May 30, 2007 no. 496 - Vol. 5

"Honesty stands at the gate and knocks, and bribery enters in."

  Barnabe Rich

Today we celebrate the 30 anniversary of the Foreign Corrupt Practices Act - FCPA in Grammatigalhas.This article will help you understand it and apply it.

  • Top News

Brazil to subsidize contraception

Lula has introduced a $51m plan to subsidize birth control pills in Brazil. He said the program would give the poor the same right as the wealthy to have the number of children they want. The initiative comes just two weeks after Pope Benedict's visit to Brazil, when he urged Catholics to maintain traditional family values. Brazil already tackles Aids and other STDs by handing out free condoms. Birth control pills are also sometimes available for free at government-run clinics.

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  • Crumbs!

1 - Gay Australian pub wins right to ban straights. (Click here)

2 - JBS owner J&F to buy Swift, create largest meat maker. (Click here)

3 - Accord eases Brazilian market entry. (Click here)

4 - Group Makes $95.6 Billion Bid for ABN Amro. (Click here)

5 - China sentences former drug regulator to death. (Click here)

6 - Justices limit discrimination suits. (Click here)

7 - Google deal said to bring U.S. scrutiny. (Click here)

8 - Thai judges decide whether to disband parties. (Click here)

9 - Jury awards $2.5 mln in Roche Accutane trial. (Click here)


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  • MiMIC Journal

China shares fall after tax rise

China's main share index falls sharply after Beijing's decision to triple the tax on stock transactions.

Former Chinese drug commissioner sentenced to death for taking bribes

A Chinese court sentenced Zheng Xiaoyu, former commissioner of China's State Food and Drug Administration , to death on Tuesday for taking bribes in exchange for his approval of substandard drugs. Zheng received over $832,000 in bribes, allowing eight companies to surpass the drug approval process, including one which released an antibiotic accused of killing at least 10 people. In 2002, China  implemented sweeping drug laws that required the approval of all drugs by Zheng's agency, creating a huge backlog, which enabled Zheng's abuse of power. The sentence must be reviewed by an appellate court and eventually the Supreme People's Court before it is final.

  • Grammatigalhas

Legal Meaning Is Not Everyday Meaning


Crime of giving a benefit (e.g., money) in order to influence the judgment or conduct of a person in a position of trust (e.g., an official or witness). Accepting a bribe also constitutes a crime. Bribery is typically punishable as a felony (see felony and misdemeanor). In any charge of bribery, some element of "corrupt purpose" must be implied or proved. Thus, in the absence of a complete statutory prohibition on the granting of favors to a public official, a gift is not a bribe unless it is given with some intent to influence the recipient's official behavior.

Checks and balances

System whereby each branch of an organization can limit the powers of the other branches, as in The union has used a system of checks and balances to prevent any large local from dominating its policies. This system was enacted through the Constitution of the United States in order to prevent any of its three branches from dominating the Federal government. The term is occasionally transferred to other mechanisms for balancing power.

Hobson's choice

An apparently free choice that actually offers no alternative. For example, My dad said if I wanted the car I could have it tonight or not at all--that's Hobson's choice. This expression alludes to Thomas Hobson of Cambridge, England, who rented horses and allowed each customer to take only the horse nearest the stable door.

Everyday "Legal" Jargon

Foreign Corrupt Practices Act - FCPA

The FCPA emerged from Securities and Exchange Commission investigations in the mid-1970s that led to over 400 companies admitting to having made questionable payments in excess of $300 million to foreign government officials, politicians, and political parties. The abuses ran the spectrum from bribery of high foreign officials to secure some type of favorable action by a foreign government to so-called facilitating payments that allegedly were made to ensure that government functionaries discharged certain ministerial or clerical duties. The FCPA was enacted to halt bribery of foreign officials and to restore public confidence in the integrity of the business system.

The Foreign Corrupt Practices Act of 1977 is a United States federal law requiring any company that has publicly traded stock to maintain records that accurately and fairly represent the company's transactions; additionally, requires any publicly traded company to have an adequate system of internal accounting controls. The act does not only apply to public companies, it applies to all companies in the U.S. and all of those associated with it.

