Feb 27 2012 issue
Businesses Call for Greater Clarity on FCPA Enforcement
Nearly three dozen business groups recently asked the Department of Justice and the Securities and Exchange Commission to address a number of specific issues in guidance expected to be released later this year on compliance with the Foreign Corrupt Practices Act. The groups stressed that this guidance should “carry sufficient precedential weight to be reliable and meaningful for businesses seeking to comply with the FCPA” and should apply to both criminal and civil enforcement. Similar recommendations were made in a separate letter from Sens. Amy Klobuchar, D-Minn., and Chris Coons, D-Del.
Definitions of “Foreign Official” and “Instrumentality.” The FCPA prohibits corrupt payments or offers of payment to foreign officials, which the law defines as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.” However, the business letter states, because the law does not provide any definition of “instrumentality,” it is unclear what types of entities are instrumentalities of a foreign government such that their employees are considered foreign officials. Without a clear understanding of the parameters of these terms, “companies have no way of knowing whether the FCPA applies to a particular transaction or business relationship, particularly in countries like China where most if not all companies are at least partially owned or controlled by the state.”
The business groups therefore asked for the forthcoming guidance to (1) identify the percentage ownership or level of control by a foreign government that ordinarily will qualify a corporation as an instrumentality, (2) clarify that for a company to be considered an instrumentality it typically must perform governmental or quasi-governmental functions, and (3) identify exceptions, if any, to these general principles.
Consideration of Compliance Programs in Enforcement Decisions. The letter asserts that under the current FCPA enforcement regime the business community lacks confidence that DOJ and the SEC will give sufficient consideration to potential defendant companies’ strong, pre-existing compliance programs when making enforcement decisions. The two agencies should therefore provide guidance regarding what would be considered an effective FCPA compliance program that would merit favorable consideration in enforcement decisions. This guidance should establish standards that businesses may adopt and incorporate as part of their compliance programs and identify the specific components that are considered to be essential to a robust FCPA compliance program. The guidance should also describe how companies’ voluntary disclosures of FCPA violations by their employees are factored into enforcement decisions.
Parent-Subsidiary Liability. The FCPA does not set forth circumstances when a parent company may be held liable for a foreign subsidiary’s violations of the anti-bribery provisions of the FCPA, the letter states. Furthermore, the SEC has charged parent companies with civil violations based on actions by a subsidiary of which the parent is entirely ignorant, an approach that “appears to be contrary not only to well-established common law principles of corporate liability, but also to the statutory language of the anti-bribery provisions, which require evidence of knowledge and intent for liability.” The letter therefore requests that the forthcoming guidance clarify and confirm that both DOJ and the SEC consider parent company liability under the FCPA’s anti-bribery provisions to extend only to circumstances in which the parent actually authorized, directed or controlled the improper activity of its subsidiary.
Successor Liability. Under the FCPA, a company may be held liable for the actions of a company that it acquires or merges with even if those actions took place prior to the acquisition or merger and were entirely unknown to the acquiring company. The business groups therefore want DOJ and the SEC to clarify that they ordinarily will not pursue an enforcement action against a company for pre-acquisition violations by an acquiree. At the very least, the letter states, if a company conducts reasonable due diligence prior to an acquisition it ordinarily should not be subject to any enforcement action for pre-acquisition conduct by the acquired entity. What constitutes sufficient due diligence may vary depending on the risks in a given transaction, but a full internal investigation and the expenditure of significant resources by the company should not be required. The guidance also should provide realistic standards for post-acquisition due diligence where pre-acquisition due diligence could not be undertaken or was significantly limited.
De Minimis Gifts and Hospitality. While DOJ has stated that it does not prosecute conduct involving de minimis gifts and hospitality to foreign officials, “such gifts and hospitality remain subject to prosecution at the whim of the government” and there are no guidelines on the threshold below which these cases will ordinarily not be brought. The letter urges such guidance to be developed and suggests that it could be patterned after guidance issued by the United Kingdom Ministry of Justice regarding the application of the U.K. Bribery Act, which includes concrete examples of acceptable behavior.
Mens Rea Standard for Corporate Criminal Liability. The FCPA expressly limits an individual’s liability for violations of the anti-bribery provisions to situations in which the individual has committed those violations willfully but does not contain any similar language with regard to corporate criminal liability. This inconsistency “appears to expose companies to criminal penalties for violations of the FCPA even if there is no identifiable person of authority who knew that the conduct was unlawful or even wrong.” DOJ should therefore clarify its position on this standard, including by stating whether its view is that a company may be criminally sanctioned for FCPA bribery violations of which it had no direct knowledge.
