© Springer International Publishing Switzerland 2015Michael Joachim Bonell and Olaf Meyer (eds.)The Impact of Corruption on International Commercial ContractsIus Comparatum – Global Studies in Comparative Law1110.1007/978-3-319-19054-9_18
18. The United States’ Multidimensional Approach to Combatting Corruption
Washington College of Law, American University, 4801 Massachusetts Ave Suite 330, Washington, DC, 20016, USA
Padideh Ala’iProfessor of Law
The United States legal system seeks to prevent and prohibit bribery and corruption through a myriad of laws, regulations and policies. Anti-corruption jurisprudence is more developed in the context of public sector contracts where the United States criminalizes bribery of public officials through 18 U.S.C. § 201 (Bribery of Public Officials and Witnesses). In addition, the United States was the first country to criminalize bribery of foreign government officials in 1977 with the passage of the Foreign Corrupt Practices Act (FCPA). The FCPA has since been amended to comply with the adoption of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention). The FCPA does not have a private right of action, but FCPA investigations and convictions have led to collateral civil actions, and it is predicted that as FCPA prosecutions increase in number, such collateral FCPA actions will also continue to increase. There is no federal law prohibiting private sector bribery per se, but 37 states have enacted “commercial bribery” statutes that criminalize bribery and corruption on the state level. In addition, at the federal level, there are a variety of criminal and civil statutes that allow private parties to address corruption, including, but not limited to, mail and wire fraud statutes, securities and anti-trust laws, and the Travel Act. Furthermore, federal government contracts can be voided under certain criminal conflict of interest statutes. Finally, there are contract law principles that have found utility in instances where a contract has been tainted due to actual bribery or potential breach of fiduciary duty, such as illegality, public policy, and unclean hands.
The author wishes to thank Nancy Zucker Boswell for her contribution and assistance in preparing this report, and Sarah Shulman and Tra Pham for their research and assistance.
The United States legal system seeks to prevent and prohibit bribery and corruption through a myriad of laws, regulations, and policies. Anti-corruption jurisprudence is most developed in the context of public sector contracts, but there are numerous statutes and common law principles that also address private-sector bribery and corruption, and provide adequate remedies for both offenses. The United States was the first country to criminalize bribery of foreign government officials in 1977 with the passage of the Foreign Corrupt Practices Act (FCPA).1 The FCPA was globalized through the adoption of the Organization of Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transaction (OECD Convention) that entered into force on February 15, 1999. The United States has amended the FCPA to comply with the OECD Convention.2
The FCPA was modeled on the United States law criminalizing bribery of domestic officials: 18 U.S.C. § 201 (Bribery of public officials and witnesses).3 Although there is no federal law criminalizing private-sector bribery per se, there are many states in the United States that criminalize commercial bribery by enacting commercial bribery statutes.4 At the federal level, there are a variety of criminal and civil statutes that allow private parties to address corruption, including, but not limited to, those statutes that criminalize mail and wire fraud,5 anti-trust behavior, conspiracy, securities fraud and racketeering (through the Travel Act),6 to name a few. Though the FCPA does not have a private right of action, FCPA investigations and convictions have led to collateral civil actions. It is predicted that as FCPA prosecutions increase in number, such collateral FCPA actions will also continue to increase.
18.2 The United States Legal Framework
18.2.1 Domestic Anti-bribery Statutes
The United States’ anti-bribery statutes are part of a multifaceted, comprehensive, and complex approach to corruption that involves a myriad of statutes, regulations, and policies. This approach includes (1) the notice and comment provisions of the Administrative Procedures Act (APA),7 (2) laws relating to transparency and accountability, such as the Freedom of Information Act,8 and (3) measures that address proper management of public affairs and public property,9 integrity systems10 (such as Codes of Conduct), and asset disclosure requirements for all three branches of the government. The same approach also uses (1) criminal statutes that are applicable to the conduct of public officials set forth in Title 18 of the United States Criminal Code, FCPA, and those relating to money laundering,11 (2) restrictions regarding procurement activities under Title 41,12 (3) non-criminal statutes involving gifts and travel by federal employees,13 and (4) other statutes related to employment, such as anti-nepotism laws14 or whistleblowing laws.15 In addition, the False Claims Act allows any person to file a legal action, known as a qui tam action, in the appropriate District Court against government contractors on the basis that the contractor has committed fraud against the government.16
These laws are vigorously enforced, and it is constitutionally permissible, given the federal system, for natural persons (individuals) or legal persons (companies) to be prosecuted by both national and state governments. Such double prosecution does not constitute double jeopardy.17 In discussing the “civil consequences” of corruption in international commercial contracts, this Report concentrates on federal statutes that directly address domestic and foreign bribery as well as the impact of corruption or bribery on the validity and enforceability of a contract under United States contract law.
