by Jamie A. Schafer, David B. Massey, Lee S. Richards III and Michael D. Mann

On August 14, 2020, the U.S. Department of Justice (“DOJ”) published the agency’s first Foreign Corrupt Practices Act (“FCPA”) Opinion Procedure Release (“FCPA Opinion Release”) since 2014.[1] In this guidance, DOJ confirmed that it would not prosecute a company for commercially reasonable payments made to a state-owned service provider in return for legitimate services rendered where there was no corrupt intent or diversion of money to any individual. As always, FCPA Opinion Releases should be read narrowly because the analysis relates to specific complex circumstances, many of which are not transparent to the reader.

The August 14, 2020 guidance makes a critical distinction between payments to a state-owned entity and payments to a “foreign official,” but the application of this distinction is highly fact-specific. Companies should therefore be careful not to overinterpret this guidance and conclude that payments to government entities are less likely to result in enforcement action than before. In the discussion below, we highlight the following observations as to how this most recent and long awaited FCPA Opinion Release should be interpreted and implemented in practice:

1. 1. 1. Payments to state-owned counterparties continue to raise significant corruption risks and such relationships should be carefully vetted and monitored;
      2.  Third party anti-corruption procedures should ensure vetting of the commercial terms to confirm that each transaction is commercially reasonable and made in exchange for legitimate goods/services; and
      3. While the FCPA Opinion Release procedure has not been used frequently in recent years, it remains a valuable tool for assessing enforcement risk when confronted with novel and complex fact patterns in high-risk circumstances.

The August 14, 2020 FCPA Opinion Release

The August 14, 2020 guidance arises from an inquiry by a U.S.-based multi-national investment advisor. The investment advisor sought to purchase assets from a subsidiary of a majority state-owned foreign investment bank (“Country A Office”). In connection with this transaction, the investment advisor received assistance from another subsidiary of the state-owned investment bank (“Country B Office”).

After the transaction closed, Country B Office sought compensation of $237,500 for its assistance with the purchase, amounting to 0.5% of the face value of the assets purchased. While no agreement was executed between the investment advisor and Country B Office, this amount was consistent with a draft agreement exchanged between the parties. The investment advisor represented to DOJ, and the Chief Compliance Officer of Country B Office certified, that Country B Office provided legitimate and valuable services in return for the payment, and that the amount was commercially reasonable under the circumstances.

In the August 14, 2020 FCPA Opinion Release, DOJ confirmed that it has no present intention to take enforcement action under these circumstances because “there is no information evincing a corrupt intent to offer, promise, or pay anything of value to a ‘foreign official’ in connection with the contemplated payment to the Country B Office.” DOJ goes on to highlight three factors key to its conclusion: (1) the payment would be made to a state-owned entity and not to any individual “foreign official”; (2) there were no red flags suggesting the payment would be diverted to any individual “foreign official” or was otherwise “intended to corruptly influence a foreign official”; and (3) the payment would be made in exchange for “specific, legitimate services” and is “commercially reasonable” in light of the services provided.

Take-Away 1: Payments to State-Owned Entities Are Not Risk-Free

On its face, the guidance appears obvious because Country B Office was an entity, and the FCPA “prohibits payments to foreign officials, not to foreign governments”, as noted in DOJ’s Resource Guide to the U.S. Foreign Corrupt Practices Act (“FCPA Guide”).[2]

However, there is a danger that the guidance will be interpreted by companies to suggest that payments paid directly to foreign governments or state-owned entities (as opposed to individual foreign officials) are less risky now in light of this advisory opinion. That would be a mistake. While such payments may not technically violate the anti-bribery provisions of the FCPA, U.S. authorities have taken enforcement action in relation to such payments under the books and records and internal controls provisions of the FCPA as well as other federal criminal laws. In fact, the FCPA Guide specifically highlights this risk, explaining:

Even though payments to a foreign government may not violate the FCPA, such payments may violate other U.S. laws, including wire fraud, money laundering, and the FCPA’s accounting provisions. This was the case in a series of matters brought by DOJ and SEC involving kickbacks to the Iraqi government through the United Nations Oil-for-Food Programme.[3]

In addition, notwithstanding DOJ’s determination that enforcement action is not warranted under the circumstances presented in the August 14, 2020 FCPA Opinion Release request, there are many circumstances in which payments to foreign governmental agencies and state-owned entities may raise significant corruption risks. For instance, there is an inherent risk that a state-owned entity may divert funds or provide kick-backs to individual foreign officials.[4] The FCPA Guide cautions that “companies contemplating contributions or donations to foreign governments should take steps to ensure that no monies are used for corrupt purposes, such as the personal benefit of individual foreign officials.”[5]

Moreover, as evidenced by the U.N. Oil-For-Food-related enforcement actions, beyond the anti-bribery provisions of the FCPA, the government has many tools available — both under the FCPA and more broadly — to target payments to foreign governments that have a corrupt purpose. Accordingly, companies should not overinterpret this guidance but rather continue to robustly vet and monitor relationships with foreign governmental agencies and state-owned entities.

