Have You Seen the Most Recent FCPA Resource Guide Update?

In July 2020, the Department of Justice (DOJ) released an update to its Resource Guide highlighting who is considered a foreign official. The Resource Guide is a detailed analysis of the FCPA and can be used by companies to establish a plan to help mitigate any potential FCPA violations. The July 2020 update provided clarification from the DOJ for the first time since its release in 2012.

The FCPA identifies a foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of any such government, department, or public international organization. Furthermore, the resource guide highlighted examples below:

1. A foreign official
2. A foreign Political Party or official associated with the political party
3. Political Candidate for a foreign political office
4. Any person knowing that all or a portion of a payment made or promised to an individual in the aforementioned points.

The FCPA also details that any officer or employee of a foreign government, department, or agency falls within its purview. A person acting in an official capacity on behalf of a “foreign official” is also prohibited from receiving payment. Ultimately, the ranking of the person is not taken into account when determining if the payment is within violation of the FCPA. The resource Guide highlights that low ranking officials and high ranking officials are viewed as equals. [1] The definition also expands to people representing any state owned or state controlled entities as these persons can be “instrumental” to a foreign government. In this instance, the entities ownership, control, status, and function are reviewed to determine its connection to a foreign government.

Despite prohibiting payments to “foreign officials” the FCPA does not prohibit payments to foreign governments. The law does caution that companies making contributions or donations to a foreign government must ensure the funds are not used in a corrupt manner.

Along with the clarification to the Foreign Persons definition, there was an update to the statute of limitations in regards to criminal actions and conspiracy offenses in this second edition of the FCPA Resource Guide. The former version of the Guide did not have a clear distinction between the statutes of limitations applicable to violations of the Anti-Bribery and accounting provisions.

While the statutes of limitations for both the Anti-Bribery provisions and Accounting provisions were previously set at five years, the updated FCPA Resource Guide addressed the imprecise language by differentiating the amount of time required in the Anti-Bribery provision and the accounting provision, but only in reference to violations defined as criminal actions or conspiracy violations.

For criminal actions, substantive violations of the Anti-Bribery provision are subject to the general five-year statute of limitations set out in 18 U.S.C. § 3282 [2]. However, in the updated FCPA Resource Guide, violations of the Accounting provisions were updated to consider “securities fraud offenses”, and these violations were now subject to carrying the six-year statute of limitations in 18 U.S.C. § 3301. [3]

For conspiracy offenses under 18 U.S.C. § 371, the updated FCPA Resource Guide also notes that the statute of limitations follows the limitations period of the underlying violation. Following the clarifications outlined above, this would mean a six-year period for accounting conspiracy violations and a five-year limitations period for anti-bribery conspiracy violations. This is a clear update on the 2012 Resource Guide, as the prior version did not distinguish between the limitations period for Anti-Bribery and accounting provision violations. This is a noteworthy update that those subject to the FCPA’s accounting provision will want to be mindful of when addressing risks and reviewing their programs.

• Goldman Sachs Violation

Financial Institutions that violate or even conspire to violate the FCPA can face serious legal troubles and monetary penalties. The Department of Justice (“DOJ”) and Securities Exchange Commission (“SEC”) have made it very clear that all bribery and corruption even vaguely associated with the United States will be pursued with the entire strength of the law. This show of strength can be viewed in the recent charges brought against The Goldman Sachs Group Inc.

In late October of 2020, the DOJ released a statement stating that The Goldman Sachs Group Inc., a global financial institution headquartered in New York City, and its Malaysian Subsidiary, Goldman Sachs (Malaysia) Sdn. Bhd., have admitted to conspiring to violate the FCPA in connection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs. [4]

The charges outline that, over a five year period from 2009 to 2014, Goldman Sachs participated in a conspiracy to bribe various high-ranking and high-level officials across several countries more than $1.6 billion, in an effort to obtain profitable underwriting and business opportunities. Included in this deal was Goldman’s role in underwriting approximately $6.5 billion in three bond deals for 1Malaysia Development Bhd. (1MDB), for which the bank earned hundreds of millions in fees. [5] This was devised so that Goldman Sachs could secure hundreds of millions of dollars in fees from these business opportunities, while the people of Malaysia and other American financial institutions operating abroad missed out.

Throughout this five year period, while there were notable red flags found in their due diligence process related to these deals and the people heavily involved, these red flags were either nominally addressed or ignored to ensure that these agreements and business contracts would not be held up or rejected and allowed for Goldman to continue their business with 1MDB. This case underscores the critical importance of financial institutions maintaining and implementing an unbiased and rigorous compliance program.

As a penalty for conspiring to violate the FCPA, Goldman Sachs will pay more than $2.9 billion in criminal penalties as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, and elsewhere. [6] The amount that Goldman Sachs will have to pay is now the largest ever penalty paid to US authorities in an FCPA case, highlighting the fact that the DOJ and SEC have increased scrutiny in the bribery and corruption areas and will likely be aggressively pursuing  violations of the FCPA.