The Act was amended in 1998 by the International Anti-Bribery Act of 1998 which was designed to implement the anti-bribery conventions of the Organization for Economic Co-operation and Development (OECD)."

Global supply chains are expanding their scope to an unprecedented degree. As an ever increasing number of government agencies issue a growing list of security and compliance initiatives, companies must invest in self-policing. Two 21st century hot-button issues — terrorism and corporate accounting fraud intersect in global supply-chain issues. Both issues pose challenges that require checks and balances to protect against abuse from internal and external forces.

The FCPA's original purpose was to penalize U.S. companies and individuals found guilty of bribing foreign government officials, politicians, or political parties to obtain and/or maintain business. The Justice Department, the agency responsible for FCPA enforcement, has joined the Securities and Exchange Commission in fining numerous corporations and individuals for violations.

With Sarbanes-Oxley regulations fully imbedded into the fabric of the corporate American consciousness and companies facing Homeland Security mandates to safeguard U.S. interests against terrorism, FCPA regulations may be taking a back seat on a list of exporters" priorities. U.S. companies, however, should not ignore the law. Violations often result in stiff fines or even prison. Some corporations have found this out the hard way.

From its inception, the FCPA was a bold and unique piece of legislation in that it criminalized conduct that Congress itself deemed unethical, regardless of the customs and practices of the foreign country where the company was doing business. The Act's impact in early years was marred by controversies regarding the appropriateness of legislating morals, but corporate scandals in the 1990s readied the public for the government's taking a more direct role in enforcing ethical business practices.

The short and relatively straightforward text of the Act belies the scope of liability sought by federal prosecutors. The Department of Justice's recent aggressive enforcement of the FCPA's provisions has served to illustrate numerous unanticipated theories of liability. This article argues that corporate defendants are now faced with a "Hobson's Choice": either accept the Department of Justice's broad and unprincipled application of the FCPA, or confront the prolonged negative press that is sure to accompany a legal challenge to various theories of FCPA liability.

Specifically, in light of the recent upswing in prosecutions, and interpretations being made by the Department of Justice, parent companies, franchisors, non-U.S. residents, and other persons or entities with attenuated links to public officials face the risk of being charged under the FCPA. As discussed below, not all of these theories of liability are the product of a reasoned interpretation of the FCPA.

FCPA liability generally

Several theories of liability under the FCPA seem to be gaining traction. We will discusses situations in which liability does not appear to be obvious from the plain text of the FCPA.

A. Parent Company Liability Under the FCPA

The least controversial, and most routinely accepted extension of FCPA liability concerns parent company liability. Although the FCPA does not contain specific provisions regarding parent company liability, commentators and the Department of Justice have conclusively established that parent companies may face liability for the actions of their foreign or domestic subsidiaries based on three somewhat overlapping theories: (1) direct liability, (2) indirect liability, and (3) agency liability, with parent company liability under the FCPA being triggered if the relationship between the parent and the improper payments at issue satisfies the requirements for liability under any one of the three.

(1) Direct Liability

The first basis for parent company liability turns on whether or not the parent was directly involved in the improper conduct. The FCPA specifically provides for direct parent liability in several circumstances:

(1) the commission of an act "in furtherance of the improper payment by the parent entity;

(2) the "authorization" by the parent company of the subsidiary's action; or

(3) a direct offer, promise or transfer of value by the parent.

Stated more succinctly, the parent corporation may be held liable for the acts of its foreign subsidiaries when the parent authorizes, directs, or controls the activity in question.

Because the FCPA does not provide a specific basis for parent company liability, each of the elements discussed above must be present. Accordingly, as with any other entity or individual, liability under the FCPA is predicated on "knowledge," The parent is not liable absent knowledge of the corrupt purpose of the payment. For purposes of the FCPA, a person acts with "knowledge" if:

(1) the person is aware that he or she is engaging in the conduct;

(2) the person has a firm belief that a result is substantially certain to occur;" or

(3) "if a person is aware of a high probability of the existence of such circumstance , . . ."

