Feds crack down on bribes to get foreign business

March 1, 2010
| By Pete Daly |
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"Business as usual" overseas sometimes may include greasing somebody's palm — but that might not go over too well with the U. S. Department of Justice if it smells like a violation of the FCPA.

Part of the Foreign Corrupt Practices Act prohibits the bribing of foreign officials by U.S. companies for the purpose of obtaining or retaining business.

In view of recent events, a Warner Norcross & Judd attorney is urging companies that do business overseas to be very careful.

"Historically, the government has not been what most folks would consider very aggressive in pursuing violators of the FCPA," said Warner partner Mark Spitzley, whose legal practice includes international business issues. Typically, he said, if there was a prosecution, the target was generally a large publicly held company and the Department of Justice was usually responding to a tip from a disgruntled former employee.

Then came the bust in January, which was anything but typical.

In a sting set up by the FBI, 22 people were arrested at a trade show in Las Vegas and charged with violating the FCPA. The business executives were paying bribes to what they thought was a government official from an African nation. They were selling guns, body armor and other law enforcement equipment to foreign governments, and the African "official" — an FBI plant — told them they had to pay him a 20 percent commission to get the deals done in his country.

Just days after that news broke, BAE Systems of Britain, one of the world's largest defense contractors, agreed to pay a $500 million fine to settle corruption allegations that had been brought by both the Department of Justice and the U.K. Serious Fraud Office.

Spitzley said he sees the DOJ actions as a deliberate message to all U.S. businesses, both large and small: The FCPA will be enforced.

He said U.S. companies have "bellyached" for years that the FCPA puts them at an unfair advantage, vis-à-vis their competitors — particularly European competitors. In some European countries such as France, he said, he understands that in the past it was legal for companies to actually deduct bribes paid to government officials as legitimate business expenses — as long as the bribe wasn't paid to a French official.

During the 1990s, working through the international Organization for Economic Co-operation and Development, the U.S. government persuaded many European countries to pass laws against bribery in business deals. Even where it's illegal in countries overseas, bribes-for-business clearly have not disappeared, as the BAE Systems situation indicates.

The Business Journal contacted three West Michigan companies with frequent business deals in foreign countries, but no one at those companies had anything to say about the subject.

Spitzley said he offers six tips to companies doing business overseas, if they want to stay clear of trouble with the FCPA:

First, said Spitzley, "they need to know who they are dealing with," because sometimes it is not clear to American companies who they are working with in foreign business deals. Does the person represent a government entity, or the other company — or both? That is especially crucial in an SOE — state-owned enterprise — which many businesses are in China.

Payments under the table tend to be "a more accepted activity in China" than in European countries, said Spitzley.

Knowing who you are dealing with has a broader application than just the FCPA, said Spitzley, because the U.S. government maintains many RPLs — restricted party lists. Those relate to export controls, so that American products and materials don't go to individuals who are suspected of fronting for terrorist organizations. There are so many RPLs and they are updated so frequently that some U.S. companies rely on vendors that provide constantly updated lists.

Tip Two: Have a written compliance plan in place. Spitzley noted that many companies have such plans on a variety of topics, all the way from accepting gifts from vendors to sexual harassment. "They should include, as part of their written plan, 'no-bribery' provisions," he said.

Three: Key employees and agents for the company should sign certificates, making a commitment to comply with the no-bribery policy. While not a silver bullet, he said, a certificate like that "will help them if the government ever comes knocking."

Four: Maintain accounting practices that record just how the company money is being spent overseas.

Five: In every contract with overseas business partners, include a provision that spells out that your company will adhere to the FCPA and that no one will be paid any bribes.

"I know a company here in West Michigan” that has a provision like that as "a standard part of their distribution contract," said Spitzley. "We helped him draft it."

Last: "Don't play the ostrich. Don't stick your head in the sand," said Spitzley. If you see red flags or suspicious behavior in your company's activities overseas, "you should follow up on it."

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