FCPA

ISSUE

01 A BDP LEGAL
Foreign Corrupt
NOVEMBER
2009
NEWSLETTER Practices A ct

this issue
Provisions p.2
FCPA
Defenses p.3
The Foreign Corrupt
Practices Act (“FCPA”) Fines and Penalties p.4
is a Federal Statute of Red Flags p.4
the United States
Compliance p.5
which was adopted in
1977. The FCPA
prohibits corrupt Welcome to BDP
payments to foreign
On behalf of the BDP family, I would like to welcome you to our inaugural edition of
officials for the
BDP’s Foreign Corrupt Practices Act (“FCPA”) Newsletter. It is our pleasure to have
purpose of obtaining this opportunity to share ideas for growth and long-term prosperity with all who read this
or retaining business. newsletter.

Our goal through this forum is to make the opportunities to do business in Thailand and
elsewhere as achievable as possible and as profitable as possible, regardless of
ABOUT BDP
international business and economic climate. We also intend to alert you to the
With a global network
necessary proactive steps to take to ensure success as an American company.
of wholly-owned
operations, joint This newsletter will enhance your ability to conduct business internationally, while
ventures and affiliates enabling you to limit your exposure to the severe repercussions for non-compliance with
in more than 120 the FCPA and other critical statutes. We at BDP want to maximize your compliance
strategies in all areas of global supply chain management and allow your business to
countries, including
run as efficiently as possible.
more than 25 offices
across the US, we
What is the Foreign Corrupt Practices Act?
deliver on our promise
The Foreign Corrupt Practices Act (“FCPA”) is a federal statute of the United States,
to provide customized
which prohibits companies and individuals from offering, paying, or authorizing the
global transportation
giving of anything of value to a “foreign [that is, non-U.S.] official” to obtain or keep
and logistics services. business, or otherwise secure any improper advantage. Various other U.S. statutes
And we have for over also prohibit corporate bribery.
four decades.
Although enacted in 1977, the FCPA wasn’t used very much until recently. Since the
Enron case, however, the United States government has cracked down on such
corporate misconduct. At the same time, many other countries have adopted their own
anti-corruption legislation, so that corporate bribery is now unlawful in many, if not most
countries.

BDP LEGAL | FCPA NEWSLETTER | ISSUE 01 | NOVEMBER 2009 1

Why should I be concerned with the FCPA?
The FCPA is regularly used to prosecute individuals and companies for acts that occur outside the United States.
The anti-bribery provisions apply to individuals who are U.S. citizens or residents, and companies that are incorporated in
or have their principal place of business in the U.S. Those individuals and companies are subject to the statute wherever
they are located and wherever they commit the acts in question. Any employee of a U.S., or even a non-U.S. company
who is a U.S. citizen is subject to the FCPA, regardless of whether an alleged bribe by the employee has a territorial
connection with the U.S. Additionally, non-U.S. individuals and companies are subject to the anti-bribery provisions of the
FCPA if they act, or cause others to act, within the United States in furtherance of a corrupt payment to a foreign official.

U.S. law enforcement authorities interpret the FCPA’s reach very broadly. For instance, they have asserted that mere
telephone calls, emails or bank transfers touching the U.S. allow them to assert jurisdiction over foreign
individuals and companies.

1
Non-U.S. entities and individuals are also covered by anti-bribery rules established by the OECD Convention and various
national laws implementing the Convention. In many instances, such laws contain similarly broad jurisdictional provisions.
Consequently, a particular bribe may be prohibited by – and prosecuted under – the laws of other countries, in addition to
the U.S.

Who is a Foreign Official?

The term “foreign official” is broadly construed to include non-U.S. government employees and agents, political party
officials, candidates for political office and even employees of public international organizations such as the United
Nations. U.S. authorities interpret “foreign official” to include employees of state-owned and/or state-controlled entities.

What does “corruptly” mean?

A payment is made corruptly if it is intended to influence official action, inaction or decision, or induce the use of official
influence or otherwise secure an improper advantage. Something as simple as paying a clerk to leapfrog the customs
queue may be a violation. Note that the FCPA does not require that an attempted corrupt payment be successful. An
offer or promise of a corrupt payment may be sufficient.

What kinds of payments are covered?

The FCPA prohibits payments and gifts of “anything of value” to influence the receiving foreign official. “Anything of value”
has been broadly construed to encompass both tangible and intangible benefits that the recipient believes to have value.
This may include such intangibles as information or assistance with a business transaction. U.S. authorities may also
consider gifts or payments to third parties about whose well being a foreign official is concerned to be giving something of
value to the official. In some countries, even a few dollars, a seasonal gift or a meal may be significant enough to
constitute a bribe. Additionally, recurring payments to the same officials may be aggregated, increasing a company’s risk.

Payments need not necessarily be to obtain or retain business to be prohibited. For instance, in one recent case,
payments to Haitian officials to induce them to lower customs duties and sales taxes on imported rice were found to have
violated the statute.

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Does the FCPA apply to payments through intermediaries?
The FCPA prohibits corrupt payments through intermediaries, such as agents, consultants, distributors, and other business
partners. The FCPA prohibits making payments to third parties, knowing that some or all of the payment is destined for a
foreign official. This includes not only actual knowledge, but also situations when a payer consciously disregards or
maintains deliberate ignorance of the intended recipient. Thus, the FCPA may apply to gifts or payments to foreign
officials that are not expressly authorized.

