Korea's newly enacted anti-graft statute called the Kim Youngran law can't be applied retroactively against allegations of grand corruption involving President Park and her confidante and the chaebols (family run conglomerates, such as Samsung and Hyundai). Instead the Special Prosecutor's office will have to use the Criminal Act, and that will be a daunting task.
Entries in Vicarious Liability (6)
The credit crunch and globalization have driven the recent growth of international franchising, and as companies expand abroad through this model, system participants must be aware of increased FCPA and anti-bribery risks.
Last week, the British Labour Party, the main opposition party, published a policy review called 'Tackling Serious Fraud and White Collar Crime.'
It's easy enough to scoff at the slogans, proverbs and aphorisms that line the halls of the great corporations. Who hasn't emerged from a conference-room donnybrook wondering who the Teamwork posters are supposed to be talking about? And yet, THINK helped create an industry and a company to lead it, and Safety First really can save lives.
How about compliance? Can we ever be reminded too many times to play by the rules, obey the law, keep our noses clean? Just as the best safety programs prevent accidents before they happen, so the best compliance programs should likewise head off illegal schemes before they hatch. So, could it be that the best -- which means the most memorable -- lessons about the FCPA might just be the shortest?
With that in mind, here are ten fast facts about the FCPA. Some aren't all that "fast" and none will fit on a bumper sticker. But we'll keep trying -- and we'll welcome your help.
1. Companies and individuals subject to the FCPA's antibribery provisions cannot give or promise to give anything of value to foreign officials directly or indirectly in order to obtain or retain business.
2.Those subject to the FCPA's accounting standards must make and keep books and records that accurately and fairly reflect the transactions and dispositions of the assets of the corporation, and have internal accounting controls adequate to provide reasonable assurance of the integrity of the company's financial systems and its disclosures.
3. An FCPA antibribery offense is punishable by up to five years in jail; intentionally violating the accounting standards can result in 20 years in prison.
4. The antibribery provisions generally apply to all organizations based or operating in the United States, and the accounting standards apply to companies with securities trading on a U.S. exchange and filing periodic reports with the SEC. Directors, officers, employees and agents of the foregoing are covered by the FCPA, as is anyone who does anything to cause an FCPA offense while they're on U.S soil.
5. Even if a foreign subsidiary isn't covered by the FCPA, its acts might cause its U.S. parent to be in violation.
6. Indirect payments or promises to pay foreign officials through partners, agents or other intermediaries can violate the law.
7. Corrupt payments to a foreign political party, party official or candidate for foreign political office intended to obtain or retain business are prohibited.
8. Anyone acting on behalf of a "public international organization" such as the International Olympic Committee, the United Nations, the World Bank and the International Red Cross is a “foreign official” for the FCPA.
9. Members of a royal family are “foreign officials” for the FCPA.
10. The best protection against an FCPA violation is an "effective compliance program." It can result in penalty reductions for companies by up to 95%, according to the U.S. Federal Sentencing Guidelines.
10-A. The board of directors is always responsible for the oversight and management of the company’s FCPA compliance program.
The U.S. Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials. Indirect payments typically pass through the hands of an overseas partner or agent, then end up with the foreign official for an unlawful purpose. Most violations happen that way.
A plain-English explanation of the anti-bribery provisions written by the Department of Justice warns U.S. firms about their choice of overseas partners and agents. A bad choice is someone who is likely to make corrupt payments. That likelihood, the DOJ says, is usually indicated by warning signs called "red flags." If there are red flags to start with and if the intermediary does bribe a foreign official to help the business, the U.S. company will have trouble arguing it shouldn't be responsible for an FCPA violation based on an indirect corrupt payment.
Red flags, as the name suggests, are easy to spot. Unusual payment patterns or financial arrangements. A history of corruption in the country. A refusal by the foreign joint venture partner or representative to certify that it will not take any action that would cause the U.S. firm to be in violation of the FCPA. Unusually high commissions. Lack of transparency in expenses and accounting records. An apparent lack of qualifications or resources on the part of the joint venture partner or representative to perform the services offered. A recommendation from the local government of the intermediary. All these, the DOJ says, should set off compliance alarm bells.
When red flags appear, the burden of compliance increases. More red flags mean more caution is required. It's a mistake to interpret red flags merely as a sign of the local culture, a helpful clue about how business is really done there, and something you just have to live with. Seeing red flags and lowering compliance standards, when the right response is to raise them, often leads to an FCPA disaster.
View the DOJ's "Lay Person's Guide to FCPA" Here.
The U.S. Securities and Exchange Commission announced on September 25, 2007 two settled enforcement actions based on violations of the books and records provisions of the Foreign Corrupt Practices Act. The actions involved the founder and former president of A.T. Kearney Ltd's India business, Chandramowli Srinivasan, and Kearney's former parent company, Electronic Data Systems Corp.
Between 2001 and 2003, Srinivasan made corrupt payments of over $720,000 in the form of cash transfers, gifts and services to employees of two private energy companies partly owned by the Indian government in order to retain their buisness. To fund the bribes, Srinivasan and a Kearney-India contract accountant fabricated invoices that Srinivasan subsequently signed to authorize payment. This caused EDS to record the payments incorrectly in its accounting books and records. EDS recognized over $7.5 million in revenues from the Indian companies' contracts after Kearney-India began paying the bribes.
For violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934, Srinivasan paid a civil penalty of $70,000. EDS paid $358,800 in disgorgement and $132,102 in prejudgment interest for violating Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13, and Regulation FD in connection with a separate offense.
Kearney, which EDS owned from 1995 to 2006, is now "an independent, privately owned management consultancy, with 100 percent of the equity owned by officers in the firm." Srinivasan, whom EDS terminated in 2004, resides in Delhi, India. Kearney's change in ownership, Srinivasan's departure from Kearney / EDS and his foreign residency are all reasons why the Department of Justice may decide not to bring criminal prosecutions for the FCPA violations.
Electronic Data Systems Corp. trades on the New York Stock Exchange under the symbol EDS.
View the SEC's September 25, 2007 Litigation Release No. 20296 and Accounting and Auditing Enforcement Release No. 2726 Here.
View the SEC's Complaint Against Srinivasan Here.
View the SEC's Administrative Proceeding Order Against EDS Here.