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The Foreign Corrupt Practices Act and Your Business

The Foreign Corrupt Practices Act (FCPA) makes it unlawful for companies and their representatives to make payments to foreign officials to assist in obtaining or retaining business — even when such payments (bribes) typify business practice in that country. Historically, the Department of Justice (DOJ) has prosecuted both the individual businessmen and the companies involved in such situations.

However, in a recent case, the DOJ may have indicated to companies involved in any sort of transactions abroad exactly how the company can avoid prosecution and fines, even if one of their officers or agents steps outside the anti-bribery laws. In the case of Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, the DOJ chose to prosecute Mr. Peterson but not Morgan Stanley — see their April 2012 press release here.

According to the DOJ, Morgan Stanley makes extensive — and extensively documented — efforts to ensure that all of its employees comply with the FCPA. For example, Morgan Stanley:

  • Maintained a system of internal controls to ensure accountability for its assets and to prevent employees from offering, promising or paying anything of value to foreign government officials
  • Had clear internal policies prohibiting any type of violation of the FCPA, and updated those policies regularly
  • Frequently trained employees on anti-corruption and bribery policies — between 2002 and 2008, it trained Asia-based personnel 54 times and Mr. Peterson specifically seven times, and reminded him to comply with the FCPA at least 35 times
  • Conducted regular audits of employees, transactions, and business units, and tested to identify illicit payments

The lesson for businesses of all sizes to draw from the Peterson case, in which the DOJ chose to prosecute only the individual agent involved and not the entire company, is that constant diligence, vigorous training, careful documentation and explicit and up-to-date policies may protect your company from the sort of civil and criminal charges that lead to business losses and shareholder derivative lawsuits. Work with one of our experienced business attorneys to develop and apply rigorous compliance procedures.

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