deciding how to implement the OECD Convention in U.S. law, the principal policy decision the U.S. government faced was jurisdiction. Although enacted in an era of aggressive U.S. extraterritoriality, the FCPA was less aggressive than some of its contemporary statutes. (The U.S. anti-boycott laws, for example, extend jurisdiction over "controlled-in-fact" foreign entities, which includes many foreign subsidiaries of U.S. companies. (15 C.F.R. Part 760).) The original jurisdictional scope of the FCPA was a combination of nationality and territoriality: Each of the two antibribery provisions (for "domestic concerns" (15 U.S.C. § 78-dd-2) and "issuers" (15 U.S.C. § 78-dd-1)) applied only if a covered person committed some act "in furtherance of" the bribe in U.S. interstate commerce.

While this was admittedly a low threshold — interstate travel or telephone calls, even e-mails to the United States (as was the case in the recent Saybolt prosecution, indictment and plea agreement, United States v. Saybolt North America Inc., 98 CR 10266WGY (D. Mass. Aug. 18, 1998)) could suffice — it was nonetheless a requirement that impeded enforcement in some cases. (Paul Gerlach, Securities and Exchange Commission, remarks at Insight FCPA Conference, New York City, Nov. 13, 1998.)

The interstate commerce requirement, coupled with the fact that the FCPA applied principally to U.S. persons — companies organized under U.S. law, citizens and residents (although issuers also increasingly are foreign entities) — meant that the FCPA’s jurisdiction over foreign persons was limited. A foreign company that was not an issuer, could, through a foreign employee, commit an act of foreign official bribery in the United States and not violate the FCPA.

The OECD Convention drafters took a different approach to jurisdiction. As noted earlier, the definition of the offense itself speaks of "any person, acting within the territory of a member state." (Article 1(1), emphasis added.) The jurisdictional provisions of the convention, however, extend beyond territoriality. They also require member states to apply the transnational bribery provision on the basis of nationality — that is, to a state’s nationals, acting anywhere in the world, without regard to territorial nexus. (Article 4(2).) Many civil-law countries in fact use nationality jurisdiction, and many OECD members were thus expected to implement the convention on the basis of nationality as well as territoriality.

Within the United States, on the other hand, some sought to use the implementation of the convention as an opportunity to extend the FCPA’s jurisdictional provisions to foreign subsidiaries of U.S. companies, not currently covered by the law. Given the disparity this would have created between the jurisdictional scope of U.S. law and the jurisdictional scope of other countries’ laws, the compromise reached was for the United States’ implementing legislation to "mirror" the anticipated scope of other OECD countries’ laws. This meant the assertion of nationality jurisdiction over U.S. persons, and territorial jurisdiction over any person, including foreign persons (and therefore foreign subsidiaries of U.S. companies as well), acting within U.S. territory.

The 1998 Amendments to the FCPA accomplished this by adding an alternative jurisdictional provision. (15 U.S.C. §§ 78dd-1(g), 78dd-2(i).) Under these alternative provisions, issuers organized under U.S. law and "United States persons" (defined as "national[s] of the United States . . . or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization or sole proprietorship organized under the laws of the United States" (15 U.S.C. §§ 78dd-1(g)(2), 78dd-2(i)(2))) would be subject to the FCPA for acts committed anywhere in the world, without regard to any U.S. territorial nexus.

The 1998 Amendments also added a new antibribery provision (parallel to the provisions for "domestic concerns" and "issuers") covering actions by "any person" when an act in furtherance of the offense is committed while in the territory of the United States. (15 U.S.C. §§ 78dd-3.) This territorial nexus requirement is different from — and in some cases potentially broader than — the interstate commerce nexus requirement of the domestic concern and issuer provisions. According to the commentaries to the OECD Convention, the territorial nexus requirement is to be interpreted broadly "so that an extensive physical connection to the bribery act is not required" (Commentaries on the Convention on Combating Bribery of Officials in International Business Transactions, Article 4 [OECD Commentaries]). In a recent submission to the OECD monitoring commission, the United States suggested that the term includes everything except "merely conceiv[ing] the idea of paying a bribe without undertaking to do so."

While the "act in furtherance" requirement is new to the FCPA, similar language is used in other federal statutes. The Economic Espionage Act, for example, criminalizes the theft of trade secrets outside U.S. territory only if the offender is a U.S. national or an "act in furtherance of the offense was committed in the United States." (18 U.S.C. § 1837.) Courts have not yet construed this term under the EEA. Similarly, violation of the federal conspiracy law requires an "act to effect the object of the conspiracy." (18 U.S.C. § 371.) This requirement has been interpreted by courts very liberally; virtually any act will suffice to meet this requirement.

For example, selling merchandise (Direct Sales Co. v. United States, 319 U.S. 703 (1974)), using a credit card (United States v. Adamo, 534 F.2d 31, 39 (3rd Cir. 1976)), accepting a promotion (United States v. Nazzaro, 889 F.2d 1158 (1st Cir. 1989), and conversing in a car (United States v. Civella, 648 F.2d 1167 (8th Cir. 1981), all constitute "acts to effect the object of a conspiracy." The "act to effect" requirement can even be satisfied by an omission (Gerson v. United States , 25 F.2d 49 (10th Cir. 1928) (failure to list assets in bankruptcy)).

Given the broad interpretation under the conspiracy statute and the direction in the OECD Commentaries, an entire range of conduct that had previously not constituted a violation of the FCPA, may be punishable under the new statute. It seems possible, for example, that authorization of a bribe at a board meeting held in the United States, even if no interstate commerce nexus is present, would be sufficient. Even making a personal introduction, meeting with a lawyer, or arranging a future meeting may constitute an "act in furtherance," and thus violate the FCPA. How broadly enforcement officials will attempt to construe this provision will be an issue to watch closely over the next few years.

