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Foreign Corrupt Practices Receiving Increased Attention

Government authorities in the U.S. and around the world are increasingly investigating corrupt practices and enforcing anti-bribery rules. In the U.S., the principal standard is the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits payments to officials of a foreign government, or its instrumentality, for the purpose of obtaining or retaining business. As can be seen from the summaries below, some of the efforts have been successful, while others have not. In any case, this is an area of the law that is receiving increased attention from governments around the world.

Government authorities in the U.S. and around the world are increasingly investigating corrupt practices and enforcing anti-bribery rules. In the U.S., the principal standard is the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits payments to officials of a foreign government, or its instrumentality, for the purpose of obtaining or retaining business. As can be seen from the summaries below, some of the efforts have been successful, while others have not. In any case, this is an area of the law that is receiving increased attention from governments around the world.

U.S. increases enforcement of Foreign Corrupt Practices Act in medical field

On Feb. 6, 2012, the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) reached a settlement with Smith & Nephew, a medical device company, over payments to Greek physicians employed by government hospitals. The DOJ and SEC argued that the Greek physicians were foreign officials because they were employed by a government-owned hospital, which to the DOJ and SEC was a foreign government instrumentality.

In the settlement, Smith & Nephew agreed to pay $16.8 million as a penalty and to create a compliance monitor for at least 18 months. Smith & Nephew and its parent company, Smith & Nephew PLC, also agreed to pay an additional $5.4 million as disgorgement and prejudgment interest in a related SEC complaint.

The DOJ and SEC based their enforcement on the theory that entities owned by a foreign government (such as publicly-owned hospitals) are instrumentalities of foreign governments. In the government's view, employees of those hospitals are, therefore, foreign officials. Though the FCPA clearly prohibits bribery of foreign officials, the statute does not define the term "instrumentality" of a foreign government. Defendants in recent cases have challenged the government's definition of the term. As a result, courts have applied several tests to determine whether a particular entity is an instrumentality within the meaning of the FCPA.

This settlement is another example of a growing trend of government investigating potential FCPA violations in the medical device industry. For instance, the SEC's announcement of the Smith & Nephew settlement noted that the SEC and DOJ are continuing to investigate the medical device industry. This is confirmed by other medical device companies that have recently disclosed FCPA investigations, including the April 2011 agreement of Johnson & Johnson to pay more than $70 million to the DOJ and SEC to resolve FCPA charges.

Government’s attempt to increase enforcement of Foreign Corrupt Practices Act suffers another setback

Not all U.S. government investigations have been successful. In this case, a former executive for the U.S. subsidiary of Swiss engineering conglomerate ABB Ltd. was acquitted Jan. 16, 2012 of charges he violated the FCPA. John O'Shea, a former general manager of ABB Inc., was accused of bribing officials at Comision Federal de Electricidad, Mexico's state-owned electric utility company, and covering up the payments. O'Shea was charged in November 2009, in the U.S. District Court for the Southern District of Texas, with FCPA violations, international money laundering and falsification of records.

Judge Lynn N. Hughes granted a defense motion for acquittal at the close of the government's case on the fourth day of a jury trial. According to Hughes, the government's chief witness failed to connect O'Shea to the alleged bribery and cover-up scheme and therefore ruled that O'Shea's conduct was consistent with lawful motives.

Another example of a setback for the Justice Department in its pursuit of FCPA violators occurred on Dec. 22, 2011, when a federal judge in Washington, D.C. threw out a charge of conspiracy to violate the FCPA against a former U.S. Secret Service official and five others in a case involving an FBI sting operation. And on Dec. 1, 2011, a federal judge in Los Angeles dismissed FCPA charges against a power equipment company and two of the firm's executives.

Action steps

Any company doing business of any kind in another country, or in the U.S. with a foreign company, should consult legal counsel about the Foreign Corrupt Practices Act and its implications on their business relationships. Given the recent increase in government enforcement of FCPA provisions, even if companies have existing policies and procedures governing anti-bribery and other codes of conduct relating to international business transactions, companies should consult with legal counsel to review those policies, procedures and practices to ensure they adequately protect the company and its employees. Robert Brown (502-587-3716) RBrown@bgdlegal.com) at Bingham Greenebaum Doll LLP regularly consults with companies on such policies and provides employee training in this area.

If a company has concerns or becomes aware of allegations that its employees or agents may have violated the FCPA, it should immediately contact legal counsel. Richard Kiefer (317-968-5516) JRKiefer@bgdlegal.com) and Christie Moore (502-587-3758) CMoore@bgdlegal.com) at Bingham Greenebaum Doll LLP represent corporations and other business entities in conducting internal investigations to determine if employees or agents of the company have violated laws and regulations that expose the company to criminal, administrative or civil liability. They also represent companies and their employees in government investigations into alleged wrongdoing and, if necessary, at trial.

  • Partner

    Christie practices in the area of white collar crime defense and complex commercial litigation, representing clients in health care, antitrust, securities, intellectual properties, RICO, and False Claims Act matters. She has ...

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