The Bribery Act may be upcoming, but the FCPA is in full swing

While the UK is getting ready for the Bribery Act, which comes into effect in July, the US is continuing to crack down on international bribery and corruption under the Foreign Corrupt Practices Act of 1977 (FCPA).

In the most recent case, US prosecutors investigating allegations of corrupt overseas marketing practices by drug and device makers had an important victory against Johnson & Johnson (J&J). The company agreed to pay $70 million in civil and criminal fines to settle claims that it had bribed physicians in Europe to favour its products.

J&J has also reached a settlement of $7.9 million with UK regulators over illegal payments to doctors in Greece. The investigation was launched by the UK’s Serious Fraud Office in 2007 after US authorities gave it information about the payments.

US Department of Justice officials are reportedly looking into the practices of 12 major drug and medical device companies for FCPA compliance. The primary suspicion is that companies have made payments, or otherwise induced foreign doctors, to manipulate clinical trials of drugs and devices.

US officials have also warned that bribes will not be tolerated in the international transportation industry. One clear indicator of the zero tolerance policy can be found in the November 2010 settlement in which international logistics provider Panalpina paid more than $80 million in fines for violations of the FCPA.

Attracting FCPA attention in Asia

Cases are brought under the FCPA not only for the act of bribing foreign officials, but also for improper internal accounting and record-keeping. Suspicions are often raised when companies or corporate officers use different business identities with fake or unverifiable addresses and contact details, or local nominee-owned companies or other middlemen to try to mask the vast amounts of money being paid.

Other practices which tend to raise suspicion include the payment of ‘sales commissions’ or the inflation of the true value of goods or services.

Charges of FCPA violations arise from law enforcement investigations of suspicious payments, voluntary disclosure and, increasingly, whistleblowing on corrupt conduct made in exchange for large cash rewards. More cases can be expected as the US Department of Justice continues to crack down on corrupt operators.

In Asia, practices such as gift giving and entertainment, which are generally accepted in local business culture, may result in an FCPA violation for a US officer or agent.

For example, offering a ‘gift’ to a figure of authority in Thailand is seen as basic courtesy and can often result in things proceeding a little more efficiently. Not offering gifts can unintentionally insult or offend officials and lead things to a grinding halt.

The FCPA does draw a distinction between bribery and facilitation or ‘grease payments’. The main difference is that facilitation payments (legal) are made to an official to expedite his performance of the duties he is already bound to perform.

Payments to foreign officials may be legal under the FCPA if they are permitted under the written laws of the host country. Certain payments or reimbursements relating to product promotion may also be permitted under the FCPA.

Under Thai law, for example, officials may legally accept items of value given in accord with local customs if the amount does not exceed Bt3,000 (about £60) for each official. Of course, even gifts below this threshold would still be illegal if the intent of the gift-giver was to induce the official to do something he/she otherwise would not do, or to refrain from doing something he/she otherwise would do.

Businesses with US ties should ensure their procedures for handling contacts and contracts with foreign government officials are fully compliant with the FCPA. A rules-based compliance programme is a critical element for avoiding problems and, should trouble arise, a critical mitigating factor under the corporate sentencing guidelines.

Firms should have a written code of conduct and  periodically test systems to ensure they are effective. To mitigate risks, firms should also perform thorough background checks before contracting with overseas agents. Agents should sign statements confirming that they are aware of the provisions contained in the FCPA and agree in advance to abide by those provisions.