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DC Bar Panelists Discuss Developments in Foreign Corrupt Practices Act Cases

Not all cases under the Foreign Corrupt Practices Act involve issuers, according to Mark Mendelsohn, a deputy chief in the fraud section of the Department of Justice's criminal division. At a District of Columbia Bar program on the FCPA, Mendelsohn reviewed a recent prosecution in which an individual was charged for paying bribes to Liberian officials in connection with an online diploma mill scheme. Mendelsohn added that most FCPA cases involve unlawful means to acquire legitimate businesses, but in this case the business was unlawful.

Mendelsohn's advice for companies that discover potential FCPA violations is to report them to the government promptly rather than at the conclusion of an internal investigation. DOJ would like to know what the company is doing in connection with its internal investigation and perhaps to provide some input, he said. DOJ will be very unhappy with a company that comes in at the end of a year-long process with a final report that has been fully wrapped up, he explained, because it usually takes a fairly hands-on approach with companies that are conducting internal investigations.

Peter Clark, a partner with Cadwalader, Wickersham & Taft LLP, added that the government expects companies to conduct internal investigations regardless of whether the SEC or DOJ initiates an investigation. The question is whether the government will stand down while a company completes it, he said, and the most frequent answer is no.

Sharie Brown, a partner with Foley & Lardner, said that conducting due diligence for any FCPA-related red flags in connection with a merger or acquisition is particularly important since the acquiring company could have successor liability for a target company's misconduct. She noted that the M&A lawyers may not be in the same location as the FCPA lawyers so communication is critical.

Clark noted that the government will look at the compliance programs that were in place to protect against FCPA violations. Richard Grime, an assistant director in the SEC's Division of Enforcement, agreed. He said the staff has seen the full range, including the complete nonexistence of a compliance program. Grime added that the compliance program cannot simply be a written document. It must be reflected by the tone at the top that is pushed down to the lower levels.

In response to an audience question, Mendelsohn acknowledged that China is a looming problem and said that DOJ has a number of investigations underway. He believes that an outreach effort is underway by the Organization of Economic Cooperation and Development, but China remains a tremendous problem from a client perspective. Some companies have gone so far as to treat all third parties in China as government entities, he said, since Chinese regulators are involved in any business enterprise. Brown said that China is on par with Nigeria. It doesn't matter that passing through payments is the way of doing business there and she urged lawyers to make sure their clients do the right thing. Mendelsohn added that it will not help to claim that you thought you were paying a kickback to a private individual.

The panel discussed the benefits of self-reporting a violation. Mendelsohn said to look to the Thompson Memorandum and the Sentencing Guidelines, but acknowledged that any benefits will depend on what information the party is providing, how thoroughly the problem has been investigated and whether it is an isolated incident or the tip of the iceberg. Cooperation will be considered, he said, but the options are not only whether to criminally charge or not to criminally charge. He added that self-reporting is certainly better than the alternative, where the government discovers the misconduct and launches the investigation. 

The panelists were asked to address a company's decision to terminate the person who engaged in the misconduct. Grime said it is sometimes useful to keep an employee for a period of time, especially if the person may return to a country in which he or she may not be readily accessible. Mendelsohn said that DOJ would appreciate being consulted before terminating an employee, but that it would be a rare case in which DOJ would tell a company how to act with respect to the employee.

The panel was also asked to address permissible facilitating payments. Grime said the company's books must be accurate. The information must be clear to an outside observer for what the payment was made. There is no dollar threshold, he added, and these payments often come up in connection with other investigations. If you have a facilitating payment, Grime said to be prepared to defend it. Mendelsohn agreed. More often than not, they are not facilitating payments, he said.