Commercial (Private) Bribery in the Spotlight 1

Carolyn Lindsey with TRACE has been leading a benchmarking project on commercial (private) bribery and provides this update:

“Anti-bribery compliance programs, including gifts and hospitality policies, have typically focused on conduct when interacting with government officials. However, recently companies are becoming increasingly aware of the risks associated with bribing private sector customers. Indeed, several recent enforcement actions in the United States have included charges of commercial (private) bribery and a number of countries and international conventions criminalize this conduct.

To determine how companies are handling this issue, TRACE recently conducted a benchmarking survey. Out of a total of 78 respondents, the majority, 90.2 percent, indicated that their anti-bribery compliance policies cover bribery of both private sector and public sector customers. However, companies take varying approaches to providing gifts and hospitality to private sector customers. 52.8 percent of respondents indicated that they have the same gifts and hospitality policy for both the private sector, while 47.2 percent responded that their policies have different standards for private sector customers.

Gifts and hospitality has always been a gray area of anti-bribery compliance and, based on the results of the recent TRACE survey, this is especially true when it comes to dealing with private sector customers. The survey results, and anecdotal information that TRACE has received from companies, led us to wonder what best practices should be when it comes to providing gifts, hospitality and entertainment to private sector customers. To answer this question, TRACE launched a follow-up working group to create guidelines in this area, specifically posing the question whether a company’s gifts and entertainment policy needs to be as restrictive for private sector customers as it does for public sector customers.

Those involved in the working group expressed a strong preference for creating a standard, uniform gifts and hospitality policy for all customers and vendors, regardless of whether they have any ties to the government. This was driven in part by the difficulty in determining who actually is a government official in some countries and the ease of administering a single, uniform policy. The proposed TRACE guidelines for providing gifts and hospitality to private sector customers are as follows:

• Companies should consider enacting the same gifts and hospitality policy for both private sector customers and government customers.
• Companies should consider implementing similar approval processes and/or reporting for all gifts and hospitality requests. Approval processes will vary depending on the size and structure of the company and can include dollar thresholds.
• All gifts and hospitality must be reasonable and customary.
• All hospitality and travel must be provided in connection with a bona fide and legitimate business purpose.
• Companies should comply with local laws and regulations when providing gifts and hospitality to private sector customers.

So, does this mean that the days of client entertainment purely for relationship building are coming to an end? Certainly, few companies would allow their employees to take a procurement official out for a game of golf simply to create goodwill. A number of companies have said that regardless of their official policies, their corporate practice of giving gifts and providing hospitality to private sector customers has changed over the past five years to become more restrictive.

TRACE welcomes thoughts from the compliance community as to what best practices in this area should be. Should companies have a single standard for both the private and public sectors, or can companies engage in a different type of relationship building with their private sector customers?”

Risk of Civil Liability Arising Out of FCPA Matters Reply

Rich Dean of Baker & McKenzie’s Washington, DC, office spoke recently at the TRACE Forum. Rich rose to the substantial challenge of making RICO claims and 10b-5 actions entertaining and has summarized his presentation for us, below.

“The FCPA does not provide for a private right of action so that private plaintiffs, which allege damages as a result of bribery, have no remedies under the FCPA. Efforts to argue that the FCPA includes such a right implicitly have failed. However, there are a number of ways plaintiffs are seeking to pursue claims to establish, in effect, a basis for civil liability. Some of these legal theories are innovative; others are based on well-established approaches that seek to bootstrap FCPA violations to support civil remedies. Recent history indicates that public disclosure of a potential FCPA violation is followed rapidly by shareholder or competitor lawsuits and the trend is likely to continue.

Potential FCPA violations create the possibility for civil liability to private plaintiffs in three general areas: (a) state unfair competition laws and common law tort theories; (b) certain Federal statutory claims under RICO and antitrust laws; and (c) shareholder actions based on Rule 10b-5 securities fraud or breaches of fiduciary duty by boards of directors. Theories of breach of fiduciary duty include, for example (i) failure to develop and implement compliance policies sufficient to minimize the likelihood of FCPA violations; and (ii) failure to investigate potential FCPA violations promptly and properly.

The settlement of the civil cases may involve higher amounts than the fines and penalties paid under the FCPA in settlements with DOJ and the SEC. For example, Faro Technologies (settled shareholder claims for $6.875 million; FCPA fines and penalties totaled $1.1 million) and Titan Corporation (settled shareholder claims for $61.5 million; FCPA fines and penalties totaled $28.5 million).

An additional risk of potential civil liability to private claimants arises out of the internationalization of the FCPA through international conventions and treaties, most notably the OECD Convention on Combating Foreign Bribery of Public Officials and the UN Convention Against Corruption. The UN Convention expressly provides for a private right of action for those who have suffered damage as a result of corruption.”

The 57th Annual Attorney General’s Awards Ceremony Reply

At the 57th Annual Attorney General’s Awards Ceremony in Washington, DC, yesterday, US Attorney General Eric Holder presented eight recipients with the Attorney General’s Award for Distinguished Service in recognition of their work on the Siemens investigation:

In his opening remarks, Holder said: “These are people who, quite frankly, make me feel like a bit of an underachiever.”


John D. Griffith
Assistant U.S. Attorney
District of Columbia
Mark F. Mendelsohn
Deputy Chief
Fraud Section
Criminal Division
Lori A. Weinstein
Trial Attorney
Fraud Section
Criminal Division
Pamela Johnson
Paralegal Specialist
Fraud Section
Criminal Division
Brian J. Smith and Paula L. Ebersole
Special Agents
Washington Field Office
Federal Bureau of Investigation
Troy Burrus and Howard Smith
Special Agents
U.S. Internal Revenue Service
U.S. Department of Treasury

Reneging on Dirty Deals Reply

We hear anecdotes about employees involved in bribery schemes who also embezzle from their companies. Once they have figured out how to work the books to generate cash for bribes, keeping some of it themselves is simple enough. Or we hear stories of sales agents who work out arrangements whereby the employee championing the agent proposes a higher commission in return for a kick-back. That scheme is almost impossible to uncover, especially when the employee is posted far from headquarters in the country in which the agent is operating. While neither of these schemes implicates the FCPA, they both illustrate the slippery slope into criminality that keeps many of us up at night.

An article in the New York Times today describes the arrest of Richard Lopez Razo, of the US Department of State. Prior to joining the State Department, while employed by Innovative Technical Solutions, Inc., Razo is alleged to have accepted bribes paid to get an Iraqi – Hayder Al Batat – hired as a subcontractor. After joining the State Department, Razo is alleged to have hit up Al Batat’s brother for additional payments in exchange for business in Iraq.

Setting aside the abuse of office by this US government official in an environment as sensitive as Iraq and setting aside the discomfort that Innovative Technical Solutions Inc. must be experiencing right now, one other point leaps off the page: Razo couldn’t get Al Batat to pay up. It is not clear how much Razo ever collected from the alleged bribery scheme. The article refers to “dozens” of emails demanding payment. I’d like to see those emails. Sadly, it’s just not that difficult for most of us to imagine a bribe-demanding government official, stiffed for the bribes he was promised, puffed-up with indignation and livid about the injustice of it all.