Chapter 8. Conducting a Foreign Corrupt Practices Act Investigation

• Author: Robert W. Tarun
• Pages: 1-60

CHAPTER 8

Conducting a Foreign Corrupt

Practices Act Investigation

The basic steps and best practices of conducting an internal investigation are

largely the same whether for the board of directors, the audit committee, a special

committee, or senior management. Today, the emphasis on corporate governance

means that the board or a committee is more likely to engage special counsel to

perform a Foreign Corrupt Practices Act investigation and report the results to the

entire board or the audit committee, especially where the conduct of senior man-

agement is at issue.

I. BASIC STEPS OF AN FCPA INTERNAL INVESTIGATION

AND RELATED ACTIONS

A. Five Basic Steps and Logical Lines of Inquiry

The five basic steps of an FCPA internal investigation1 are as follows:

1. Determine the nature of the allegation(s) (e.g., bribery payments through

business advisors to a foreign official in Brazil; substantial payments to a

consultant whose pricey services coincide with an oil concession in Qatar;

the hiring of a relative of a foreign government official who approved a gov-

ernment tender; corporate sponsorship of lavish U.S. visits of Chinese gov-

ernmental officials; payment to an Indonesian tax official to reduce a local

tax assessment) and establish a preliminary and credible scope of the inves-

tigation of allegation(s).

2. Develop the facts through U.S. and foreign document reviews and thorough

interviews—preparing a working chronology and retaining experts as neces-

sary, including forensic accountants for evaluating books-and-records and

internal controls practices and making control recommendations; and econ-

omists or accountants to analyze ill-gotten gains to address Securities and

Exchange Commission (SEC) disgorgement claims.

3. Analyze the jurisdictional and legal elements for each bribery, books-and-

records, or internal controls offense, and any permissible payments and

affirmative defenses of the Foreign Corrupt Practices Act. Common legal

issues include corrupt intent, knowledge, nationality and territorial jurisdic-

tion issues, foreign official status, and relevant local laws.

1

tar89866_08_ch08_000-000.indd 1tar89866_08_ch08_000-000.indd 1 4/10/13 11:33 AM4/10/13 11:33 AM

2 CHAPTER 8

4. Report to the company, board, or committee consistent with the client’s

objectives, e.g., to defend the company in a grand jury FCPA investigation;

to provide legal advice to a board of directors, audit committee, special com-

mittee, or management as part of an internal investigation, including recom-

mendations on compliance programs, disciplinary actions, internal controls

and corporate policies; to voluntarily disclose to and cooperate with the U.S.

Department of Justice (DOJ) and SEC in order to obtain leniency (e.g., non-

prosecution agreement, deferred prosecution agreement), to minimize civil

and criminal penalties, and to avoid a monitorship; and so on.

5. Prepare and recommend appropriate remedial measures and implement the

same as soon as practicable.

In determining what questions to logically pursue in interviews and what docu-

ments to review as a result of an FCPA bribery allegation, counsel will, in addition

to being mindful of the elements of the anti-bribery, books-and-records, and inter-

nal controls offenses outlined in Chapter 1, want to review the red flag and due

diligence steps and issues discussed in other chapters. For example, if an agent is

alleged to have made improper payments through a relative employed by a foreign

government, the investigation will focus in part on the relative’s government offi-

cial position, authority, and access to decision makers; third-party due diligence,

anti-corruption training, and anti-corruption warranties and representations in

any third-party agreements; Internet searches of the agent and relative business

references; descriptions of agency services on agency invoices; and of course, all

hard and electronic correspondence between the agent and the company. Answers

to the interview questions or telltale e-mails may establish the requisite knowledge

on the part of the company or a strong defense.