Take-Away 2: Vetting the Commerciality of Third-Party Relationships Remains Critical

DOJ’s guidance did not turn entirely on the fact that Country B Office was state-owned. DOJ also highlighted the absence of evidence of corrupt intent and the fact that legitimate and valuable services were provided by Country B Office in exchange for a commercially reasonable payment.

Thus, this guidance should serve as a reminder that, beyond reputational diligence and screening, companies must carefully vet the commercial terms of proposed relationships with third parties — including state-owned counterparties — to ensure that payment terms are commercially reasonable and that payments are made only in exchange for legitimate goods/services received.

Take-Away 3: The FCPA Opinion Release Procedure Remains a Valuable Tool

The FCPA Opinion Release procedure was employed routinely from 1980 through 2014, and it has been six years since the last FCPA Opinion Release. Since the DOJ is required under relevant regulations to respond to all inquiries submitted under this procedure and has a policy of publicly issuing its responses, it appears that companies have largely stopped submitting these requests. Given the potential usefulness of obtaining an advisory opinion, why the long wait?

One reason may be that interest in the procedure has waned in the wake of the FCPA Guide’s issuance in 2012. The FCPA Guide, which was updated in July 2020, provides readily accessible and extraordinarily valuable guidance along with many detailed hypothetical scenarios. By contrast, the FCPA Opinion Release procedure often involves a lengthy and expensive process, including the burden of responding to DOJ requests for supplemental information. While responses are sometimes received within a month of request, a delay of several months to satisfy additional information requests is not uncommon.[6]

In the context of a fast-paced transaction, the substantial lag time between requesting an FCPA Opinion Release and receiving guidance can make an advisory opinion useless. Nevertheless, unlike the broader guidance available through the FCPA Guide, an FCPA Opinion Release creates a rebuttable presumption that the conduct does not violate the FCPA if it is consistent with that guidance.[7] The specificity and binding nature of an opinion release provides comfort not available through any other avenue. In such circumstances, the procedure remains a valuable tool for companies considering novel facts.

Footnotes

[1] Foreign Corrupt Practices Act Review, Opinion Procedure Release No. 20-01 (Aug. 14, 2020), available at https://www.justice.gov/criminal-fraud/file/1304941/download (PDF: 76 KB). The FCPA Opinion Release procedure allows U.S. entities and issuers to seek guidance from DOJ as to “certain specified, prospective – not hypothetical – conduct” and the extent to which DOJ would intend to bring an enforcement action in relation to such conduct. The procedure is described in detail at 28 C.F.R. Part 80 as well as in Chapter 9 of the Resource Guide to the U.S. Foreign Corrupt Practices Act, available at https://www.justice.gov/criminal-fraud/file/1292051/download (PDF: 4.19 MB).

[2] FCPA Guide at 19.

[3] FCPA Guide at FN 114.

[4] In this case, DOJ highlighted some of the factors considered in concluding that the payment at issue would not be diverted to an individual official, including transparency to Country B Office management and a certification by Country B Office’s Chief Compliance Officer. There was undoubtedly a significant amount of information supporting this conclusion that was not included in the guidance. The numerous requests for supplemental information noted in the release are evidence of the high level of scrutiny DOJ applies to such conclusions.

[5] FCPA Guide at 19.

[6] The August 14, 2020 FCPA Opinion Release responded to an inquiry submitted in November 2019 and involved four intervening replies by the requestor to DOJ requests for supplemental information. Likewise, the prior March 2014 and November 2014 FCPA Opinion Releases were requested in July 2013 and April 2014, respectively.

[7] See 28 C.F.R. 80.10. It bears noting that the guidance is only binding to the extent that the disclosure of facts and circumstances by the requestor is accurate and complete. 

Jamie A. Schafer, David B. Massey, and Lee S. Richards III are partners at Perkins Coie. Michael D. Mann is a partner at Richards Kibbe & Orbe LLP. 

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