Declination Decisions. The business groups also want DOJ to reconsider its practice of not providing information about its decisions to close FCPA-related investigations with no enforcement action, stating that “an understanding of the real-world circumstances that result in a declination would be tremendously useful to companies seeking to comply with the FCPA.”
Other Recurring Issues. Other FCPA issues that companies regularly confront and should be addressed in the forthcoming guidance include:
- business relationships with relatives of government officials;
- corporate donations to charities that have connections with foreign governments; and
- apprentice programs or secondment arrangements in which employees are assigned to work for a foreign customer in which a foreign government holds an interest, with the salaries of the apprenticed employees paid by the U.S. company.
EU Puts Anti-Counterfeiting Agreement on Hold
European Union Trade Commissioner Karel de Gucht announced last week that the Anti-Counterfeiting Trade Agreement will be sent to the European Court of Justice for a ruling on whether the pact is “incompatible in any way with the EU’s fundamental rights and freedoms.” Recent weeks have seen tens of thousands protesting across Europe against ACTA, which opponents fear could result in censorship or other restrictions of civil liberties. Similar concerns in the United States appear to have all but doomed legislation seeking to strengthen online piracy enforcement efforts.
De Gucht noted that the European Commission has passed ACTA to national governments for ratification as well as to the European Parliament for debate and a vote, which is expected this summer. The European Council also adopted ACTA unanimously in December and authorized EU member states to sign it. Press sources note that while 22 of the 27 members have done so, the others have said they will not sign the agreement in its current form, and all members must sign for the EU as a whole to formally become a party.
De Gucht acknowledged that the ACTA ratification process has triggered a “Europe-wide debate” due to uncertainty as to how this agreement will affect issues such as freedom of the Internet and intellectual property protection. To foster a “calm, reasoned, open and democratic” discussion that is “based upon facts and not upon the misinformation or rumor that has dominated social media sites and blogs in recent weeks,” he said, the Commission is referring ACTA to Europe’s highest court to “independently clarify the legality of this agreement.” Press sources say a decision by the court is expected within about six months.
De Gucht also reiterated that ACTA “will not change anything in the European Union.” The standards in this agreement “are already enshrined in European law” and will only “help to enforce what is already law today.” As a result, he asserted, ACTA “will change nothing about how we use the Internet and social Web sites today” and “will not hinder freedom of the Internet or freedom of speech.” Instead, the agreement is designed to protect the intellectual property of European companies in other countries, where “counterfeited and pirated goods” are costing them revenue and jobs.
Click here for more information on ACTA
Dates and Deadlines in the Week Ahead
Following are highlights of regulatory effective dates and deadlines and federal agency meetings coming up in the next week.
Feb. 27 – comments on USDA proposed rule to revise the list of factors considered when evaluating the animal health status of a foreign region
Feb. 27 – comments on risks associated with firepots and gel fuel
Feb. 28 – STR webinar on DR-CAFTA for textiles and apparel
Feb. 28 – ITC hearing on trade in remanufactured goods
Feb. 29 – House Ways and Means Committee hearing on trade policy
Feb. 29 – STR webinar on expanding international sales in compliance with import and export requirements
Feb. 29 – deadline for triennial status report and $100 fee for customs brokers
March 1 – deadline for applications for Defense Trade Advisory Group membership
March 1 – meeting of President’s Export Committee Subcommittee on Export Administration
March 1 – meeting of BIS Transportation and Related Equipment Technical Advisory Committee
March 1 – STR webinar on self-reporting customs errors
March 2- STR webinar on maximizing duty savings through first sale customs valuation
FDA Amends Regulations on Recordkeeping by Food Firms
The Food and Drug Administration announced Feb. 23 its latest step in implementing the Food Safety Modernization Act, an interim final rule updating the regulations on recordkeeping by firms that manufacture, process, pack, distribute, receive, hold or import food. The interim final rule will be effective March 1, and comments may be submitted no later than May 23.
The food firm recordkeeping requirements and FDA’s access to these records were first established by the Bioterrorism Act of 2002, and FDA’s access was expanded under the FSMA. For example, under the BTA FDA was authorized to access records relating to specific suspect food articles, but under the new law FDA has expanded authority to access records relating to any other article of food it reasonably believes is likely to be affected in a similar manner. In addition, FDA may now access records relating to articles of food for which it believes there is a reasonable probability that the use of or exposure to the article of food, and any other article of food that FDA reasonably believes is likely to be affected in a similar manner, will cause serious adverse health consequences or death to humans or animals.