While the requisite state of mind under the FCPA includes conscious disregard, or willful blindness, the legislative history is clear in reflecting that mere negligence does not provide a basis for liability. Congress was instead concerned with the "head-in-the-sand problem.”

(2) Indirect Liability

The FCPA prohibits a domestic concern, or its agent, from giving anything of value to another person while "knowing that this third party will make an improper payment to a foreign official."*' This broad definition of knowledge for purposes of the FCPA, allows criminal liability to be grounded on acquiescence in the subsidiary's corrupt payment. The statute does not appear to criminalize innocent knowledge of a payment that turns out to be improper. Parent liability under the FCPA only exists where all of the elements of the crime are satisfied, and the knowledge element cannot be separated from the corrupt payment element. Thus, although a parent can be liable for the actions of its subsidiaries, the plain text of the statute dictates that liability only exists when the domestic concern has knowledge of the corrupt purpose of the payment.

The FCPA provides in relevant part that the domestic concern is only liable if it has "knowledge that all or a portion of [the] of [a] foreign official." In other words, a "corrupt payment" is one that is made to influence a foreign official and there cannot be liability under the FCPA unless the domestic concern had knowledge, not just of the payment, but of the fact that payment was made "for purposes of influencing a foreign official.

Mere inaction on the part of the parent company may provide a basis for FCPA liability because the parent may be treated as having implicitly authorized the payment. For example, if the parent became aware of an improper payment and did not do anything to stop it, a court may consider this acquiescence in the payments to be a sufficient basis for FCPA liability. It is important to note that where a parent company exercises control over a subsidiary or affiliate, the failure to address red flags regarding corrupt payments presents a real risk that the parent may be charged with knowledge of said corrupt payment.

In the alternative, if the parent company can show that it did not have any knowledge of the corrupt payments, liability under the FCPA does not attach. As discussed above, acquiescence in corrupt payments made by a subsidiary may create liability exposure for the parent. A critical issue for parent companies facing FCPA liability will be the extent to which suspicious payments made by a subsidiary were documented and discussed with the parent.

If the putatively improper payments were documented in a manner that should have raised red flags, there is a strong argument that the parent is indirectly liable under a conscious disregard theory of knowledge.

(3) Agency Law and the FCPA

One theory of parent company liability that has remained beyond the scope of the Justice Department's broad reading of the FCPA is a strict application of common law principles of agency.

If the Department of Justice sought to apply agency law to FCPA prosecutions, a court could find that the parent company had constructive knowledge if the subsidiary is deemed to be acting as an agent of the parent. Basic agency law treats a "master or other principal as liable to another whose interests have been invaded by the tortious conduct of a servant or other agent, although the principal does (imputing knowledge of domestic conspiracy charge based on conduct of a recently acquired company) not personally violate a duty. Where corporate liability is concerned, the agent's act must be intended, at least in part, to benefit the corporation.

According to agency law, if a foreign entity is found to be an agent of a domestic concern, the domestic concern may be held vicariously liable for the corrupt practices of that foreign affiliate, Courts have held that the existence of an agency relationship between a parent and a subsidiary is a question of fact to be determined at trial. The touchstone of parent/subsidiary agency liability is the involvement of the parent in the affairs of the subsidiary. The question of whether or not an agency relationship exists depends on the degree of control that the parent enjoys over the subsidiary, not on whether a majority of voting shares are held by the parent.

To date, the Department of Justice appears to use the control inherent in an agency relationship merely as indicia of the culpable knowledge required for criminal liability. However, if agency law was truly extended to the FCPA, in circumstances where sufficient authority and control over the foreign affiliate is found, the parent corporation

As a practical matter, practitioners have identified several indicia of an agency relationship:

(1) The entity owns all or a majority of the stock of the foreign affiliate;

(2) The entity and the foreign affiliate have common directors or officers;

(3) The entity fininces the foreign affiliate;

(4) The foreign affiliate has grossly inadequate capital;

(5) The entity pays the salaries or expenses or losses of the foreign affiliate;

(6) The foreign affiliate has substantially no business except with the entity or no assets except these conveyed to it by the entity;

(7) The entity formally refers to the foreign affiliate as 1 subsidiary, department, or division;

(8) The directors or management of the foreign affiliate do not act independently in its interests but take direction from the entity.

