No Foreign Official, No FCPA Offense

CW (who knows a lot about the Foreign Corrupt Practices Act) asked a great question. Can a payment directly to a foreign government intended to influence decisions in favor of the donor violate the FCPA? Surprisingly, the answer is no.

An FCPA offense requires a corrupt payment to a "foreign official." The law defines "foreign official" as a human being but not a government entity.

The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

CW's question came up in FCPA Opinion Procedure Release No. 97-02 (November 5, 1997). The requestor was a U.S.-based utility developing a plant in an Asian country. There was no primary school in the plant's vicinity and the requestor planned to donate $100,000 to help build one. The donation would go directly to the government entity responsible for constructing the school.

Before releasing any money, the U.S. utility required written assurance from the foreign government that the funds would be used solely to build the school. The government also guaranteed that land for the school would be available, along with other funding needed to build and operate it.

According to the Department of Justice, because the "requestor's donation would go directly to a government entity -- and not to any foreign government official -- the provisions of the FCPA do not appear to apply to this prospective transaction."

Then there's DOJ Opinion Procedure Release No. 06-01 (October 16, 2006). A Delaware corporation headquartered in Switzerland wanted to contribute $25,000 to an African country's regional customs department or ministry of finance. The money would fund incentive awards to local customs officials. The program was intended to improve enforcement relating to seizures of counterfeit products bearing the trademarks of the requestor and its competitors.

Among other controls, the customs department or central government would pay the incentive awards directly to local customs officials and the requestor would have no say in identifying recipients. On that basis, the DOJ said it wouldn't take enforcement action against the requestor for the $25,000 donation.

In both cases, however, it was up to the requestor to make sure the donations were consistent with local law. Payments to foreign governments that aren't FCPA offenses (because no "foreign official" is involved) may still violate local anti-bribery laws.

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