The United States criminalizes bribery of domestic public officials through 18 U.S.C. § 201 (Bribery of Public Officials and Witnesses). Specifically, Sec 201(b) prohibits any person from “corruptly” giving, offering or promising “anything of value to any public official or person selected to be a public official, or offering or promising any public official or any person who has been selected to be a public official to give anything of value to any other person or entity”, with intent (A) to influence any official act, (B) to influence such public official to commit fraud, or (C) to induce such public official to do or omit to do any act in violation of his or her official duties. Sec 201(b) imposes a fine of “not more than three times the monetary equivalent of the thing of value [offered or given] to the public official [,] or imprisonment for not more than 15 years, or both”. In addition, it provides the possibility of disqualification from holding in the future “any office of honor, trust or profit” in the United States.18 Lastly, in cases involving bribery related to U.S. government contracts, an organization or individual may be barred from doing business with the United States government generally or with specific government agencies.19 Bribery is even a predicate offense under the Money Laundering Control Act.20
Currently, there is no federal statute criminalizing commercial or private-sector bribery. However, 37 states have enacted “commercial bribery” statutes that criminalize bribery and corruption: Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, North Carolina, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, Washington and Wisconsin.21 These commercial bribery statutes criminalize private-sector bribery by stating, for example, that “any employee who solicits, accepts or agrees to accept money or anything of value from a person… corruptly and without the knowledge or consent of the employer, in return for using or agreeing to use his or her position for benefit of that other person, and any person who offers or gives an employee money or anything of value… is guilty of commercial bribery.”22
No state has passed a law that explicitly prohibits foreign bribery, but according to the United States government report to the OECD, the U.S. state commercial bribery statutes can be used to prosecute foreign bribery where a foreign official is viewed as an agent or employee of his or her government.23 The FCPA is the federal statute that addresses foreign bribery, and it will be dealt with in some detail in Sect. 18.2.5. As will be discussed below, the FCPA does not have a private right of action. However, many federal and state statutes mentioned in this section can be invoked in FCPA collateral private civil actions. Such civil actions continue to increase as the number of FCPA enforcement actions also increases.
18.2.2 Other Related Federal Statutes
In absence of a federal statute establishing commercial or private-sector bribery as a criminal offense, there are other criminal and civil statutes that can be used to prosecute and provide remedy in case of such misconduct. In particular, commercial or private-sector bribery can be charged federally under the Travel Act.24 The Travel Act criminalizes bribery as a violation of both the laws of the state in which the bribery was committed and state commercial bribery laws. In states where a commercial bribery statute does not exist, the conduct can be punished under unfair-trade-practices laws that define bribery as an improper means of gaining a competitive advantage.25 Other federal statutes that are often used in the context of private and public-sector bribery and corruption include, but are not limited to, wire26 or mail fraud27 (prohibit the use of interstate communications in furtherance of a scheme to defraud someone of property, such as embezzlement); anti-trust or anti-competitive causes of action, securities fraud, conspiracy, civil and criminal provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO)28; the Hobbes Act (Interference with Commerce by Threats or Violence)29; and the Money Laundering Control Act.30 Sec 1957 of the Money Laundering Control Act makes it an offense to conduct any monetary transaction with proceeds of more than USD10,000. This offense is punishable by a fine, imprisonment for not more than 10 years, or both.31
It is important to note that prosecutions have taken place under multiple statutes, for example, under both the FCPA and the Travel Act.32 In addition, bribery of foreign public officials that is addressed by the FCPA can be a predicate offense under the civil and criminal provisions of RICO and the Money Laundering Control Act.33
In cases where the federal government suffers a loss as a result of fraud or corruption in government contracts, the persons (individuals, corporations or other entities) who corruptly obtain public contracts are liable under the False Claims Act for three times the damages sustained by the United States due to misrepresentation or fraud, plus a civil penalty of USD5,000 or USD10,000 for each false or fraudulent claim.34 Actions under the False Claim Act may be initiated by the United States (through the Attorney General or the Department of Justice) or by a private party on behalf of the United States (called a qui tam action). When a private individual initiates the action, the United States may pay the individual from 15 to 30 % of the recovery as a reward for bringing the action.
