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FCPA Violations: Another Worry When Importing and Exporting

Daily Journal
12/20/11

Those who import and export always must be concerned about regulations issued by U.S. Customs and Border Protection, the U.S. Department of Commerce, the U.S. Department of Treasury's Office of Foreign Assets Control, and various other federal agencies, depending on the commodity involved. But another agency not to be overlooked is the U.S. Department of Justice, the enforcer of the Foreign Corrupt Practices Act (FCPA). Parties involved in international trade should be particularly concerned with the Justice Department's recent trends in FCPA enforcement.

The FCPA is an anti-bribery law that makes it illegal to corruptly pay, offer, or promise to pay money or anything of value to a foreign government official for the purpose of retaining or obtaining business, or to obtain any improper advantage or improperly influence an act or  decision. It is also illegal to authorize such activity. These prohibitions generally extend to U.S. companies and citizens, companies listed on a U.S. stock exchange, and any person undertaking proscribed activity while physically present in the U.S. A foreign public official includes all public officials regardless of position.

The Justice Department has dramatically increased its prosecution of FCPA violations in recent years. In 2004, it prosecuted only five cases. Since then, the number of cases prosecuted has risen annually. In 2010, the department prosecuted 74 cases, and is reported to currently be working on over 175 cases. Civil and criminal penalties can be quite harsh, and includes significant jail time for individual offenders and fines of up to twice the value of the benefit that the defendant sought to obtain. Many fines adjudged against companies in recent years have been in the hundreds of millions of dollars.

Importers and exporters should be aware of some of the indirect and unexpected ways in which the FCPA can be applied. For example, the Act prohibits improper payments made through agents or other intermediaries. Thus, a payment to a foreign sales representative employed by an exporter can result in an FCPA violation if that payment is made while knowing that all or some of that payment will go to a foreign official. Likewise, an importer of goods to the U.S. must be wary that his foreign supplier or overseas subsidiary does not violate the Act, such as by making an improper payment to obtain a required document or clearances from a foreign government to export goods to the U.S.. Earlier this year, the Justice Department announced that Tyson Foods Inc. had agreed to pay a $4 million criminal penalty in connection with alleged violations of the FCPA by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary's Bookmark Reprints chicken products for export sales. Also this year, the department announced that Johnson & Johnson had agreed to pay a $21.4 million criminal penalty as part of a deferred FCPA prosecution agreement to resolve improper payments by its subsidiaries to government officials in Greece, Poland and Romania to induce purchase of Johnson & Johnson's medical devices and pharmaceuticals.

Lack of knowledge about the illicit payment is not a defense to an allegation that the importer violated the FCPA. As such, companies employing agents or operating
through subsidiaries to facilitate business in a foreign country, whether it be exporting to or from that country, must exercise extreme care to ensure that the agents are reputable, and that they understand the FCPA and its consequences. An agent's improper act could cause enormous problems for the U.S. company. Parties are wise to always look for the hook hidden in the glitter of the deal; and if that hook is a violation of the FCPA, there could well be a high price to pay.

Significantly, the FCPA can apply in seemingly benign, ordinary course of business-type situations. For example, it is considered routine by many businesses to provide travel benefits for their customers to attend business meetings or to participate in demonstrations of their products or tours of their facilities. If the customer happens to be a government official, defined broadly to include any officer or employee of a foreign government or any department, agency, or instrumentality thereof, the business must be certain that the benefits supplied are reasonable and bona fide. Supplying such types of benefits in excess can cause a business to find itself crosswise with the FCPA.

The Justice Department has placed increasing emphasis on investigating and prosecuting FCPA violations, and all signs indicate that the trend will continue. Companies and individuals engaged in importing or exporting goods from the U.S., or involved in any type of international trade, will typically have various dealings with foreign officials - if not as direct customers, then in their capacity as trade regulators. Staying abreast of all FCPA requirements should remain a top priority.

F. Gordon Lee is a partner in the Washington, DC, office of Nossaman LLP. He specializes in customs and export control law. he can be reached at fglee@nossaman.com.

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