• J&F Investimentos S.A. Violation

Implementation of the FCPA is not limited to only financial institutions, but all institutions who may use US based bank accounts or involve any US persons. This can be seen in action with a recent violation imposed by the DOJ and SEC on J&F Investimentos S.A. (J&F). J&F is a Brazilian based investment company with subsidiaries in various industries such as meat and agriculture. J&F agreed to pay a penalty of $256 million USD to US regulatory agencies in violation of the FCPA.

In a press release dated October 14, 2020, the DOJ provided insight on the investigation surrounding J&F and its subsidiaries and noted that the problematic activity took place from 2005 to 2017. J&F was in violation of the FCPA as it paid over $148MM to Brazilian officials to obtain financing from state owned banks. An executive from Banco Nacional de Desenvolvimento Economico e Social (BNDES) and an executive from Fundacao Petrobras de Seguridade Social (Petrobras) were both recipients of payments. BNDES is a state owned bank that provided J&F with hundreds of millions in financing, while Petrobras was a pension fund that assisted J&F by approving a merger that benefited the company. Furthermore, payments to officials in the Brazilian legislative branch were made to assist J&F in obtaining financing through another state owned bank, Caixa Economica Federal.

J&F’s activity was not limited to monetary compensation to Brazilian officials, and included real estate such as an apartment located in Manhattan, which was also provided to an official. In addition, J&F sent representatives to the US to engage in additional activity related to their bribery scheme. Further, bank accounts located in New York were sources of funds used to facilitate payments. [7]

The DOJ press release highlighted that the FBI and its global partners were committed to pursuing perpetrators and violators of the FCPA. The offenders are creating a disadvantage to those operating legitimate businesses and are given an unfair advantage by operating without regards to the laws. International treaties established by organizations such as Organisation for Economic Co-operation and Development (OECD) have allowed the US and 36 other nations to establish economic and social policies that strengthen and legitimize the global economy.[8] The strong enforcement record of these treaties led by the US has further validated the need to maintain and enforce laws such as the FCPA in all business dealings.

The FCPA identifies the most significant illicit finance threats, vulnerabilities, and risks facing the financial service industry in the United States. The priorities and vulnerabilities highlighted above can help inform financial institutions of their own risk assessments, as these vulnerabilities can have a direct impact on their policies and procedures. Further, there is an emphasis on financial services organizations to work increasingly closer with government agencies to detect and mitigate illicit activities within the US Financial System. Taking into consideration the updates included in the updated FCPA Resource Guide, Sia Partners recommends the following next steps for financial services organizations:

1. Risk Assessment – Your organization should conduct a new risk assessment, specifically looking for the areas of your business most at risk for FCPA violations;
2. Policy Review – Conduct a gap analysis and enhance/create FCPA policies and procedures to meet the current regulatory requirements;
3. FCPA Compliance Program Review – Review your company’s existing FCPA Compliance Program and ensure it is tailor made for your business model.
4. Comprehensive FCPA Training – Create training material, empower instructors and subject matter experts to conduct a meaningful FCPA training;
5. Transaction Monitoring – Perform transaction monitoring to assist in the detection of FCPA violations;

Sia Partners has extensive experience in assisting our clients with compliance, risk and regulatory matters. Sia Partners has AML/CFT capabilities and former US regulators on staff that can be utilized to create a strong FCPA program. Sia Partners remains current on US regulations and industry best practices, in order to provide the most accurate and necessary assistance on all compliance matters for our clients.

As per outlined above, having a strong compliance program is integral to combating these significant illicit finance threats, vulnerabilities, and risks.

Some key takeaways from the FCPA Include:

1. Clarification on the FCPA’s recognition of a “foreign official”
2. Update to statute of limitations surrounding the accounting provision to six years
3. The FCPA is not limited to only financial institutions, but all institutions who may use US based bank accounts or involve any US persons. Thus any institutions that hold these accounts must implement rigorous compliance programs to ensure that they are not in violation of the FCPA  

Zoya Ashirov
Managing Director
+ 917 330 5536
zoya.ashirov@sia-partners.com

Danielle Buttinger
Consultant
+ 754 209 4741
danielle.buttinger@sia-partners.com

Jonathan Gold
Manager
+ 914 320 4039
jonathan.gold@sia-partners.com

Ahmad Hassan
Senior Consultant
+ 718 415 0823
ahmad.hassan@sia-partners.com

References

[1] FCPA Resource Guide (July 2020 Update) https://www.justice.gov/criminal-fraud/file/1292051/download

[2] 18 U.S.C. § 3282(a) provides: “Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed.”

[3] 18 U.S.C. § 3301(a) (“[T]he term ‘securities fraud offense’ means a violation of, or a conspiracy or an attempt to violate . . . section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78ff(a)))”; 18 U.S.C. § 3301(b) (“No person shall be prosecuted, tried, or punished for a securities fraud offense, A Resource Guide to the U.S. Foreign Corrupt Practices Act. Second Edition. 114 unless the indictment is found or the information is instituted within 6 years after the commission of the offense.”).

[4] The Department of Justice Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion

[5] Ibid.

[6] Ibid.

[7] J&F Investimentos S.A. Plead Guilty and Agrees to Pay Over $256 Million to Resolve Criminal Foreign Bribery Case

[8] Organisation for Economic Co-operation and Development