18.2.3 Conflict-of-Interest Statutes and Contract Validity
18 U.S.C. § 218 permits the federal government to void contracts relating to a conviction under certain criminal conflict-of-interest statutes set forth in Title 18 of the United States Code.35 Procedures for voiding contracts under these circumstances are set forth in Subpart 3.7 of the Federal Acquisition Regulations.36 Subpart 3.2 of these regulations specifically require that government contracts permit termination in the event of a bribery or gratuities violation.37 The federal government is also empowered to administratively bar a private firm from receiving further government contracts if it concludes that the contractor has engaged in “corrupt acts in the acquisition or performance of a government contract”.38
Conflict-of-interest statutes play an important role in addressing bribery and corruption in the public sector.39 Conflict-of-interest provisions are preventative, aiming at conduct that “tempts dishonor”.40 Because these statutes prohibit the mere potential of a breach of fiduciary duty, they require no showing of actual loss or actual corruption or bribery.41 In both federal and state courts, a showing of a conflict of interest renders the public contract illegal, and thus void, regardless of whether corruption is established in criminal proceedings.42 Remedies awarded include disgorgement, restitution, and the right to avoidance. In fact, even if the superior of a government employee has condoned the conflict of interest, the government may still void the contract.43 These harsh results are justified on the grounds of public interest.44 The treatment of mitigation attempts has been inconsistent among state courts, with some courts explicitly rejecting attempts to mitigate the harsh impact in some cases, while accepting mitigation in others.45 In contrast, federal treatment has been consistent, rejecting any consideration of mitigation efforts.
The defining conflict-of-interest case was decided in United States v. Mississippi Valley Generating Co., which involved a federal conflict-of-interest statute46 and a contract for the supply of electrical energy. Here, the private entity brought suit against the government for canceling its contract for the construction of a power plant.47 Though the government had in fact canceled the contract because the power to be generated was no longer needed, its primary defense – which the Court ultimately accepted – was that the contract was unenforceable due to a conflict of interest.48 The finding of a conflict of interest involved neither actual corruption nor loss.49 It was enough that the individual was acting on behalf of the government, while simultaneously holding an executive position with a contracting company that was likely to benefit from the award of contract.50 The Court took into account (1) the purposes of the statute; (2) the level of connection with the government to satisfy the “government agent” criterion; and (3) the activities that constituted “direct or indirect interest in the pecuniary profits or contracts of the sponsors”.51
In Mississippi Valley Generating Co., the statute did not provide the appropriate sanction. Instead, the Court permitted the government to void its contract as a matter of consistent and essential effectuation of the public policy of the statute.52 It reasoned that “if the Government’s sole remedy… is merely a criminal prosecution against its agent… then the public will be forced to bear the burden of complying with the very sort of contract which the statute sought to prevent”.53 In light of public policy, the contract was adjudged illegal and thus void.
