Expansion of Foreign Corrupt Practices Act Interpretation Causes Concern

August 2015

IN THIS ISSUE

— Business as Usual? FCPA Breing Used to Scrutinize Previously Routine Conduct
— Something of Value: FCPA and the Letter of the Law

GREETINGS!

Welcome to the August edition of our newsletter! In this issue, we’ll look at challenges posed by a broadening interpretation of the U.S. Foreign Corrupt Practices Act, or FCPA.

BUSINESS AS USUAL? FCPA BEING USED TO SCRUTINIZE PREVIOUSLY ROUTINE CONDUCT

In recent years, fraud enforcement by authorities in the United States has increased in scope, owing to the (still evolving) Dodd-Frank regulations, the creation of a new federal consumer protection agency, and other measures put in place after the financial crisis of 2008. A less publicized tool, at the moment, is the use of FCPA to police the conduct of U.S. businesspersons in dealings abroad.

While we’ve looked at how FCPA is used to punish bribery of foreign government officials, recently it has been interpreted to include other forms of favorable treatment which had previously been considered routine business practice. In one recent instance, a U.S.-based bank with an international presence settled charges brought by the U.S. Securities and Exchange commission under FCPA. The bank had been accused of giving three college students, each of whom had connections to non-U.S. sovereign wealth funds which were clients or potential clients of the bank, internships with the bank as a means of currying favor with the fund’s executives, despite the students being considered unqualified for the positions. In its settlement order, the SEC said two of the interns were paid, while one was unpaid.

SOMETHING OF VALUE: FCPA AND THE LETTER OF THE LAW

While the first two instances would clearly fall under the purview of the FCPA — a fund executive’s relative received a compensated internship in return for favorable treatment toward the employing bank — the instance regarding the unpaid internship raises a question of new boundaries of enforcement. While the unpaid internship could easily be interpreted as being given to influence a fund manager’s decision concerning the bank, does experience alone constitute having given “something of value” to the foreign official under FCPA?

The bank’s internal policies also prohibited giving “anything of value” to a foreign official, according to the SEC’s settlement order. That order also cited violations of the U.S. Securities Exchange Act in stating that the bank would pay $14.8 million in fines (and disgorgement of profits earned from subsequent transactions with the fund), without discussing whether the unpaid internship actually constituted “something of value.” While perhaps not precedent-setting by itself, the settlement for charges stemming in part from unpaid student work should be a reminder to conduct due diligence on all aspects of trans-national transactions, no matter how seemingly innocuous they may appear to be.