Department of Justice Issues Advisory Opinion on FCPA Issue, Its First in Six Years

Sep 25, 2020 | Blog
Partner

In August 2020, the U.S. Department of Justice released its first advisory opinion (the “Opinion”) in nearly six years relating to the Foreign Corrupt Practices Act (“FCPA”). The Opinion suggests that payment by a U.S. company to a foreign state-owned bank would not necessarily trigger a U.S. enforcement action. This is a significant development for any U.S.- based entity conducting or considering conducting business with foreign governments and affiliates abroad.

The FCPA prohibits, among other things, any “domestic concern”[1] from corruptly giving or offering anything of value to any “foreign official” to assist “in obtaining or retaining business for or with, or directing any business to, any person . . . .”[2] In this context, “corruptly” means an intent or desire to wrongfully influence the recipient. The FCPA does not, however, prohibit direct payments to foreign governments or foreign government instrumentalities.

The Opinion followed a request from a U.S.-based investment advisor managing funds on behalf of institutional investors (the “Investment Advisor”). As a “domestic concern,” the Investment Advisor was eligible to request the Attorney General’s opinion, pursuant to 28 C.F.R. § 80.4, regarding whether certain specified, prospective conduct – that is, not hypothetical – conforms with the DOJ’s present enforcement policy regarding the anti-bribery provisions of the FCPA.

In that case, the Investment Advisor sought to purchase a portfolio of assets from a foreign investment bank’s foreign subsidiary (the “Country A Office”). A majority of shares of the foreign investment bank is indirectly owned by a foreign government. The Investment Advisor sought and received assistance from a different foreign subsidiary of the same investment bank (the “Country B Office”) in connection with the purchase. (As the DOJ noted in the Opinion, the foreign government indirectly owns 50% + 1 share of the investment bank’s shares. Both the Country A Office and the Country B Office are wholly owned subsidiaries of the investment bank.)

After about a year, the Investment Advisor also engaged a local finance company to approach the Country A Office regarding the potential purchase (the “Local Partner”). The Investment Advisor ultimately succeeded in purchasing the assets from the Country A Office, largely due to the help of the Local Partner. The following month, the Country B Office sought a fee amounting to 0.5% of the face value of the assets – equaling $237,000 –purchased by the Investment Advisor. The question to the DOJ was whether or not remitting such a payment in those circumstances would subject the Investment Advisor to an enforcement action brought by authorities in the United States.

In rendering the Opinion, the DOJ assumed that the Country B Office is an “instrumentality” of a foreign government and that employees of the Country B Office are “foreign officials” as defined in the FCPA.  The DOJ further adopted the representations of the Investment Advisor – specifically, that (1) the contemplated payment to the Country B Office is justified and commercially reasonable; (2) that the payment would be to a foreign government instrumentality and not a foreign official; and (3) that the payment is not reflective of a corrupt intent to influence a foreign official. As such, the Opinion concluded that the DOJ “does not presently intend to take any enforcement action in response to the fee [the Investment Advisor] intends to pay the Country B Office.”

While certainly instructive, clients should be mindful that the Opinion has no binding application to any party other than the Investment Advisor and can be relied upon by the same only to the extent that the disclosure of facts and circumstances were accurate and complete. Moreover, the Opinion came on the heels of the joint publication by the DOJ and SEC of the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act, which itself is the first comprehensive update of the original guidance in nearly eight years.

Barton has a multidisciplinary team that will continue to monitor and analyze these issues and supply practical guidance from various perspectives. In the interim, should you have any questions about either the Opinion, the updated government guidelines, or FCPA issues generally, please do not hesitate to contact Christopher J. McNamara (cmcnamara@bartonesq.com) or Mark T. Doerr (mdoerr@bartonesq.com).

 

 

[1] The term “domestic concern” means “(A) any individual who is a citizen, national, or resident of the United States; and (B) any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”  15 U.S.C. § 78dd-2(h)(1).
[2] 15 U.S.C. § 78dd-2(a)(1).