State courts have applied similarly harsh remedies against the wrongdoing party and relatively generous awards towards the public entities, which, in these cases, are the municipal governments. In Thomson v. Call, a taxpayer suit challenging a building permit award, the California Supreme Court applied strict enforcement of a conflict-of-interest statute.54 The building permit was procured in exchange for purchase of a parcel of land owned by the city officer for the purpose of dedicating its use as a park and permanent open space for the City. This arrangement tainted the contract because the conflict-of-interest statute involved forbade city officers from being financially interested in any contract that they would make in their official capacity.55 As the aforementioned federal statutes presented a conflict of interest, the court held that the California statute prohibited the potential for disloyalty: “Mere membership on the board or council establishes the presumption that the officer participated in the forbidden transaction or influenced other members of the council”.56 A showing of a conflict of interest, irrespective of whether the contract was fair or more advantageous to the public entity, rendered the contract illegal, void, and unenforceable.57
The court acknowledged that imposing a bright-line remedy was harsh and that, theoretically, the lower court could have imposed an intermediate approach.58 However, the court refused to consider any mitigating factors that would have formed part of such an approach59; it held that the City was entitled not only to retain the land but also to recover the purchase price plus interest from the city officer without needing to restore the benefits under the contract. Echoing the rationale in Mississippi Valley Generating Co., the court held that the wrongdoing party was not entitled to any rights arising under the tainted contract, nor was the City’s recovery conditioned on actual loss, fraud, or dishonesty. For reasons of public policy, these seemingly harsh results were justified to “provide […] a strong disincentive for those officers who might be tempted to take personal advantage of their public offices”.60
Without exception, a showing of actual bribery or corruption is sufficient to require disgorgement irrespective of whether the contract remains valid. While some states grant equitable remedies, the primary remedies employed include denial of any restitution to the wrongdoing private entity and an award of disgorgement and avoidance for the public entity, regardless of the level of performance by the wrongdoing private entity or innocence of the third party.
In S. T. Grand, Inc. v. City of New York, a case involving a public contract for reservoir-cleaning that was awarded without a competitive bidding process, the Court of Appeals of New York found that the criminal conviction of a contractor rendered the contract illegal, and thus void.61 Grand and its president were convicted of conspiracy to use interstate facilities with the intent to violate the New York state bribery laws in an illegal kickback scheme between the Commissioner of Water Supply and Grand. The court allowed the City of New York retroactive avoidance and disgorgement without restitution to the wrongdoing entity, despite the fact that the entity had already completed performance.62 The court distinguished this general rule of complete forfeiture in Grand from the equitable exception it made in Gerzof v. Sweeney,63 wherein an equitable remedy was granted to the wrongdoing party. While the court in Gerzof had a “fair idea” – ie, a reasonable estimate – of the damage suffered from the illegal agreements,64 the court in Grand found that the absence of a single round of competitive bidding65 did not allow it to compute the damages to the City of New York. Moreover, the illegality affected only the final stages of the contracting process in Gerzof, in contrast to Grand where the illegality “goes to the origin of that process”.66 As in the federal cases, the court acknowledged its harsh ruling, but argued that it was necessary to deter violations.67
The prohibition against bribery and corruption is unwavering, even where the third party to the public contract is an innocent victim. The Court of Appeals of California has held that, where the contract is tainted, the public entity is entitled to recover all consideration paid to that third party and that such disgorgement is automatic.68 In Carson Redevelopment Agency v. Padilla, the owners of a senior housing project paid the mayor a USD75,000 bribe to secure a buy-down agreement under which the Carson Agency made the owners a loan of USD850,000 which it agreed not to collect so long as the owners fulfilled their obligations to provide senior housing.69 This extortion payment, which was exchanged for approval of a public contract, created an indirect financial interest for the public official, rendering the contract void.70 Though the owners were victims of the public official’s extortion, the court insisted that they ought to have reported the incident to law enforcement rather than pay the bribe. Once the payment is made and the extortion discovered, the victim could not be permitted to retain any consideration received.