FDA has also updated a guidance document for industry and a list of questions and answers to reflect and provide further detail on the updated record availability requirement.
Click here for interim final rule
Click here for guidance document
Click here for questions and answers
Former CEO Sentenced to 30 Months in Prison for Foreign Bribery
The Department of Justice reports that a former chairman and chief executive officer of a major defense contractor has been sentenced to 30 months in prison for conspiring to violate the Foreign Corrupt Practices Act by participating in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts and for conspiring to commit mail and wire fraud as part of a separate kickback scheme. The man will also serve three years of supervised release following the prison term and pay $10.8 million in restitution to his former company, which was the victim of the kickback scheme. A DOJ press release notes that two of the man’s co-conspirators have been sentenced as well, one to 21 months in prison, two years of supervised release and a $25,000 fine and the other to one year of probation and a $20,000 fine. DOJ states that the defendants’ substantial assistance in its investigation and prosecution of other defendants was reflected in the sentences imposed.
AD/CV Notices: Pasta, Garlic, Honey, Oil Country Tubular Goods
Commodity: Fresh garlic.
Nature of Notice: Partial final results and partial final rescission of administrative review of AD duty order for the period Nov. 1, 2009, through Oct. 31, 2010.
Details: China-wide rate set at $4.71 per kilogram, which will be used to assess AD duties on entries of subject merchandise during the period of review and set AD cash deposit rates for entries on and after Feb. 27. Seven companies did not demonstrate eligibility for separate rates and will be subject to the China-wide rate. The review has been rescinded with respect to 14 exporters who had no shipments of subject merchandise during the period of review.
Commodity: Oil country tubular goods.
Nature of Notice: Initiation of administrative review of CV duty order for the period Jan. 1 through Dec. 31, 2011.
Nature of Notice: Extension from April 1 to July 30 of time limit for preliminary results of administrative review of AD duty order for the period July 1, 2010, through June 30, 2011.
Nature of Notice: Extension from May 2 to June 11 of time limit for final results of administrative review of AD duty order for the period Dec. 12, 2009, through Nov. 30, 2010.
IPR Enforcement Actions on Dimmable Lamps, Toner Cartridges, GFCIs
New Patent Infringement Investigations of Dimmable Lamps, Toner Cartridges. The International Trade Commission has instituted the following patent infringement investigations.
- investigation 337-TA-830 of certain dimmable compact fluorescent lamps and products containing same (respondents located in China and the U.S.)
- investigation 337-TA-829 of certain toner cartridges and components thereof (respondents located in Vietnam, Mexico, China, Hong Kong, Canada and the U.S.)
In each case the complainants request that after the investigation the ITC issue an exclusion order, which would direct U.S. Customs and Border Protection to prohibit the entry of the infringing products into the U.S., and cease and desist orders, which would require the named respondents to cease actions that violate Section 337, including selling infringing imported articles out of U.S. inventory.
Click here for dimmable lamp notice
Click here for toner notice
ITC to Review Finding of No Violation on Ground Fault Circuit Interrupters. In investigation 337-TA-739 of certain ground fault circuit interrupters and products containing same, the ITC has determined to review the presiding administrative law judge’s initial determination that the importation, sale for importation and sale within the U.S. after importation of these items is not violating the specified patents. The ITC is also requesting briefing from the parties to this investigation by March 2 on remedy (i.e., an exclusion order and/or cease and desist orders), the effect of a potential remedy on the public interest, and the amount of bond under which subject articles could enter the U.S. during the 60-day period the president has to review any ITC remedy recommendation.
Click here for GFCI notice
OFAC Authorizes Certain IPR Transactions with Syria
Following the August 2011 issuance of Executive Order 13582 prohibiting certain transactions with respect to Syria, the Treasury Department’s Office of Foreign Assets Control has issued General License No. 15 permitting the following transactions related to patents, trademarks and copyrights that would otherwise be prohibited by that order.
- the filing and prosecution of any application to obtain a patent, trademark, copyright or other form of intellectual property protection
- the receipt of a patent, trademark, copyright or other form of intellectual property protection
- the renewal or maintenance of a patent, trademark, copyright or other form of intellectual property protection
- the filing and prosecution of any opposition or infringement proceeding with respect to a patent, trademark, copyright or other form of intellectual property protection or the entrance of a defense to any such proceeding
OFAC states that this general license authorizes the payment of fees currently due to the U.S. government or the government of Syria, or of the reasonable and customary fees and charges currently due to attorneys or representatives within the U.S. or Syria, in connection with these transactions, although such payment may not be made from a blocked account.
Click here for General License No. 15