In recent months, two FCPA cases highlight the fact that international bribery and corruption have returned to the political spotlight.
In the first case, US law enforcement officials have last month announced FCPA enforcement actions against two US tobacco companies – Alliance One International, Inc. and Universal Corporation – alleging improper conduct at both companies involved the same entity – The Thailand Tobacco Monopoly (“TTM”) – an alleged agency and instrumentality of the Thai government.
In the second case, on August 12, 2010, an American couple named Gerald and Patricia Green received prison sentences in the US following convictions in a US federal court for making illegal bribe payments of approximately $1.8 Million dollars to a former Tourism Authority of Thailand (TAT) official, who herself has now been charged in the US with accepting money from the Greens. Of course the Thai official is presumed innocent of the charge of accepting bribe payments until proven guilty.
FCPA investigations are now focusing on the pharmaceutical and medical devices industries for potential violations. In November 2009 US authorities warned that a number of companies were being investigated to assess if illegal payments had been made to foreign physicians and health officials in various countries. In Thailand this could be a concern if a physician receiving payment is an employee of a government owned hospital.
Department of Justice officials are looking into the practices of 12 major drug and medical device companies for FCPA compliance. The primary suspicion is that companies have made payments to or otherwise induced foreign doctors to manipulate clinical trials of drugs and devices.
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 and mask the vast amounts of money being paid. Other practices, such as the payment of ‘sales commissions’, or the inflation of the true value of goods or services, which look perfectly legal in a sham contract, tend to raise suspicion.
Charges of violations of FCPA arise from law enforcement investigations of suspicious payments, voluntary disclosure and/or increasingly, whistleblower actions bringing to light corrupt conduct in exchange for large cash rewards. More cases can be expected as the US Department of Justice increasingly seeks to crack down on corrupt operators. Following the Greens’ sentencing, Assistant Attorney General Breuer said: “As these convictions demonstrate, the Department of Justice will not waiver in its fight against corruption, whether perpetrated within our borders or abroad.”
Many companies operating in Thailand would be surprised to learn that practices such as lavish gift-giving and entertainment, practices which are generally accepted in Thai business culture, may result in an FCPA violation for a US corporate officer or agent. In December 2009, telecoms equipment maker UTStarcom Inc (UTSI) had to pay US$1.5 million in fines to the US Justice Department following discovery of corrupt efforts to influence Chinese and Thai officials. The company, which is based in California, paid workers state-owned telecommunications firms to visit tourist hot-spots such as New York and Hawaii. This was meant to be part of a training program, but no training ever took place. The real aim was to secure and keep major telecommunications contracts. While UTSI was waiting to hear whether it had won a particular contract, the company’s general manager in Thailand had splashed out almost US$10,000 on French wine, which was then offered to agents of the government customer.
The question often arises: when does gift-giving cross the line drawn by the FCPA? In Thailand, offering a ‘gift’ to a figure in authority 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 grind to a halt.
Confusion reigns because 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 the payments 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, such as, for example, the Notiﬁcation of the Office of National Counter Corruption Commission Concerning the Provisions of the Acceptance of Property or Any Other Beneﬁt on an Ethical Basis by State Officials B.E. 2543 (2000), Thai officials may legally accept items of value given in accord with local customs if the amount does not exceed THB 3,000 (approximately US$100) for each official. Therefore, to steer clear of both FCPA and local anti-corruption laws, it is generally a good idea to keep gifts and facilitation payments at or below the threshold figure of THB 3000 per official per occasion. 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.
If your company has US ties and is operating in FCPA-sensitive situations, you need to be aware of corporate procedures for handling contacts and contracts with foreign government officials. A rules-based compliance program is a critical element for avoiding problems and, should trouble arise, a critical mitigating factor under the corporate sentencing guidelines.
By Edward J Kelly © September 2010