The new FCPA guidance: a defacto adequate procedures defense?

• Author: Unger, Peter V.B.
• Position: Legal Issues - Foreign Corrupt Practices Act

The Criminal Division of the U.S. Department of Justice (DOJ) and the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) published a 120-page Resource Guide to the U.S. Foreign Corrupt Practices Act last November. This guidance specifically notes that the adequacy of a company's compliance program is a factor that will be considered in deciding what, if any, action to take against a company for Foreign Corrupt Practices Act (FCPA) violations.

Though the guidance falls short of the United Kingdom Bribery Act's express "adequate procedures" defense, it is an acknowledgement that the adequacy of a company's compliance program will be a key factor in determining how companies facing FCPA exposure will be dealt with. The guidance also discusses the hallmarks of an effective compliance program. While there is little that is novel in the guidance, it is the first comprehensive statement by the government, and will be the new standard.

The guidance does not identify formulaic requirements regarding compliance programs. Instead, it focuses on three basic issues. The first is whether a compliance program is designed to fit the needs of the company employing it. There is no "one size fits all" program. The second is whether the compliance program is being applied in good faith, and the third is whether it works as intended.

An effective compliance program promotes "an organizational culture that encourages ethical conduct and a commitment to compliance with the law." The government understands that "no compliance program can ever prevent all criminal activity by a corporation's employees." They assess the company's compliance program--including its design and good faith implementation and enforcement--as an important part of the government's assessment of whether a violation occurred, and if so, what action should be taken against the company.

The government has long indicated it has no "formulaic" requirements as to a corporate compliance program, but past settlements have established a certain set of practices as a pragmatic "floor" for any program. Now, the guidelines have catalogued, clarified, and in some instances, extended this understanding.

Elements of Effective Compliance

The guidelines identify 10 elements that the government will consider when calculating the effectiveness of a company's compliance system in the context of a potential enforcement action. Again, while specific facts and circumstances will apply, and...