Conducting a foreign corrupt practices act investigation
Author | Robert W. Tarun |
Pages | 157-212 |
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 management 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:
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 services coincide with an oil concession in Qatar; corporate
sponsorship of U.S. visits of Chinese governmental officials; payment to an
Indonesian tax official to reduce an assessment) and establish the preliminary
scope of the 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.
3. Analyze the jurisdictional and legal elements for each bribery, books-and-
records, or internal controls offense, and any permissible payments and affirma-
tive defenses of the Foreign Corrupt Practices Act. Common legal issues include
corrupt intent, knowledge, foreign official status, and relevant local laws.
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 commit-
tee, or management as part of an internal investigation, including recommen-
dations on compliance programs, disciplinary actions, and corporate policies;
to voluntarily disclose to and cooperate with the DOJ and SEC in order to
obtain leniency or avoid or minimize criminal penalties; and so on.
5. Prepare and recommend appropriate remedial measures and implement the
same.
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158 CHAPTER 8
In determining what questions to logically pursue in interviews and what
documents 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 internal controls offenses outlined in Chapter 1, wish 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 an improper payment through a relative employed
by a foreign government, the investigation will focus in part on the due diligence
for that agent, any warranties and representations in an agency agreement, Inter-
net searches of the agent and relative, business references, descriptions of services
on periodic agency invoices, and of course, hard and electronic correspondence
between the agent and the company. Answers to the interview questions or tell-
tale emails 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 can
still be prosecuted on an offer or conspiracy theory but are much less attractive to
a jury. For example, in the numerous UN Oil for Food Program cases, the Iraq gov-
ernment, not Iraqi government officials, received kickbacks and the DOJ elected
to proceed with 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 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 alleged violations.
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 inves-
tigation should focus on the time period and geography and remain flexible, depend-
ing on what is uncovered. For example, if a regional manager is responsible 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. Government agencies including the DOJ or SEC will be skeptical
of a corporate internal investigation that has an unduly narrow engagement scope
or does not pursue logical paths of inquiry. 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 government
Conducting a Foreign Corrupt Practices Act Investigation 159
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 deter-
mine whether the company, the board, or a committee did commit 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,
comisión confidencial, caisse noire), identify books-and-records and internal controls
issues, and assist in recommending and formulating remedial measures. These
forensic specialists should normally be independent and not the company’s regular
outside accounting or auditing firm. The retention of qualified forensic accoun-
tants under the direction of investigation counsel will usually give regular outside
auditors an increased level of comfort about the investigation.
Since there is no federal accountant-client privilege, investigation counsel—
not the client—should retain the accounting firm under a clearly defined scope
of work set forth in an engagement letter. Investigation counsel should carefully
monitor the scope of the accountant or investigation engagement, the work plan,
interviews, and progress. Whenever nonlawyers are assigned responsibilities, they
should perform under the direction of and report to counsel in order to maintain
the attorney-client privilege and work product protection.3 Counsel should deter-
mine early on what types of memoranda forensic accountants or investigations will
prepare and if they will remain in draft form.
Emails are the primary form of internal and external communications for
many multinational corporations (MNCs) in almost all industries today and
are frequently the DNA in white-collar criminal investigations. As a result, thor-
ough email searches are standard and a must for virtually any significant inter-
nal investigation to be credible. Sometimes companies resist conducting detailed
electronic searches by internal auditors, inside counsel, or outside investigation
counsel, considering them too expensive, invasive, and time-consuming. Unfortu-
nately, email searches have proven very telltale in anti-corruption investigations,
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