The New Jersey Supreme Court awarded disgorgement71 to the County even where the contract remained valid, as in County of Essex v. First Union National Bank.72 When, in 1995, the bank’s senior vice president pled guilty to falsifying records to induce the purchase and sale of municipal securities through an illegal kickback scheme, the Bank sought, in a subsequent suit, to retain the fees that were charged in connection to these bond transactions.73 The court recognized that while a valid contract would not result typically in disgorgement, such an award was necessary because the corruption was committed against the general public: “Strong remedies are necessary to combat unlawful conduct involving public officials. Disgorgement in favor of the public entity serves as a harsh remedy against those who bribe a public official to secure a public contract and provides a deterrent to such unlawful activity. We hold that when a public contract is obtained by bribing a public official, the public entity is entitled to the gross profits obtained by the wrongdoer”.74
18.2.4 Contract Law Principles in Cases Involving Corruption or Potential for Corruption
Under U.S. common law, contracts that violate public policy are unenforceable.75 A contract is unenforceable if legislation so provides, or if the interest in enforcement is clearly outweighed by public policy.76 In balancing the public interest and the interest in enforcement, courts usually take into account, inter alia, (1) the parties’ reasonable expectations, (2) the strength of a public policy that derives from a statute or the courts’ own judgment of the need to protect public interest,77 (3) the gravity of the misconduct, and (4) the relation of the contract to the public policy and misconduct involved.78
Where there is a statute that criminalizes corruption and bribery – ie, FCPA, 18 U.S.C. Sec 201 – or state laws prohibiting commercial bribery, a contract that contravenes such a statute by providing a bribe would infringe public policy, and thus, is unenforceable.79
Additionally, where commercial or private-sector bribery is not explicitly prohibited under state law, the court will decide whether the enforcement of such contracts is against public policy. In principle, contracts tending to corrupt80 or to induce a violation of the private duty that the bribe-taker owes to the principal are considered to be against public policy, and hence, unenforceable.81
184.108.40.206 Public Sector Contracts
A contract may become tainted as a result of actual bribery or corruption, or as a result of violation of conflict-of-interest statutes that prohibit the potential of the breach of fiduciary duty. These statutes apply to public officials and require no showing of actual loss or corruption to void a contract (see Sect. 18.2.3). The consequences of finding a tainted contract in contracts involving local or federal government can be harsh. In public contracts, the public entity is permitted to avoid its obligations under the tainted contract and is entitled to compensatory damages and disgorgement. In such cases, the public entity relies on the defense of illegality for its own breach of contract in any action brought by a private entity challenging its refusal to pay. This defense consequently bars the private entity from claiming restitution irrespective of its completion of the task or obligation under the contract. Also used in such instances is the doctrine of unclean hands, which is based on public policy concerns. U.S. courts have consistently allowed the public entity to avoid its obligations under a tainted contract, arguing that the private entity’s breach terminated the public entity’s contractual obligations to the private party.
Private individuals who are victims of corruption may obtain compensation by bringing private lawsuits based on: “fraud, contract, tort, or civil-rights theories.”82 Common law permits the rescission of contracts obtained fraudulently in certain instances.83
The United States courts have recognized the concept of “faithless agent” by stating that “no man can faithfully serve two masters whose interests are or may be in conflict”.84 The courts have held that federal and state conflict-of-interest statutes recognize this concept when they state that an agent who is acting in a fiduciary capacity cannot also be acting for himself in his individual capacity, as such a conflict of interest may cause an agent not to be able to exercise “absolute loyalty and undivided allegiance” to the best interests of its principal.85
An agent is an individual or entity in the employ of the principal. The agent agrees to act wholly under the control or direction of the principal. The legal relationship between an agent and a principal may be either express or implied, wherein the agent exercises a duty of loyalty to the principal. This relationship is fiduciary in nature, and therefore, a proof of faithless agent, such as through the acceptance of bribery, renders the contract voidable. The consequences of the faithless agent’s wrongdoings vary depending on the cause of action. In the strictest application of the faithless agent principle, courts have required absolute forfeiture from the wrongdoer and general liability for all compensation from the date of breach.86 Even if the principal of the recipient of the bribe either authorizes (ex ante) or ratifies (ex post) a contract procured through bribery, the contract may still be declared voidable.87
The defenses of illegality, public policy and unclean hands each can prevent enforcement of a tainted contract. The reasoning underpinning these defenses is that a party seeking enforcement cannot have the help of the court if it has engaged in corrupt acts, such as bribery. Remedies are determined based on the relative seriousness of both the defendant’s and plaintiff’s misconduct, as well as whether the denial of relief to the plaintiff would unjustly enrich the defendant.88 In the private context, where neither party is entirely innocent, there is no obligation to make restitution of benefits conferred under an illegal contract unless the plaintiff can show that it was less culpable than the defendant. In effect, the bribe payer is entitled to restitution only if it can show that it paid under duress or was mistaken about the legality of its conduct.89
In the context of public contracts, the courts have employed a “zero-tolerance” stance on grounds of public policy and have held that the public should not bear the burden of obligation under an illegal contract.90 Public policy may be statutorily defined or weighed against the private interest in the enforcement of the contract. Conflict of interest statutes are based entirely on public policy so that violations generally result in denial of restitution to the wrongdoing party, irrespective of level of completion or performance.
