“The Foreign Corrupt Practices Act – A Primer for Employees”

 “Few are guilty,  
but all are responsible.”

 -       Rabbi Abraham Joshua Heschel

ACTUAL “CASE HISTORIES”: Manny and Lorenz were our firm’s first two clients residing in Iraq. Working as Field Operations Managers for a large U.S.-based defense contractor headquartered in Dallas, Texas, they were assigned to road building projects on the outskirts of the oil drilling area outside the northern Iraqi city of Irkuk. They each had done two tours of U.S. military duty stationed in Iraq, so they were both comfortable with the overall environment, and even knew the local dialect.

Manny and Lorenz were responsible for ensuring that necessary supplies for local road building projects were always on hand, or at least readily available. Without supplies on the ready, salaried construction crews and leased construction equipment could sit idle along the roadway for weeks at a time. And the longer workers and equipment stood idle, both tended to simply “disappear,” never to be seen again.

Sourcing, ordering and storing necessary road building supplies were not difficult tasks. The hard part of the job was gaining necessary “permits,” “approvals” and “paperwork” from local officials, all of whom had minimal salaries but all of whom drove new Mercedes Benzes and had palatial homes. You see, gaining necessary “permits,” “approvals” and “paperwork” required paying “gifts” to local officials, almost always in the form of duffle bags full of U.S. currency. In fact, nearly each shipment of supplies arriving from the U.S. included a shipment of currency, Defense contractors really had no choice but to give “gifts” in this way; local custom and culture made it an absolutely necessary practice in order to get things done. 

The only difference between road building supplies and “currency supplies” was that, while road building supplies were always carefully tracked and inventoried, supplies of currency were a different matter. Manny and Lorenz were under the strictest of orders not to keep any records whatsoever of cash “gifts” for “legal reasons.”   

As often happens everywhere in the world among local politicians vying for control of what each considers to be their own “territory,” a dispute arose among two of the local political chieftains, only this one elevated into armed conflict. As a result, Manny and Lorenz were instructed to return temporarily to the company’s central location in Baghdad. 

It was in Baghdad, that Manny and Lorenz were instructed to meet with the company’s attorneys who had flown in from Dallas to “conduct local interviews.” After an hour of rather vague discussions, Manny and Lorenz had their company ID’s taken, their company cell phones and laptops taken, and were told they were fired for “major theft.” It turns out that one of the disputing local “dignitaries” had run low on weapons, and demanded help from the local U.S. military commander, claiming that they had been promised money and weapons by Manny and Lorenz, which was 100% untrue. Nonetheless, the company attorney sheepishly told them, “corporate needs cover.” 

With little money, no jobs, demands they “return the stolen $250,000,” and facing the real likelihood of a terrible time getting new jobs, they found our firm on the internet. Fortunately, as is almost always the case, their corporate employer had a significant office in New York, was listed on a New York-based stock exchange, and so was subject to New York Courts. Although, as is common in resolution of these disputes, only negotiation – and not litigation – was necessary. 

Fortunately for Manny and Lorenz, we were very familiar with the Foreign Corrupt Practices Act, a U.S. federal law that strictly prohibits the bribing of government and other officials outside the U.S. to gain local business advantage. Fortunately for Manny and Lorenz, we were familiar with the fact that the U.S. Justice Department and SEC have both made the Foreign Corrupt Practices Act a priority in their prosecutions, not only imposing significant fines and penalties sometimes in the hundreds of millions of dollars, but also at times bringing criminal prosecutions against corporate Officers and Directors, alike.  

Most fortunately for Manny and Lorenz, their personal cell phones had both emails from company officials discussing the currency “gifts,” and a tape recording of the large law firm attorney admitting that “corporate” was fully aware of, and complicit with, the “currency gifts.”   

Through aggressive and entirely legal negotiating with their employer’s corporate attorneys, we were able to free both of our clients from claims against them, the looming career and reputational damage they faced, the scapegoating plans taking shape, and the loss of their contractual rights to continuing salary and benefits, as well as severance.   

End result? Manny and Lorenz both received (a) first class airfare tickets back to the U.S., (b) payment for their full contract salaries and benefits, which were scheduled to run another 14 months, and even (c) substantial severance packages, which each used to go into their own businesses. 

LESSON TO LEARN: The Foreign Corrupt Practices Act (15 U.S.C. § 78dd-1) is a U.S. federal law that every employee who works for an employer doing business outside the U.S. really needs to know about, and be aware of. 

The first reason is simple: if you do any business outside the U.S., you need to understand that U.S. laws may still govern what you do, and how you do it. Those include U.S. laws, even if you are engaged in business outside the U.S. They might even make what your employer does either illegal, or criminal, in the U.S.    