In some cases the record of payments, gifts, or travel will be beyond dispute,

and criminal liability will turn on corrupt intent—an “evil motive” or purpose

or intent to wrongfully influence the recipient to “misuse his official position”

in order to wrongfully direct, obtain, or retain business.2 In other cases, the issue

may be whether a government official ever received anything of value; such cases

may still be prosecuted on a books-and-records theory but are much less damag-

ing to a company’s business reputation or attractive to a jury. For example, in the

numerous UN Oil-for-Food program cases, the Iraqi government, not Iraqi gov-

ernment officials, received kickbacks, and the DOJ elected to proceed with only

books-and-records violations, not bribery charges. Still, in other cases a U.S. com-

pany’s conduct can appear to be driven more by the negligence or incompetence

of employees than by a corrupt motive, thereby negating the requisite criminal

knowledge standard.

Whatever the improper payment allegation, counsel will want to examine not

only the basic bribery elements and permissible payments and affirmative defenses,

but also the red flags and due diligence factors outlined in earlier chapters as they

can frequently bear on ultimate issues of corrupt intent, knowledge, and authori-

zation and will be factors that U.S. law enforcement agencies will likely examine if

the matter is disclosed to them or they otherwise learn of and investigate alleged

violations. Counsel in some cases may have the opportunity to examine the broad

jurisdictional reach of the FCPA or another statute, e.g., the U.K. Bribery Act of

tar89866_08_ch08_000-000.indd 2tar89866_08_ch08_000-000.indd 2 4/10/13 11:33 AM4/10/13 11:33 AM

Conducting a Foreign Corrupt Practices Act Investigation 3

2010. Counsel will want to implement appropriate remedial measures, usually in

conjunction with forensic accountants expert in internal controls.

B. Scoping

Often, the general counsel, business unit manager, or regional counsel will have

the best overall understanding of the nature of the allegation(s) and will be able

to identify those employees likely to have relevant knowledge. The scope of the

investigation should focus on the time period and geography and remain flexible,

depending on what is uncovered. For example, if a regional manager is respon-

sible for Countries A, B, and C, and is found to have authorized a series of bribes

in Country A in Years 1, 2, and 3, his conduct in Countries B and C should be

examined for Years 1, 2, and 3. Because the federal statute of limitations is five

years, it may well be prudent to institute a litigation hold of five years or longer.

Government agencies including the DOJ and SEC as well as regular outside audi-

tors will be skeptical of a corporate internal investigation that unduly limits the

scope of the engagement or does not pursue logical paths of inquiry. For example,

if an allegation relating to payments by an agent in Country A is corroborated, the

government agencies and outside auditors will want some assurance that such pay-

ments are not occurring with other agents in other countries. It may be advisable

to screen all third parties or agents receiving payments in excess of $50,000 in one

year for suspicious payments, due diligence checks, and certifications. It is prudent

for all involved—client and counsel—to think carefully about the language used

in the engagement letter, a board of directors resolution, or an audit committee

resolution, as DOJ and SEC lawyers may later review them and insert expansion

language if circumstances and investigations so warrant. At some point, the U.S.

government may seek to determine whether the company, the board, or a commit-

tee truly committed to discovering the truth in its investigation.

C. Document Review, Forensic Teams, Witness Interviews, and Working

Chronology Overview

Document review and witness interviews will often be conducted both in the

United States and in foreign countries. Promptly identifying relevant custodians

and securing and preserving electronic data is essential to a thorough internal

investigation—and to establishing credibility with both the Department of Justice

and the Securities and Exchange Commission. Investigation counsel, while being

mindful of applicable data privacy laws, should take steps to secure electronic stor-

age facilities such as hard drives, network backup tapes, and flash drives. The DOJ

and SEC, when evaluating a company’s cooperation, will look to see how promptly

and thoroughly management moved to secure both documentary and electronic

evidence. Of course, the responsibility of preserving such evidence is even greater

when responding to a formal government subpoena.

Forensic accounting firms and investigators often assist investigation coun-

sel in sensitive payment investigations. They can gather and secure electronic evi-

dence, deal with encrypted data, assist in identifying robust search terms, conduct

searches for sensitive terms (e.g., bribe, sunshine money, kickback, gift, tea, oil, grease,

tar89866_08_ch08_000-000.indd 3tar89866_08_ch08_000-000.indd 3 4/10/13 11:33 AM4/10/13 11:33 AM