The doctrine of “holder in due course” allows a second contract to remain voidable and not void against innocent third parties even if the underlying contract has been tainted and not enforceable. In such cases, the courts can enforce contracts and permit disgorgement in favor of an innocent third party. In Bankers Trust Co. v. Litton Systems, Inc., 599 F.2d 488 (2d Ct. App. 1979), the defendant Litton entered into a contract with Bankers Trust to finance its lease of photocopiers under a leasing contract. That leasing contract was tainted as an employee of a Litton affiliate, Royal, had allegedly received bribes from Regent Leasing. In a separate contract, Regent had borrowed money from the plaintiff, Bankers Trust, to finance the leasing arrangement. The court held that the illegality defense under New York Uniform Commercial Code § 3-305(2) (b) is available only if under the applicable state law the effect of illegality is to make the obligations entirely null and void. The defense is ineffective against a holder in due course if the illegality causes the contract to be merely voidable and not void. The court states that “where an innocent third party, such as a holder in due course, is suing upon an illegal contract, the policy argument is inapplicable because the plaintiff had done no wrong for which it should be penalized”.91 The court further states the policy reasons behind the holder in due course, ie, that it would be poor policy for courts to impose on banks and other finance companies any obligations to police those agents charged with responsibility of searching out commercial bribery committed by their assignors.
18.2.5 Transnational Bribery: FCPA
The FCPA was enacted in 1977,92 following disclosures that a significant number of American corporations had made illegal or questionable payments to foreign officials, as well as illegal campaign contributions with funds that were undisclosed and falsely or inaccurately recorded on the company’s books. The initial objective of the Act was to encourage accountability among publicly traded companies, or “issuers,” by prohibiting falsification of corporate accounting records or false and misleading statements to auditors and by requiring an internal control system that would provide meaningful assurance that transactions were executed as authorized and properly recorded.93
The FCPA requires issuers to keep accurate books and records and have a “system of internal controls sufficient to… provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization.”94 Although these accounting provisions apply only to issuers, the issuer’s books and records include those of its consolidated subsidiaries and affiliates under its control.95
In addition to the accounting provisions, the drafters found it necessary to include a criminal provision in the FCPA96 to prohibit the offer, payment, promise or authorization of bribes, directly or indirectly, to foreign officials to assist in obtaining or retaining business.97 It is important to note the extensive reach of the FCPA that criminalizes the offer of a bribe without requiring any affirmative action.98 In such situations, a bribe does not need to physically change hands to constitute a violation of the FCPA.99 It is most common for a claim of an offer to bribe to be aggregated with claims of actual payments.100 However, the DOJ has raised investigations solely based on an offer to bribe.101
The anti-bribery prohibition applies to U.S. and foreign companies102 listed on U.S. stock exchanges or those required to file periodic and other reports with the SEC103 (“issuers”),104 to U.S. persons and businesses (domestic concerns)105 and to officers, directors, employees, and agents of stockholders acting on behalf of an issuer or domestic concern. Federal jurisdiction in these cases requires the use of U.S. mails or any means or instrumentality of interstate commerce.106 Such use is not required for the provisions to apply to certain foreign persons and businesses acting within the territory of the United States107 and to U.S. individuals and entities for acts entirely outside the United States.108 The majority of the collections made under the FCPA have been against foreign companies and nationals due to the DOJ’s application of the FCPA against any act committed in furtherance of bribery within the US.109
