FCPA Guidance Alert

Alerts / November 15, 2012

Following months of speculation, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) issued their much-anticipated guidance on the Foreign Corrupt Practices Act (FCPA) yesterday. The 130-page manual (Guide) aims "to provide helpful information to enterprises of all shapes and sizes." The Guide takes a "multi -faceted approach, setting forth in detail the statutory requirements while also providing insight into DOJ and SEC enforcement practices through hypotheticals, examples of enforcement actions and anonymized declinations, and summaries of applicable case law and DOJ opinion releases." The sheer length of the Guide itself highlights the complexity of the FCPA and the need for expert counsel.

The Guide clearly sets forth the mechanics of the FCPA -- who it covers, its jurisdictional scope and what it prohibits. The Guide's significance, however, is its treatment of numerous hot-button issues, such as the definition of a "foreign official," the use of "facilitation payments" and the scope of successor liability. As FCPA enforcement actions have grown in number and scope in recent years, companies have found themselves in the increasingly difficult position of not knowing where permissible conduct crosses into impermissible violations of the FCPA. Aggressive prosecution theories coupled with relatively few guiding legal opinions have resulted in a view that the FCPA is bad for business, ties companies' hands and inhibits expansion.


The question of who, and what, constitutes a foreign official is current and controversial. The issue of whether employees of state-owned agencies constitute foreign officials is currently on appeal in the 11th Circuit and the Guide reiterates the position the government has consistently taken on this issue -- yes. The Guide is clear that the term foreign official includes and applies to low-ranking and high-level employees equally: "the FCPA broadly applies to corrupt payments to 'any' officer or employee of a foreign government and to those acting on the foreign government's behalf." The Guide also clarifies that foreign governments are not considered foreign officials but cautions companies to avoid the appearance of impropriety in any gifts or donations to foreign governments. While the Guide avoids a bright-line rule as to whether an entity will be considered an instrumentality of a foreign government and thus fall within the definition of a foreign official, the Guide does provide a list of factors a company should consider when performing a "fact specific analysis" to determine whether an entity is likely to be considered a foreign official.


As with the ambiguity regarding foreign officials, many companies now flatly prohibit the use of facilitation payments given the uncertainty of the term's scope. The Guide provides examples of permissible facilitation payments and instructs companies to determine the propriety of a specific facilitation payment by focusing "on the purpose of the payment rather than its value." The guidance provided is likely to be of little comfort to companies as the Guide is clear that even a permissible facilitation payment under the FCPA can create liability for a company if it violates "local law in the countries where the company is operating" or if "other countries' foreign bribery laws, such as the United Kingdom's, may not contain an exception for facilitating payments."


Finally, the Guide addresses the issue of successor liability. This has been the subject of much debate as some have argued that fear of inheriting unknown FCPA liability has chilled potential mergers and acquisitions. The Guide encourages companies to perform detailed pre-acquisition due diligence to accurately value the business, prevent future bribes, address any past FCPA violations before liability has attached and demonstrate a commitment to FCPA compliance. If a violation is discovered post-acquisition, the Guide provides some comfort for companies that did their homework: the "DOJ and SEC have declined to take action against companies that voluntarily disclosed and remediated conduct and cooperated with DOJ and SEC in the merger and acquisition context." Enforcement actions against successor entities are likely to be limited to "cases involving egregious and sustained violations or where the successor company directly participated in the violations or failed to stop the misconduct from continuing after the acquisition." Finally, even where thorough pre-acquisition due diligence is not feasible, the Guide states that the DOJ and SEC will still consider mitigating factors such as self-disclosure, "adequate" due diligence and a robust compliance program.

Such guidance from the government is always welcome. It sharpens the enforcement focus and is a strong indicator of enforcement trends. While the Guide is unprecedented in both its length and detail, it does not provide clear-cut answers to many of the questions regarding the FCPA. The hypotheticals and examples in the Guide provide additional clarity to companies and their counsel as they formulate compliance programs and determine whether self-disclosure of a potential violation is warranted. As a result, and as this complex area of the law continues to evolve, the need for expert counsel is manifest. Given the breadth and depth of the Guide, it is clear that aggressive FCPA enforcement is here to stay.

The complete text of the Guide. (

If you have any questions, please contact any members of BakerHostetler's FCPA White Collar and Investigations Team.

Authorship Credit: John J. Carney, Lauren J. ResnickJonathan R. Barr and Timothy Scott Pfeifer

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