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Entries in Wikipedia (3)

Wednesday
Mar192008

All In The Family

In a post here we described our edits to Wikipedia's article on the Foreign Corrupt Practices Act (here). Wiki's old article said a bank owner (pictured far left) whose brother was the minister of finance (far right) would be a foreign official for the FCPA. That's wrong, we said, because although consanguinity might be important, it has never been a definitive test of foreign-officialdome under the FCPA.

One of our readers had this to say about our edits: The omission of prohibitions on payments to family members creates a significant loophole. Are there any cases where business dealings with family members have been examined? My reading of the SEC statement on Statoil is that the Iranian official may not have had the formal authority to guarantee the contract but that it was his family connections which were being purchased.

We replied this way: Good point. But as far as we know, neither the FCPA itself nor any Opinion Releases or cases say that commercial dealings with family members of government officials are per se violations of the FCPA. If a family member is being used to make an illegal payment "indirectly" to a foreign official, then a violation would probably result, in the same way that indirect payments through other agents are illegal. But the mere fact of the consanguinity is not determinative, and that was the problem with Wiki's original article. No question, however, that dealing with family members of foreign officials always raises compliance red flags. It should probably be avoided in most cases because of the risks. But under some circumstances commercial relationships with family members of foreign officials may be permissible under an effective compliance program.

Exhibit A for our answer is FCPA Review Procedure Release No. 82-04 (November 11, 1982) [mislabeled as 82-02 on the DOJ site]. It's available here. In it, the Department of Justice received a review request from Thompson & Green Machinery Company, Inc. ("T & G"). It hired a foreign businessman ("Mr. X") as its agent in connection with a generator sale in a foreign country. However, Mr. X's brother was an employee of the same foreign government to whom T & G was trying to sell its generator. The DOJ gave its blessing, however, after receiving assurances from T & G that (i) the written consultant agreement with Mr. X prohibited him from using any part of his commission to pay a finder’s fee to a third party, and also expressly referred to the FCPA; and (ii) both Mr. X and his brother signed separate affidavits in which they pledged to adhere to the FCPA’s antibribery provisions.

So it's not illegal per se under the FCPA to have commercial dealings with family members of foreign officials. No question, however, that doing so is full of risk. For example, Paradigm's hiring of the brother of an official from Pemex, from which Paradigm was then awarded a contract, was cited as an offense. See our post here. Family members were also involved in FCPA convictions or allegations in U.S. v. Kozeny (see our posts here), U.S. v. Sapsizian & Acosta [see also Alcatel] (S.D. Fla. 2006), SEC v. Bellsouth Corporation (N.D. Ga. 2002), U.S. v. Metcalf & Eddy (D. Ma. 1999), and others.

But the FCPA itself doesn't mention family members, and as of today, Exhibit A above -- FCPA Review Procedure Release No. 82-04 -- remains "good law," if we can refer to a DOJ opinion that way. It means the fact that someone is related by blood or marriage to a foreign official doesn't make the person a foreign official for the FCPA. It does, however, mean dealing with them is always a high-risk proposition. That's why lots of compliance-minded companies ban the practice entirely.

Many thanks to our reader who contributed the thoughtful comment about family relationships and the FCPA.

Sunday
Mar162008

Back On Track

A reader pointed out that our assault last week on Wikipedia (here) was senseless. That's because if you don't like something on Wiki -- in our case its FCPA article -- just change it. The community site, after all, calls itself "the free encyclopedia that anyone can edit." We adopted our reader's advice. And today we can report that all is well. There's a newly revised FCPA page on the site (here).

In the old article there was a bank owner mistakenly designated as an FCPA foreign official because his brother was the minister of finance. Well, in the revised article he has a new incarnation. He's still a bank owner, but he's also the minister of finance. That's right -- we combined the brothers into a single person. It sounds awkward, but at least our new man's status as a foreign official is confirmed -- not by family relations, which he couldn't do anything about even if he wanted to, but by his choice to take on governmental duties in the unnamed country.

That scenario, by the way, has played out in Indonesia and other countries from time to time. It happens when local business people -- who might be agents or partners of U.S. companies -- are named to government posts, thereby becoming foreign officials for the FCPA. Whenever a sales agent or business partner suddenly becomes a foreign official, there's an urgent compliance need to review the commercial relationship -- and probably terminate it. That's because any business-related payments to the newly-minted foreign official might violate the FCPA. So the example of the bank owner cum-minister of finance works fine for Wiki.

Our few other alterations also found their way into the paragraph at issue. It now reads in relevant part like this:

The meaning of foreign official [under the FCPA] is broad. For example, an owner of a bank who is also the minister of finance would count as a foreign official according to the U.S. government. Doctors at government-owned or managed hospitals are also considered to be foreign officials under the FCPA, as is anyone working for a government-owned or managed institution or enterprise. Employees of international organizations such as the United Nations are also considered to be foreign officials under the FCPA. There is no materiality to this act, making it illegal to offer anything of value as a bribe, including cash or non-cash items. The government focuses on the intent of the bribery rather than on the amount.

It's not a perfect description of the FCPA's coverage, but it's improving. Go Wiki.

Monday
Mar102008

The FCPA For Everyone

Wikipedia -- "the free encyclopedia that anyone can edit" -- has a page on the Foreign Corrupt Practices Act here. It defines the FCPA this way:

The Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1, et seq.) is a United States federal law known primarily for two of its main provisions, one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials.

The article sets out the elements of an antibribery offense like this:

The antibribery provisions of the FCPA, prohibit: 1. Issuers, domestic concerns, and any person 2. From making use of interstate commerce 3. Corruptly 4. In furtherance of an offer or payment of anything of value 5. To a foreign official, foreign political party, or candidate for political office 6. For the purpose of influencing any act of that foreign official in violation of the duty of that official or to secure any improper advantage in order to obtain or retain business.

So far so good.

But be very careful with this article. For example, a paragraph about the application of the FCPA, which strangely appears under the heading "History," makes some good points. But an unqualified statement about "the brother of the minister of finance" misses the mark: The meaning of foreign official is broad. For example an owner of a bank who is also the brother of the minister of finance would count as a foreign official according to the U.S. government. Not really. Consanguinity might be important but it has never been a definitive test of foreign-officialdome under the FCPA.

Wikipedia's article -- one of 2,274,622 in English-- is not among the site's better entries. We're confident, though, that it'll improve with time.

On a higher note, in the article's "External Links" section is one of our all-time favorite FCPA-related pages. Trace International's BRIBEline here says everything you need to know about the universality of public bribery.