In recent years, FCPA enforcement has hit “historic highs,” involving individuals and companies from the United States and abroad for a broad scope of actions in locations around the world.110 The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) share enforcement authority, and often work together to bring parallel suits. The DOJ has criminal enforcement authority over issuers and their officers, directors, employees, agents, or stockholders acting on their behalf. With respect to the anti-bribery provisions, it has both criminal and civil enforcement authority over domestic concerns and certain foreign persons and businesses acting in furtherance of an FCPA violation in the territory of the United States. However, while the Department of Justice has vigorously prosecuted the FCPA and has the authority to pursue civil actions, “the DOJ has exercised the civil authority in limited circumstances over the last thirty years”.111
The SEC’s Division of Enforcement has civil enforcement authority for violations of the FCPA accounting and internal controls provisions by issuers and their officers, directors, employees, agents, or stockholders acting on their behalf.
Although the FCPA has no express private right of action, “victims of corruption may obtain compensation for their losses by bringing private actions in state or federal court against the responsible persons or institutions, providing the victims can prove that they suffered damages as a result of corruption”.112 These “FCPA-inspired” lawsuits may be based in common law or statute and can be premised on fraud, contract, tort, or civil-rights theories.113
220.127.116.11 FCPA Criminal Provisions
The FCPA prohibits the offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any foreign official to influence any act of that official in his official capacity, to induce that official to act or omit any act in violation of his lawful duty, or to secure any improper advantage.114 It is also unlawful to seek to induce a foreign official to use his influence to assist in obtaining or retaining or directing business.115 Perhaps one of the most contentious issues has been the government’s broad interpretation of the definition of foreign official, which includes any officer or employee of a foreign government, agency or instrumentality thereof or any public international organization or any person acting in an official capacity for or on their behalf.116
In addition to prohibiting payments to foreign officials, the prohibition extends to payments to foreign political parties, officials and candidates for the purpose of influencing that official or a foreign government or instrumentality to assist in obtaining or retaining business.117
Indirect payments through third parties, such as distributors, agents, consultants, joint-venture partners and others, who are frequent conduits for bribery, are also prohibited if there is knowledge that such payments will be used, directly or indirectly, for proscribed purposes.118 The statute’s definition of “knowing” includes awareness of a high probability that such conduct is going to or will occur or that circumstances exist that make it substantially certain that such conduct will occur.119 Typically, the term “knowing” has been interpreted broadly.
The FCPA requires corrupt intent, applying to payments intended to wrongfully influence or induce a foreign official to use his position to help secure business for, or direct it to, any person. This requirement has been interpreted broadly, and it is the payer’s corrupt intent, not the final outcome, that is relevant.120 However, FCPA liability will not arise for payments made in response to “true extortion” defined as demand for payment “under imminent threat of physical harm.”121 Economic extortion does not count as true extortion and does not protect the person from liability under the FCPA.
The FCPA applies only to payments intended to obtain or retain business.122 It provides two affirmative defenses123 and provides a narrow exception for facilitating payments to expedite or secure a routine governmental action.124
FCPA liability may also attach through parent-subsidiary and successor liability.125 Where a parent company has participated sufficiently, by direct participation in or by directing the activity of its subsidiary, the parent company may be liable.126 A company may also acquire successor liability when it merges with or acquires another company with liabilities.127
18.104.22.168 Civil Provisions & Liability: FCPA Accounting & Internal Control Provisions
The FCPA’s accounting provisions operate in tandem with the anti-bribery provisions.128 They require issuers,129 and subsidiaries and affiliates subject to their control,130 to maintain accurate books and records and have an adequate system of internal controls. This system of internal controls must be sufficient to provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization.131