Conducting A Foreign Corrupt Practices Act Investigation

• Author: Robert W. Tarun
• Profession: Former Executive Assistant U.S. Attorney in Chicago
• Pages: 225-285

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 French 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 electronic and hard document

reviews and thorough interviews—preparing a working chronology and

retaining experts as necessary, including forensic accountants for evaluat-

ing books-and-records and internal controls practices and making control

recommendations; potential liability experts to address, for example, tender,

product, or market issues not obvious to Department of Justice or Securities

and Exchange Commission staff; and economists or accountants to analyze

ill-gotten gains to address 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.

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226 CHAPTER 8

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

objectives, for example, to defend the company in a grand jury FCPA inves-

tigation; to provide legal advice to a board of directors, audit committee,

special committee, or management as part of an internal investigation,

including recommendations on compliance programs, disciplinary actions,

internal controls and corporate policies; to voluntarily disclose to and coop-

erate with the U.S. Department of Justice (DOJ) and SEC in order to obtain

leniency (e.g., nonprosecution agreement, deferred prosecution agreement),

to minimize civil and criminal penalties; to avoid a monitorship; and so on.

5. Prepare and recommend appropriate quality remedial measures and imple-

ment 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 antibribery, books-and-records, and inter-

nal controls provisions 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,

anticorruption training, and anticorruption warranties and representations in any

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

ences; 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 wrong-

fully direct, obtain, or retain business.2 In other cases, the issue may be whether a gov-

ernment official ever received anything of value; such cases may still be prosecuted

on a books-and-records theory but are much less damaging 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 government officials, received kick-

backs, and the DOJ elected to proceed with only books-and-records violations, not

bribery charges. Still, in other cases a U.S. company’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. Yet, in other cases, there

will be an examination of the jurisdictional nexus with the United States.

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 authorization

and will be factors that U.S. law enforcement agencies will likely examine if the mat-

ter 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 anticorruption statute, for example, the U.K. Bribery

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Conducting a Foreign Corrupt Practices Act Investigation 227

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

resolution, or minutes, 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

committee truly committed to discovering the truth in an 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 promptly secure elec-

tronic storage 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

quickly and thoroughly management moved to secure both documentary and elec-

tronic 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,

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