FCPA’s Pilot Program: Insights for Indian Enterprises
The Foreign Corrupt Practices Act (FCPA), enacted in 1977, is a pivotal U.S. government legislation that effectively prohibits specific categories of individuals and entities (mentioned in detail below) from offering bribes to foreign government officials. FCPA also mandates that these regulated entities and individuals maintain accurate financial records and establish a robust system of internal accounting controls. The U.S. Department of Justice (DOJ) has imposed substantial penalties on corporate organizations and individuals per the FCPA. Guidelines from the DOJ in 2022 underscores their keen interest in individual compensation as a catalyst for fostering compliance, as seen with instances of sanctions, even involving repeat offenders.
Extra-Territorial Applicability of the FCPA
The FCPA’s anti-bribery provisions apply to three distinct categories of entities: issuers, domestic concerns, and persons other than issuers and domestic concerns (referred to as “Covered Classes“).
An Issuer refers to an entity listed on a U.S. security exchange, such as stocks or American Deposit Receipt (ADR). A Domestic Concern includes entities or individuals, other than issuers, that are incorporated, registered, or have their principal place of business in the United States. The Covered Classes encompass all foreign individuals or foreign non-issuer entities, along with their officers, directors, and employees, who use any means, including mail services or other forms of interstate commerce, to offer or authorize payments to a foreign official. Hence, the statutory scope of the FCPA extends broadly to encompass actions taking place outside the United States territory.
Example A: FCPA could apply to an Indian individual serving as an agent, officer, director, etc., for an Indian company listed on a U.S. stock exchange (thus qualifying as an Issuer). Even if this individual has never been to the United States, they could still be held liable under the FCPA for a bribery offense committed in India.
Example B: FCPA could apply to an Indian individual who serves as an agent, officer, or director for a U.S. resident or U.S. enterprise and could also face potential liability under the FCPA for engaging in a bribery offense within India.
Example C: FCPA could apply to an Indian individual or company, even if they are not serving as an agent, director, etc., for a U.S. individual/company. This happens if they aid, abet, or conspire with an Issuer/Domestic Concern. The FCPA can hold such an Indian individual accountable even if they have committed the offense of bribery in India.
Focusing on Individual Accountability
In 2015, the U.S. Department of Justice (DOJ) intensified its emphasis on individual offenders through a memorandum by former Deputy Attorney General Sally Yates. Yates highlighted individual responsibility as a potent means to counter corporate misconduct, as it guarantees that those directly responsible are held accountable for their conduct. The Yates Memo presented tangible measures to enhance the DOJ’s efforts in addressing individual involvement in corporate wrongdoing.
The DOJ in 2022 had over 20 individuals face FCPA and associated charges. Notably, Carry Yan and Gina Zhou, employees of a New York-based non-governmental organization, pleaded guilty to conspiring to violate FCPA provisions. Additionally, Asante Berko, a former executive at a U.K. subsidiary of Goldman Sachs, faced indictment on six counts of his involvement in a bribery scheme in Ghana.
The Monaco Memo
In line with the Yates Memo, in September 2022, Deputy Attorney General Lisa Monaco issued a DOJ-wide memorandum focusing on shifting the burden of corporate crime costs onto individual wrongdoers. Following the Monaco Memo, there was a significant update to the Evaluation of Corporate Compliance Programs (ECCP) guidance. This guidance assists prosecutors in evaluating a company’s compliance program at the time of an offense, determining the appropriate resolution, and establishing corresponding compliance obligations. Under the ECCP, prosecutors are instructed to assess the compliance program’s implementation in terms of good faith, adequate resources, and effective functionality. Additionally, the Assistant Attorney General Kenneth A. Polit, Jr, outlined the details of the Pilot Program.
The Pilot Program
The Pilot Program consists of two principle initiatives:
First, the Pilot Program necessitates that prosecutors integrate a clause into all corporate settlements, obligating the implicated company to introduce compliance-enhancing elements into its compensation framework. This encompasses mechanisms that withhold bonuses from employees not meeting specific compliance-based standards and extend monetary rewards to those advocating compliance. Prosecutors also hold the flexibility to demand further measures based on the situation.
Second, under the Program, corporations swiftly rectifying misconduct and providing complete cooperation to the DoJ will be eligible to request a decrease on the imposed fines by the entirety of funds recovered from implicated individuals. By the resolution’s conclusion, the government will recognize the company’s efforts by crediting them with a potential 100% of the sought-recouped funds. If a company cannot regain the total amount, the company will cover the discrepancy between the withheld portion of the initial penalty and the actual recovered sum. Nevertheless, companies diligently seeking recoupment can still qualify for reductions in fines.
The Program is a three-year initiative applicable to all corporate matters handled by the DoJ and is effective March 15, 2023.
What Does It Mean for Indian Companies?
As previously noted, FCPA can apply to Indian individuals and companies. Hence, companies should assess and consider revising their employee compensation arrangements under the Pilot Program. This evaluation can be based on three key considerations.
First, companies should prioritize compliance-focused compensation structures for roles with significant exposure to potential violations. Due to resource limitations and the need to attract talent, emphasis should be on high-risk positions that frequently interact with potential FCPA liability, such as dealings with foreign officials. This includes sales and marketing professionals engaged in government contracting and bidding, accounting staff, and individuals overseeing regulatory compliance.
Second, corporations should explore introducing compensation arrangements that acknowledge and encourage adherence to ethical conduct. Per the updated directives, prosecutors will assess and factor in these incentive mechanisms when determining penalties. Companies can integrate incentives into compensation frameworks by linking promotions to the enhancement and cultivation of a robust compliance program, showcasing ethical leadership, integrating compliance metrics that directly impact bonuses, ensuring that advancing in one’s career necessitates a commitment to compliance promotion, or deferring or setting aside compensation linked to behaviors aligned with company policies.
Third, corporations should proactively integrate punitive measures within their compensation frameworks. This involves creating a platform for whistleblowers, introducing clawback for previously disbursed remuneration in employee agreements, and expanding the definition of “just cause” to encompass legal breaches.
In other words corporations will have the opportunity to lessen criminal penalties by clawback, or making sincere efforts to clawback compensation from those involved in wrongdoing and their superiors. Any funds successfully recovered during this exercise by corporations can be retained by them.
Final Thoughts
These strategies can be conveyed to employees through thorough training sessions. Companies must repeatedly demonstrate their dedication to upholding these guidelines to limit risk exposures. While the Department of Justice’s focus on individual responsibility is not new, the precise directives on employee remuneration are a new dimension. Adapting compliance frameworks to align with DOJ’s focal points will not only enhance the efficacy of prevention but will also prove vital in minimizing penalties in the event of a breach.
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