Payments by intermediaries to foreign officials may be one of a company’s greatest risks. For instance, a 2007 FCPA
settlement involved bribes paid through an international freight forwarding and customs clearance company.
Subsequently, a number of unrelated U.S. companies received government inquiries about their business dealings with the
freight forwarder.

Are there any defenses to FCPA charges?

The FCPA contains two specific “affirmative defenses:” that (1) a payment was lawful under the written law of the country
where made (the “local law defense”), and (2) the money was a “reasonable and bona fide” expenditure related to
demonstrating a product or performing a contractual obligation. Because these are affirmative defenses, a person or
company charged with an FCPA violation has the burden of producing evidence that the gift or payment met their
requirements. Both defenses should be considered very narrow, and relying on them very risky.

Is it a defense that “everyone does it” (that is, everyone makes such
payments)?
In some places, relatively low-level officials routinely put their hands out with the implicit threat that they won’t act without
first being paid. The FCPA makes a small concession to the reality of such demands with a narrow exception for
“facilitating payments,” i.e., small payments to expedite routine, non-discretionary governmental actions, such as
processing official documents. Such gifts and payments are inherently risky, however, because the line between
discretionary and nondiscretionary is often unclear. A payment that is more than nominal may be considered corrupt
simply because of its size. Moreover, this exception does not cover any decision by a foreign official to award new
business or continue business with a particular party.

Additionally, payments are covered by the local law defense (described above) only where permitted by the written laws of
the official’s country. The defense does not apply to payments that are customary or demanded, but not authorized
by written law. The U.S. Department of Justice says that “[w]hether a payment was lawful under the written laws of the
foreign country may be difficult to determine.” And, one authority argues, “the defense only works if the local law says the
payment is permitted.” Thus, the local law defense will only apply rarely, if at all, and must be treated with great caution.

What are the penalties under the FCPA?

The FCPA provides that corporations and other business entities are subject to criminal fines of up to $2 million per
violation. Officers, directors, employees and agents are subject to criminal fines of up to $250,000 and imprisonment of up
to five years per violation. Another statute, the Alternative Fines Act, may result in even greater fines.

BDP LEGAL | FCPA NEWSLETTER | ISSUE 01 | NOVEMBER 2009 3

What are the penalties under the FCPA? (continued)
Under that statute, the fine may be up to twice the benefit that the defendant sought to obtain. Also, note that fines
imposed on individuals may not be paid their employers or principals.

Severe civil penalties may also be imposed. The Securities and Exchange Commission may bring a civil action for
additional fines, and seek disgorgement of a company’s profits from business obtained or retained through prohibited
payments. And, a person or firm found in violation of the FCPA may be barred from doing business with the U.S.
government, and lose government licenses. In fact, merely being charged with an FCPA violation may lead to suspension
of the right to do business with the government.

What else should I watch out for?

There are a number of high risk areas for FCPA violations, which should be approached with great caution, including
without limitation:

 All kinds of payments to, or for the benefit of foreign officials, including facilitating payments, sponsoring their visits
to company sites, gifts, travel and entertainment, and charitable and political contributions;

 The use of agents, consultants and other third parties who interact with foreign officials in any way, including but
not limited to sales, obtaining licenses and permits, dealing with taxes and duties; and

 Corporate acquisitions, joint ventures and other business combinations, which put the company at risk based on
the conduct of third parties.

There are also recognized “red flags” for FCPA violations, which should immediately alert you. They include but are not
limited to:

 Large, round dollar payments;

 Large, one time payments;

 Vendors not officially established with your accounts payable department;

 Sequential or redundant invoice numbers from the same vendor;

 Duplicate invoices being paid twice;

 Different vendors with the same address;

 Vendors with invalid addresses and/or telephone numbers;

 Vendors, consultants or agents using post office boxes;

 Payments being made in countries where the company doesn’t do business;

 Payments to vendors at bank accounts in others’ names; and

 Payments to “politically exposed persons” (also known as “PEPs”), who are relatives or close associates of foreign
officials.

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If a company’s bus iness is limited to geographies that aren’t considered
particularly risky, is it still important to have an anti- corruption compliance
program?
A company should have an anti-corruption compliance program regardless of where it operates. Although third world and
developing nations are generally regarded as more risky locales than more developed countries, violations can occur in
any location. For instance, a number of recent enforcement actions have concerned business activity in China, which has
grown and matured such that it can no longer be relegated to “third world” status. As an official of Siemens AG – which
recently paid $800 million in penalties to the U.S. and a comparable amount to various EU countries – told the Wall Street
Journal, it’s wise for every company “to have an adequate compliance system in place and a corporate culture that stands
for clean business.”

Conclusion
BDP is committed to compliance with the FCPA and all other anti-corruption legislation. It is tested and experienced in
FCPA compliance, with over 40 years of service in the global logistics industry.

Should you have any questions regarding the FCPA, compliance strategies or anti-corruption generally, please feel free to
contact BDP’s Chief Legal Officer, Catherine Muldoon.

Contact Information
BDP Legal
c/o BDP International, Inc.
th
510 Walnut Street, 13 Floor
Philadelphia, PA 19107
Phone: (215) 629-8297
E-mail: cmuldoon@bdpnet.com
E-mail: klafty@bdpnet.com
Visit BDP International’s website at: www.bdpinternational.com
Visit BDP Legal’s blog at: www.bdplegal.blogspot.com

BDP LEGAL | FCPA NEWSLETTER | ISSUE 01 | NOVEMBER 2009 5