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Long-awaited FCPA guidance provides direction and concrete examples

Regulators provide centralized resource, concrete examples

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Long-awaited guidance on the Foreign Corrupt Practices Act puts regulators' thinking in one place for U.S. companies operating abroad and provides examples what may and may not constitute a bribe.

While the guidance released recently by the Department of Justice and the Securities and Exchange Commission offers “no new direction” and “no new policy statements” on the law, it collects in one place “information that was previously scattered in a number of different places,” said Mike Koehler, an assistant professor at Southern Illinois University's School of Law in Carbondale, Ill.

“For most of the FCPA's history, the business community lacked something like this and would have to get information through counsel, which obviously increased their legal expenses,” Mr. Koehler said of the 1977 law that targets foreign bribery, inaccurate financial records and inadequate internal controls. “This does have value.”

The guide, A Resource Guide to the U.S. Foreign Corrupt Practices Act, provides information for any size enterprise involved in multinational business, the Justice Department said in a statement.

Separately, Wal-Mart Stores Inc. disclosed that investigations into alleged bribery had expanded beyond Mexico to Brazil, China and India (see related story).

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John C. Kocoras, a Chicago-based partner in McDermott Will & Emery L.L.P.'s white collar and securities defense practice group, agreed that the guidance collects in one location regulators' previously stated thinking on the FCPA.

The guide “reaffirms the principals that the government has indicated in the past and many lawyers have been advising their clients that keys to a successful program include the right communication from high levels of the company, effective policies and procedures, training and a reasonable diligence program to screen partners prior to transactions,” he said.

While Mr. Kocoras said the guidance may do nothing to affect efforts by Congress to reform the law, Matthew T. Reinhard, a Washington-based member at law firm Miller & Chevalier Chartered, said some may contend that the guidance is intended to avoid reform efforts.

It could be argued “that this guidance is an effort by the enforcement authorities to indicate to Congress that they are on top of these issues and that they are responding to concerns that have been raised regarding the law's enforcement and further amendment is not necessary,” Mr. Reinhard said. “Whether that is ultimately successful, I don't know. Only time will tell.”

One of the most valuable aspects of the guidance is information about real cases that omit company names and hypothetical cases about situations that may or may not run afoul of the law, Mr. Reinhard said.

Issues addressed include gifts, travel and entertainment of foreign officials — issues with which companies have struggled with in complying with the FCPA, he said.

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“From those hypotheticals, you actually get a much better sense of the enforcement authority's thinking in that regard,” Mr. Reinhard said.

One of the most important takeaways is that the guidance confirms the importance of compliance programs, which also can help the insurance underwriting process, said Patricia Pileggi, a partner in the white collar and corporate compliance practice and the litigation practice at Schiff Hardin L.L.P. in New York.

“If a company has a very comprehensive compliance program and it addresses all of the elements that are outlined in this guidance; (and) has a particularly thorough compliance program and can demonstrate that, then I would think that would be very relevant to underwriting,” Ms. Pileggi said.

For insurance, the guidance does not affect coverage for FCPA violations and investigation costs, said Mach Millett, Boston-based senior vice president of private equity and mergers and acquisitions at Marsh Inc.'s FINPRO unit.

“It doesn't increase or decrease the risk that international companies face in terms of FCPA investigations or FCPA proceedings,” he said. “It leaves that risk exactly where it was and we consider that risk to be quite substantial.”