Staying aboveboard overseas.

• Author: Ayres, Margaret M.
• Position: Includes related articles

The line between an ordinary overseas business deal and a violation of the Foreign Corrupt Practices Act is getting fuzzier all the time. Learn how to protect your company and yourself.

Several years ago, Lockheed hired a consultant and promised her a sizeable commission for each plane sold to the Egyptian government. The consultant was later elected to the Egyptian Parliament, becoming - under the U.S. Foreign Corrupt Practices Act - a foreign government official. Before taking office, she turned over the consulting responsibilities to a company her husband headed. Two years later, Lockheed sold three C-130 transport aircraft to the Egyptian government, and Lockheed allegedly paid the local consulting company a termination fee in lieu of the commissions, keeping the payment confidential through code names and other means.

A federal grand jury in Georgia subsequently indicted Lockheed and two of its officers for conspiracy to violate the Foreign Corrupt Practices Act, even though there was no factual allegation that the parliament member had taken a single step to misuse her official position on Lockheed's behalf. The prosecutors successfully argued that it was Lockheed's intent, not the recipient's actions, that mattered, and that one indication of corrupt intent was the secrecy surrounding the commission payment.

Lockheed pleaded guilty to a negotiated single count and agreed to pay the maximum fine of $24.8 million. The Lockheed executives pleaded guilty to false information charges or bribery charges and were fined $20,000 and $125,000, respectively, and sentenced to three years' probation in one case and 18 months in prison in the other.

As a financial executive, you should be aware that the U.S. government is stepping up its enforcement of the FCPA. While prosecutions under the FCPA historically have been cases of U.S. companies committing egregious bribery, aggressive prosecutors recently brought the Lockheed indictment based on much less clear-cut behavior. If that case is any indicator, all a prosecutor has to demonstrate is that a U.S. company or its agents intended to obtain business by paying a foreign official - regardless of whether the effort succeeded, and even regardless of whether it had a chance of succeeding.

Congress enacted the FCPA in 1977, in response to reports that U.S. companies were making questionable overseas political payments. The FCPA covers accounting rules and bribery, but the focus here is on the anti-bribery provisions. The companies that fall under FCPA regulation include all entities organized or headquartered in the United States, as well as most foreign companies that register securities for sale in the United States under the Securities Exchange Act of 1934.

In order to be found guilty of violating the FCPA, a regulated company, including its directors, officers, employees or agents, must have used U.S. interstate commerce corruptly in furtherance of an offer or promise to give "anything of value," with the intention of influencing a foreign government official or party candidate or officer to help the company obtain or retain business for itself or someone else. The offer or payment doesn't have to be in cash, and the disquietingly broad term "anything of value" could mean many things. In the case of foreign investments, for example, it could cover overpayment for an official's shares in an enterprise, or a high director's fee paid to an officer of a state enterprise that's a co-venturer with the company. Giving a special class of stock with unusually large dividends or favorable liquidation rights to a foreign official who is an equity investor could also be questioned.

Even travel and expense reimbursements can be suspect unless they clearly qualify as reasonable. However, the FCPA has been interpreted as permitting token gifts to foreign officials, provided...