International Business: Three Potential FCPA Traps

Yesterday’s front page story in the Wall Street Journal about the Justice Department’s crack down on foreign bribery by U.S. corporations is a wake-up call about the steep price associated with violating the Foreign Corrupt Practices Act (FCPA).  If your company is doing business abroad, it’s a good idea to re-familiarize yourself with the anti-bribery and the books-and-records provisions of the FCPA now.

The old saying about “when in Rome, do as the Romans do” can get your U.S. business into legal hot water if the foreign jurisdiction you’re doing business in encourages and expects bribery in exchange for a business contract.  Many businesses, especially smaller ones just starting to sell in international markets, don't realize that the FCPA is one of a handful of extraterritorial laws that governs your business conduct beyond the borders of the United States. 

Enacted in 1977, the FCPA specifically prohibits the bribing of foreign officials or their representatives.  Coupled with these anti-bribery provisions is a strong books-and-records provision that requires an accurate accounting of all financial transactions.  The goal, of course, is to discourage a bribe being disguised as “transaction.”  Clever attempts to do so results in a double whammy – a bribery violation and books-and-records violation.   Recent case fines were in the nine-figures.  Those kinds of fines can put a dent into anyone's budget.

OK, so you know you can’t hand over a briefcase full of crisp bills.  But what you may not realize is that certain common business practices that initially look acceptable could become problematic if taken to extremes.  Here are three potential areas that are ripe for abuse.  Don't let them trap you.

1. Consultants. Using a foreign consultant to help navigate unfamiliar terrain can be a wise business investment.  It can save you time and money.  But there could be a potential problem if the consultant is being employed as an intermediary for influencing that government’s or agency’s decisions.  You can't do indirectly through a consultant what you can't do directly.  In other words, don't ever let a consultant be your “bag man.”
2. Gifts and Entertainment. Gifts and entertainment play an important role in business cultures throughout the world. Excessive gifts and entertainment, however, take on a different meaning.  There is a difference between a token of appreciation or good will and a life-style altering gesture.  Be smart.
3. Allowing government officials to use your company facilities to demonstrate, promote or explain their services is acceptable.  But currying favor by allowing a government bigwig to host his daughter’s wedding at your company owned island resort is another story.

Enforcement of the FCPA is expected to continue; so, come back tomorrow for part 2 -- International business: Four ways to avoid an FCPA violation.