SEC Levies Fine Against Diebold for FCPA Violations - Barth Daly
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SEC Levies Fine Against Diebold for FCPA Violations

Diebold, the company that makes ATM machines and security systems has run afoul of the FCPA [Foreign Corrupt Practices Act].  The SEC has alleged that some of Diebold’s subsidiaries spent more than $1.8 million dollars on travel, entertainment and other gifts in trying to influence bank owners’ decisions in China.

From a business perspective, one of the main challenges presented in doing business overseas is the expansive definition of who a “foreign official” is under the FCPA. Businesses have to balance the reality of how business is conducted in certain foreign countries with laws here in the United States, laws which can make it very difficult to get business done.

Anyone who has clients doing business overseas needs to be aware of the FPCA. Penalties can be either civil or criminal or both.  Right now Diebold has reportedly agreed to pay more than $48million in fines to settle the accusations against them.  The monetary penalties assessed against businesses have more than doubled since 2008.

At its core the FCPA prohibits any U.S. business, including its officers, directors, employees, shareholders, etc. from using any instrumentality of interstate commerce from exchanging money or any other thing of value, to induce any foreign official in order to assist that U.S. business in obtaining or retaining business.  15 U.S.C. § 78dd.

The term “foreign official” includes any officer, employee or government agent.  In other words people who clearly work for the government.  But foreign official has also been defined to include all sorts of other people who clients would not necessarily think of as being “foreign officials.”  For example a low level employee of a government owned business is a “foreign official.”  Individuals who work in private industry but sit on the boards of publically funded agencies can qualify as foreign officials under the right set of circumstances.

Lawyers with clients doing business overseas need to look at the kind of business their client is involved in to gauge their potential risk.  Those companies facing the most risk include those companies which obtain permits or qualify products for sales, companies using freight forwarders or customs agents, and companies involved in overseas litigation in countries where it is common for lawyers to bribe judges and court officials.  Companies dealing with doctors, hospitals, universities and professors are also at risk in countries where health and education are government run.

Which countries should clients watch out for?  Investigations have been conducted involving conduct in China, Brazil, India, Mexico, Russia, Niger and Vietnam just to name a few.  Communist countries are particularly challenging because a “foreign official” under the Act could be just about anyone who has a job!

In order to minimize their risk, businesses must have specific written FCPA compliance policies.  Everyone in the company should be trained on those compliance policies and so should the third parties who distribute products or represent the business overseas.  Compliance policies and related training are expensive but they are less expensive than protracted investigations and the potential civil or criminal consequences that come along with those investigations.

The FCPA does not focus on the amount of money involved.  The issue is whether or not the bribe facilitated new or continuing business.  Although the amount of money involved in the Diebold investigation was large, prosecutions have occurred over relatively small bribes.

The FCPA contains an exception for facilitating payments.  Clients should be advised against policies allowing facilitating payments.  In order to qualify for the exception the payment has to be accurately recorded in the company’s books and records, thereby creating a record that the company paid an illegal bribe.  The exact scope of the exception is unclear but is generally thought to be one-time payments to low-level government employees for routine government actions, getting visas, police protection, obtaining licenses, etc.  The facilitating payment exception cannot be used if the conduct is connected with getting new or continued business.  The facilitating payment exception has never been successfully used in any reported case and generally causes more problems than it solves.


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