Revised FCPA guidelines – Just a Confirmation of Status Quo or New Factors to be Considered?

If you look at the current ten highest fines imposed under the Foreign Corrupt Practices Act of 1977 as amended, Title 15 U.S.C. Sections 78dd-1, et seq. (“FCPA”), two things become evident: (1) the total amount of these 10 fines alone, over USD 10 billion, is considerable, and (2) that with nine of the ten largest settlements coming from foreign companies, the FCPA is important beyond US companies and banks. While case law like United States v. Kay, can be helpful in understanding the FCPA, the Department of Justice (“DOJ”) and [JH1] the Securities and Exchange Commission (“SEC”) have also released the guideline “A Resource Guide to the U.S. Foreign Corrupt Practices Act” (“Guide”). This important guide was recently revised in an attempt to help companies navigate amendments to the FCPA.

The FCPA was enacted to prohibit certain classes of persons and their companies from influencing foreign government officials with any personal payment or reward to assist in obtaining or retaining business. While the anti-bribery provisions of the FCPA initially applied to only U.S. persons and certain foreign issuers of securities, the enactment of certain amendments in 1998 expanded their reach. The anti-bribery provisions of the FCPA now also apply to foreign companies and persons who, directly or through agents, commit an act to promote a corrupt payment in the United States.

The international influence of the FCPA revisions has been remarkable. One example is the U.K. Bribery Act of 2010, in which the United Kingdom enacted comprehensive new anti-bribery legislation that may prove broader than even the FCPA. In addition to international influence, there has been a large increase in the number of cases. From 1977 to 2000, only 52 FCPA proceedings were initiated. Comparatively, over 550 proceedings were initiated from 2001 to 2019. This trend is expected to continue, thus, its content and current interpretation should be examined.

The Guide was originally released in November 2012 and first updated in July 2020. Among other things, it contains clarifications including who and what is covered by the amended FCPA. The first edition of the Guide was issued following a recommendation from the Organization for Economic Cooperation and Development and criticism from the business community about lack of transparency in enforcement. It should be noted that although the guidelines are not binding on agencies, they do provide valuable internal insight. The Guide addresses a broad variety of topics, including who and what is covered by the FCPA’s anti-bribery provisions.

The revised Guide takes into account the enforcement actions, case law, and government interpretations that have been issued since the first version in 2012. Among others, the Second Edition of the Guide includes new case law on the definition of the term “foreign official”, the jurisdictional reach of the FCPA, the mens rea requirement, and the FCPA’s foreign written laws affirmative defense.

One of the key issues of the anti-bribery provision is the question of when a “foreign official” is involved. According to Title 15 U.S.C. Sections 78dd-1 (f)(1) a “foreign official” is any officer or employee of a foreign government or any department, agency, or instrumentality thereof. Until a recent Eleventh Circuit decision, United States v. Esquenazi, the term "instrumentality" was unclear. The previous edition of the Guide listed 11 non-exclusive factors that companies could use to determine whether a certain entity (state-owned/state-controlled enterprise) would be considered an “instrumentality” under the FCPA. In United States v. Esquenazi the court held that an “instrumentality” is “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The guide now quotes this decision and advises companies to consider these factors when evaluating the risk of an FCPA violation. Such a specification gives companies a clearer and more manageable guideline.

One of the other most important topics in the Guide is the discussion of United States v. Hoskins. In Hoskins, the Second Circuit held that for a criminal prosecution for conspiracy to violate the FCPA anti-bribery provisions, the individual’s conduct and role must fall into one of the specifically enumerated categories listed in the FCPA. This limits the scope of the FCPA, and although the Guide mentions this decision, it also makes it clear that Hoskins (“at least in the Second Circuit”) is not binding on the interpretation of the FCPA. Other courts (see United States v. Firtash) reject Hoskins. The result is that this area of the FCPA remains unclear and that proceedings can still be opened against persons who are not specifically listed in the FCPA. For companies, it means a broader scope of possible breaches.

These examples show that while case law can help to create clearer guidelines for companies, as it did in United States v. Esquenazi, it can also create more confusion. The Guide’s adoption of Esquenazi, but not Hoskins shows that it is not always predicable how agencies will react to caselaw. It remains to be seen how DOJ and SEC will proceed. For now, the Guide gives companies at least some clear guidance, while also leaving unclear warnings.

Julius H. F. Henneberg serves as a Graduate Editor of the NYU Journal of Law & Business. He is an LLM candidate at NYU School of Law where he focuses on white-collar criminal law. Julius is also a research assistant to Professor Jansenson. Prior to attending NYU, he worked as an attorney at law at Hogan Lovells International LLP and wrote his doctoral thesis in the area of white-collar criminal and banking law. Before that, he was a research assistant in several law firms and the Federal Ministry of Justice.