The second reason is a bit ominous: because many companies feel that they must bribe local officials in order to compete for business in certain countries outside the U.S., they also often feel a need to find someone to blame – that is, to be a scapegoat – if the U.S. Justice Department or Securities and Exchange Commission (“SEC”) investigate, litigate or even prosecute them. Sad as it may be, “scapegoating” has been a survival technique for those who manage large groups – in order to avoid personal accountability – for many, perhaps even thousands, of years. 

The third reason is the most important reason: without your doing anything out of the ordinary – such as providing customers with free airline tickets or travel accommodations – it could get you fired, fined, or even jailed. 

I told you it was important. 

WHAT YOU CAN DO: Here are the Eleven Essential Points you need to know about the Foreign Corrupt Practices Act (sometimes called the “FCPA”) if you, your employer, any of its subsidiaries or affiliates do business outside the U.S.: 

1. The Purpose of the Foreign Corrupt Practices Act is to Deter (a) “Persons” from (b) “Bribing” (c) “Officials” in other countries: In the mid-1970’s, investigations by the U.S. Securities and Exchange Commission (“SEC”), the U.S. Justice Department (“U.S. DOJ”) and the U.S. Congress found that many major U.S.-based corporations were engaged in widespread bribing of foreign government officials to gain competitive business advantage. As one example, Lockheed Corporation was found to be bribing officials of many countries to purchase their aircraft. As another example, Chiquita Brands was found to have bribed the President of Honduras to obtain lower tax rates on its profits. Viewing this as a “race to the bottom of integrity,” the U.S. Congress passed the Foreign Corrupt Practices Act in 1878 in an effort to put an end to it, or at least to reverse the accelerating presence of, such bribery.

Simply put, the Foreign Corrupt Practices Act prohibits (a) people and companies from (b) bribing (c) “foreign officials” for business advantage.

2. What does the Foreign Corrupt Practices Act mean by “Persons” who are covered by the FCPA? The FCPA applies to any “person” – meaning any individual and any business – that has (a) a certain, minimal degree of connection to the United States and (b) who engages to a minimal degree in corrupt practices outside the U.S. It applies to U.S businesses, non-U.S. businesses that trade securities in the U.S., American nationals, American citizens, and American residents, whether or not they are physically in the U.S.

The Foreign Corrupt Practices Act also applies to non-U.S. firms that issue stock in the U.S or who engage in acts in the U.S. that promote, encourage or assist the giving of bribes outside the U.S. 

Also, a “parent” company can be prosecuted for violations of the Foreign Corrupt Practices Act  committed by its “foreign” (meaning outside the U.S.) subsidiaries, even if the foreign subsidiaries are not subject to the FCPA’s jurisdiction. 

3. Note that Individual Corporate Officers and Corporate Directors are subject to the penalties under the Foreign Corrupt Practices Act. In recent years, the U.S. DOJ and Sec have prosecuted individual corporate officers, directors and other bribe facilitators. As examples, the President of a small public company accepted a settlement agreement with the U.S. DOJ for authorizing illicit payments to Egyptian Air Force officers. An executive and an outside contractor of another public company were both indicted for bribing lower leval Nigerian governmental officials, and each originally faced prison terms of 55 years.  

Although there can never be rock-solid guarantees that an employee will not, himself or herself, be subject to governmental fines or prosecution, experience suggests that those not “at or near the top” of corporate decision-making are not usually vulnerable in this way.  

4. Companies in all industries are covered by the Foreign Corrupt Practices Act. No industry is immune from the coverage and potential fines of the FCPA. Recent prosecutions have affected companies in the energy, construction, textile, electronics, aircraft, pharmaceutical, food, and chemical industries, to name a few.  

“Notable names” prosecuted under the FCPA include WalMart, BAE Systems, Baker Hughes, Daimler AG, Halliburton, KBR, Lucent Technologies, Monsanto, Siemens AG, Titan Corporation, Triton Energy, Limited, Avon Products, and Envision Technologies. 

5. What does the Foreign Corrupt Practices Act mean by “Bribes?”: Under the Foreign Corrupt Practices Act, “bribes” are not limited to currency-stuffed suitcases, or even to money. The FCPA prohibits giving public officials in countries outside the U.S.  “anything of value,” which have been held to include such varied items as (a) vacations, (b) airfare, (c) perfume, (d) gift certificates, (e) condo time shares, and (f) jewelry.       

6. What does the Foreign Corrupt Practices Act mean by “Foreign Officials?” The FCPA’s prohibition against bribery is not limited to high government officials. The FCPA broadly defines “foreign officials as including ‘any officer or employee of a foreign government or a department, agency, or instrumentality’ of government.” A “foreign official” may be elected, appointed, or just employed. 

7. The penalties imposed by the Foreign Corrupt Practices Act can be huge, and thus falsely blamed employees have particular negotiating leverage to resolve their legal claims. These are examples of penalties imposed for violations of the Foreign Corrupt Practices Act, of FCPA: (a) Siemans AG, the Germany-based industrial concern, paid $800 million in civil and criminal fines; (b) Halliburton, and its subsidiary Kellogg Brown & Root, disgorged $177 million to the SEC for violations, and another $402 million to the Department of Justice; (c) Drug maker Novo Nordisk was recently fined $19 million. In 2012, the Japanese firm Marunbeni Corporation paid a criminal penalty of $54 million.   

