A Growing Global Landcsape and Changing FCPA Rules

March 2014

IN THIS ISSUE

— New Scenarios Test Limits of FCPA
— Changing Rules For a Changing World

GREETINGS!

Welcome to the March edition of our newsletter! In this issue, we’ll examine a recent U.S. Justice Department determination concerning the Foreign Corrupt Practices Act, and what it could mean for transnational businesses of all kinds.

NEW SCENARIOS TEST LIMITS OF FCPA

While it is well-known that one of the main applications of the FCPA is to keep government officials from being corrupted by financial incentives from companies seeking their favor, that principle recently encountered an interesting test. In December 2011, a minority shareholder (also serving as chief executive officer) of a non-U.S. investment firm was named to a government post, regulating the investment banking industry, in the same country where the investment firm was based.

When the shareholder accepted the government agency position, he relinquished his executive roles with the investment bank, remaining only as a passive shareholder. While the company is not directly regulated the agency, the company has had a client relationship with that agency for more than 20 years. When the minority shareholder sought to sell his shares in the investment firm, a question was raised as to whether the transaction could be construed as an inducement by the company to obtain business from the now-agency official. The Justice Department found that it could not, given that the sale valuation was reached by an independent firm and, in the department’s words, “There is no indication of either party requesting a minimum or specific valuation from the Firm or attempting to improperly influence the valuation.”

CHANGING RULES FOR A CHANGING WORLD

Due to the potential red flags raised in the example above, winning approval for the transaction under FCPA guidelines took eight months to complete. While some questioned whether that effort was really necessary given that each firm’s advisers had conducted their own due diligence, the investment bank sought an FCPA ruling from the Justice Department. Perhaps this measure of precautionary effort is an indication of our increasingly global marketplace and the risks that may present themselves, requiring knowledge of ever-changing regulations — and of what constitutes a risk in the first place.