According to Stanford University Law School’s Foreign Corrupt Practices Act Clearinghouse, between 2001 and 2019, there were 268 FCPA enforcement actions. 246 (or 91.7%) of the bribes were paid by third parties as opposed to officers or employees of the defendant company. Sales agents, distributors, JV partners, resellers, freight forwarders, customs brokers, lawyers and accountants are all categories of third-party intermediaries implicated in bribery prosecutions. Rarely though, do we hear or read about the names of third-party bribe payers or the company name. Global companies, particularly those who ship products internationally or rely on third parties in other ways to bring their products and services to market, are heavily reliant on virtual armies of third-party intermediaries to operate internationally. They are a necessary evil who can act on behalf of an organization, represent them in the marketplace, and potentially trigger significant liability under the FCPA, sanctions, or anti-money laundering laws.
On a recent episode of the Fraud Eats Strategy podcast, I spoke to FCPA luminary and Foley & Lardner partner David Simon.
The FCPA is a peculiar law. It is slanted heavily toward punishing bribe-paying companies and not bribe recipients, which seems inherently unfair. Most bribes are paid by intermediaries and their identities are seldom disclosed. They frequently are not charged in the prosecution of the company on whose behalf the bribes were paid. This fact is founded in sound public policy of not naming persons that aren’t charged in crimes – the famous unindicted co-conspirator concept. This policy is rooted in due process of not implicating people in criminal misconduct since it causes harm to them and is potentially defamatory. The question is, is there room for an exception when it comes to bribe-paying intermediaries?
Transparency is becoming much more important in a lot of areas of compliance and now may be exactly the right time to begin the practice of naming bribe-paying intermediaries to improve FCPA compliance. Indeed, this would be a positive way to promote the goals of the FCPA enforcement program. It is a longstanding policy of the DOJ and the SEC not to name uncharged individuals or entities although that same policy does leave the door open to doing so provided there is “significant justification”. Third-party intermediaries are by far the highest risk within the FCPA compliance world. It is where the action is andthis is where companies go wrong. It is also important to give companies all of the tools necessary to get this part of their FCPA compliance program right and to give companies the tools to do so. Both the SEC and DOJ have exceptionally high expectations of companies from a compliance perspective. Among those expectations is that companies know if they’re hiring intermediaries with the propensity to bribe. DOJ has regularly charged companies and individuals for being willfully blind to such propensity.
In bringing bribery prosecutions, the government presents substantial evidence that bribes were paid. This isn’t just speculation.
The benefits of naming bribe payers would be immeasurable. It would give companies who are trying to act in good faith, trying hard, and investing tremendous resources in avoiding bad actor intermediaries another powerful tool in their toolbox. Most companies don’t want to hire these bad apples, naming them would give the companies the ability to avoid engaging them inadvertently. This is especially important since the names of these bribe-paying intermediaries are not in the public domain and are therefore very unlikely to come up during the performance of a due diligence investigation.
While there may be some due process concerns, they are probably lower in most circumstances since these intermediaries are typically not U.S. citizens or U.S. companies. Regulators could easily set up a system that would include some due process protections. One such protection would be to give the companies and individuals who are added to this list the opportunity to challenge the designation, present evidence and have a hearing from a neutral fact-finder. There are precedents for processes like this such as the OFAC specially designated national and Department of Commerce BIS denied parties list processes.
Investigative due diligence is atool in the FCPA compliance program arsenal.The fact that bribe-paying intermediaries who played a role in one or more major FCPA cases but are being afforded the kind of protections as though they are in the witness protection program is undermining transparency surrounding the payment of bribes documented in prosecutions. The timing of creating a database of bribe-paying intermediaries coincides nicely with the recent passage of the Corporate Transparency Act and a global push for transparency. Having such a list will make investigative due diligence appreciably more effective since the identity of bribe-paying intermediaries and the individuals behind them will bring some much-needed relief to beleaguered chief compliance officers struggling to manage their third-party risk.
To hear the full Fraud Eats Strategy podcast episode with David Simon, click here:
Note: The postings on this site are my own and do not necessarily represent FTI Consulting’s positions, strategies or opinions