One aspect of the Foreign Corrupt Practices Act is that corporations are also reluctant to engage in thorough investigations, alone, for the cost of legal and investigative fees, which often run into the millions of dollars.   

8. The Foreign Corrupt Practices Act does not contain a separate “private cause of action,” but legal theories need to be “woven” into legal claims, and legal claims woven into legal complaints. Some laws say, in effect, “If someone breaks this law, the victim of the law-breaking can sue the law-breaker.” That is what lawyers and others refer to as a “private right of action.” The Foreign Corrupt Practices Act does not contain one of these. However, that does not mean that an employee who is scapegoated or falsely accused of being involved in bribing cannot either negotiate a settlement with, or litigate a Court case against, an employer who has violated the FCPA. In fact, the very considerable penalties the FCPA imposes gives the employee strong leverage to do so, which must be handled in a delicate way – preferably overseen by experienced legal counsel – to avoid the appearance of extortion or similar name-calling. 

Employees caught in a Foreign Corrupt Practices Act dilemma instead need to exert and protect  their legal rights and interests by use of various available legal theories, including (a) breach of contract, (b) fraud, (c) retaliation and (d) breach of fiduciary duty.     

9. The Foreign Corrupt Practices Act provides a “Whistleblower” claim opportunity. New changes in U.S. laws now allow individuals reporting FCPA violations to collect up to 30% of the fines that the government collects after FCPA enforcement actions. While official “whistleblower” opportunities are attractive to many, we caution all clients who reside outside the U.S. to first confirm with local legal counsel to first assess their responsibilities and potential accountabilities under the laws of those countries. 

 10. The Dodd-Frank Act of 2010 greatly expanded protections and legal rights of employees under the Foreign Corrupt Practices Act.  The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 broadly expanded the protections employees enjoy from retaliation for objecting to, or reporting, violations of the FCPA. While the Dodd-Frank Act does not specifically amend the Foreign Corrupt Practices Act, per se, rather it amends Sections 922 to 944 of the Securities Exchange Act of 1934 and related laws, and since the FCPA under 15 U.S.C. §§ 78dd-1 is a securities law affecting all issuers, the Dodd-Frank whistleblower and anti-retaliation rules apply to FCPA violations.  

11. In FCPA matters, even more than most, retaining documentary and other evidence of “direction from above” is crucial. Over many years, we have assisted clients in their navigating and negotiating a wide variety of problems and opportunities related to work. In each instance, we counsel our clients that it can help them quite significantly to gather and maintain copies of relevant and revealing emails and documents – and sometimes even audio recordings – that help establish the truth underlying their views, positions and legal claims. That is because it is often so difficult to do so without credible evidence, preferably in written form, and to avoid what is commonly called “he said – she said” disputes. This is especially important in employees’ legal claims related to the Foreign Corrupt Practices Act. 

At the same time, special care must always be taken to ensure that there are as few as possible indications of their having done so – and preferably none at all. In particular, those assembling materials for later use in negotiating or whistleblower actions should us photocopiers instead of scanners to copy them, and should never use company email to transmit them.    

We offer experienced counsel and representation regarding employee rights and legal protections, including Whistleblower Complaints, to employees caught up in matters related to the Foreign Corrupt Practices Act, or FCPA. If a consultation might help you, just [click here.]

These Eleven Essential Points about the Foreign Corrupt Practices Act singly and together provide the backdrop for employees’ navigating and negotiating to protect their legal interests, and in resolving their legal claims, if they are asked or required to participate in the giving of bribes to government officials outside the U.S. Of course, we do recommend you consider acquiring legal counsel and assistance in matters as serious and substantial as these.

This “Employees’ Primer to the Foreign Corrupt Practices Act” is just one example of how you may prepare yourself to navigate and negotiate for yourself at work. It is based on important information and insight with which you may empower yourself in a situation where empowerment is crucial. Fairness and protecting yourself, and your family, with information and insight: that’s what  SkloverWorkingWisdom™ is all about.   

P.S.: One of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “Ultimate New Job Package” consisting of 9 items, including Resume Cover Letter, Thank You After Interview, Memo Confirming Terms Offered, Response to Offer Letter, our Master Checklist of Items to Negotiate, and 50 Good Reasons to Explain Your Departure from Your Last Job. To obtain a complete set, just [click here.]

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you, and know what to “watch out” for. Regarding the Foreign Corrupt Practices Act, this is the place to begin. Now the rest is up to you.      

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual. 

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale. 

Repairing the World –
One Empowered and Productive Employee at a Time ™

© 2013 Alan L. Sklover, All Rights Reserved.