The amendments also expand the definition of "foreign official" to cover officials or employees of public international organizations — such as the United Nations, World Bank or other international financial institution. The original FCPA defined "foreign official" 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." (15 U.S.C. §§ 78dd-1(f)(1), 78dd-2(h)(2).)

The 1998 Amendments expanded both parts of this definition — the officer and employee part and the persons "acting in an official capacity part — to include officers, employees or other persons acting on behalf of a public international organization. (15 U.S.C. § 78dd-1(f)(1)(A), 78dd-2(h)(2)(A).) Such organizations are designated by executive order of the U.S. president; currently, more than 80 organizations appear on the list. (22 U.S.C. § 288.)

Thus, a foreign national who committed an act in furtherance of a bribe to a World Bank official in the United States would now have exposure under the FCPA. Not all international bodies qualify as public international organizations. The International Olympic Committee, for instance, whose activities have been spotlighted in the press recently, is not a designated organization; however, an investigative committee recently recommended that the IOC be added to the list. The Olympic scandal may spearhead a movement — evident in the activities of some non-U.S. bodies working on anticorruption issues — to expand the FCPA to cover commercial bribery, not just official bribery. That is tomorrow’s, not today’s, policy issue, however.

Not only do the 1998 Amendments expand the universe of persons subject to the antibribery provisions and the definition of foreign public official, they also broaden the scope of prohibited activities by adopting the "any improper language" of the OECD Convention. Under the 1998 Amendments, a covered person violates the act by bribing to obtain any improper advantage.

The manner in which this language is added is curious. Instead of adding it to the "obtain [or] retain business" element of the FCPA, where the convention suggests it properly belongs (OECD Commentaries, Article 1 ("[I]t is an offence . . . to bribe to obtain or retain business or other improper advantage . . ."), the 1998 Amendments add it to the quid pro quo element, which now has four alternatives:

• influencing an official act or decision of that person;

• inducing that person to do or omit to do any act in violation of his or her lawful duty;

• inducing that person to use his or her influence with a foreign government to affect or influence any government act or decision; or

• securing any improper advantage (15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3, emphasis added).

Adding the "improper advantage" language in the quid pro quo element was apparently done to avoid tinkering with the "obtain or retain business" element, which has been broadly interpreted by enforcement officials and the courts. (Peter Clark, U.S. Department of the Justice, remarks at FCPA Conference, New York, Nov. 17, 1998; SEC v. Triton Energy, 3 FCPA Rep. 699.471 (1997) (payments to expedite audit reports and obtain relief on disputed tax issues); U.S. v. Vitusa, 3 FCPA Rep. 699.155 (1996) (payments to attempt to collect balance due)). The administration worried that such tinkering might have undercut a broad reading of that element, as applied to pre-1998 activities.

By adding "any improper advantage" to the quid pro quo element, however, a significant expansion of the law may have been achieved. Before this amendment, a prosecutor had to show a breach of duty, misuse of position or use of influence by an official; now, he or she apparently may only have to show much less specific actions by the official or even merely the intent by a payor to secure an improper advantage in its business. Thus, if "business" already included enhanced profits, tax benefits, collection of revenues and discretionary licenses, concessions and permits as well as government contracts, "any improper advantage" could mean preferential bidding terms, preferential access, or other preferential rights even in the preliminary stages of the pursuit of a business opportunity.

The FCPA currently does not cover payments to secure "routine governmental action," often called facilitating payments. (15 U.S.C. §§ 78dd-1(b), 78dd-2(b), 78dd-3(b).) At what point does the "improper advantage" expansion intersect with, and even narrow, the FCPA’s exception for facilitating payments? Could, for example, a payment to move papers to the top of a pile to be processed, which many have considered to be a facilitating payment, be argued now to be a payment to secure an improper advantage? Would the answer now depend on whether the papers were rightly or wrongly at the bottom of the pile? Does it matter that the definition of routine governmental action — which has a caveat that parallels the quid pro quo element — has not been modified to reflect the addition of "improper advantage"? Counselors and prosecutors will now have to grapple with these questions.

Completing the expansion of jurisdiction, the 1998 Amendments eliminate the requirement that employees and agents of U.S. companies, to be subject to criminal (as opposed to civil) penalties, be "otherwise subject to the jurisdiction of the United States" (15 U.S.C. § 78dd-2(g)). Thus, officers, directors, shareholders, employees and agents alike, of U.S. and foreign companies, will be subject to criminal penalties, although the United States will still need to obtain personal jurisdiction over them. However, the international cooperation provisions of the OECD Convention should make such prosecutions easier. At the same time, they should facilitate enforcement against U.S. companies as well.

The 1998 FCPA Amendments, enacted primarily in response to the OECD Convention, expand the anti-bribery provisions of the FCPA both in terms of persons covered and the activities prohibited. The changes, while not fundamental, raise several significant issues that will require careful counseling and judicious interpretation in the coming years. At the same time, the convention will facilitate enforcement and result in other countries adopting laws analogous to the FCPA.

In light of the 1998 Amendments, companies subject to the FCPA are already beginning to review and update their compliance programs. Standard contract clauses (representations, warranties or covenants of no improper payments, for example) may also need to be revised. At the same time, the entry into force of the OECD Convention, and the embracing of transnational bribery standards by major U.S. competitors, will over time reduce the competitive disadvantages that U.S. companies have suffered from the FCPA. In addition, U.S. companies entering into joint ventures or other business relationships with foreign parties can point to emerging international standards as evidence that antibribery compliance is no longer just a U.S. issue, but an issue that should concern all parties to a transaction.