Although the factors outlined above are useful, the best indicator as to whether an agency relationship exists, is practical control. Practical control will have much greater bearing than technical legal considerations in determining whether a foreign company is an agent of the domestic concern may be liable for any violations of the FCPA regardless of actual knowledge or conscious disregard. A domestic concern that exerts a sufficient level of control over a foreign affiliate to establish an agency relationship faces the same responsibility for preventing improper payments by the foreign affiliate as it does with its own employees.  Although it does not appear that there have been any federal prosecutions based on this agency theory of liability alone, given the Justice Department's relatively unchecked approach to FCPA liability, companies need to anticipate FCPA liability for the conduct of its agent-subsidiaries.

In sum, a parent corporation is liable for the corrupt payments made by its subsidiary if:

(1) the parent is directly responsible for the subsidiary's action—i.e., authorizes the payment;

(2) the parent has knowledge of the corrupt payment"—i.e., impliedly authorizes the payment; or, theoretically,

(3) an agency relationship exists between the parent and the subsidiary such that the subsidiary is deemed acting as an agent of the parent.

While the third theory of liability remains theoretical, insofar as no prosecutions have utilized this basis, it is more consistent with the indirect liability provisions of the FCPA than other theories advanced by the Department of Justice.

B. Liability of a Franchisor

In light of the Justice Department's overall aggressive posture toward bribery payments, it appears highly likely that the Department of Justice will be willing to prosecute, under FCPA law, a franchisor for the acts of a franchisee. Vicarious franchisor liability traditionally arises from a franchisor's interest in protecting its franchise name. Protection for the franchise name is accomplished by actively prohibiting unsavory businesspersons from obtaining a license to sell products under that name.

Based on previous Justice Department action, franchisor liability, much like indirect parent liability, appears to be premised on conscious disregard of the wrongdoers' actions, and the presumption that significant due diligence occurred in determining whether a particular entity is or is not worthy of a franchise license. This expectation of due diligence is premised, in large part, on provisions of The Lanham Act. Under the Lanham Act, a trademark may be deemed abandoned if said mark is used in such a manner so as to cause a loss of significance. In order to avoid losing the benefits of the trademark, companies must protect against deceptive uses by other persons or companies. It appears likely that, if litigated, the Department of Justice will argue a company's protection of its trademark gives rise to an agency relationship, and therefore, vicarious liability.

Courts have been unwilling to equate this defense of image to the control and accountability that renders it vicariously liable for the acts of its franchisee; that said, however, this relationship may dictate that vicarious liability is appropriate. Terms of the franchise agreement, as well as their course of dealings, may determine whether the franchisor enjoyed a level of control over the franchisee sufficient to justify vicarious liability.

An oft cited example of the need for franchisor due diligence is the recent anti-terrorism laws. For example, Executive Order 13224 prohibits transactions with suspected terrorists and although the order is silent as to franchisor liability, franchise lawyers have suggested that the franchisor has duties under this law. According to some practitioners, franchisors are responsible for conducting thorough due diligence in order to assess whether the prospective franchisee is at risk for violating this law.  If this executive order, and other provisions of the Patriot Act, which make no specific reference to franchisor liability, are understood to require extreme caution on the part of the franchisor in determining whether a specific company would conduct the franchise in a manner consistent with these laws, it is reasonable to conclude that the FCPA also could be applied to companies involved in international franchising.

C. Successor Liability

It is becoming increasingly clear that the Department of Justice will attempt to prosecute domestic companies for acquiring a foreign entity if said foreign entity has escaped FCPA liability solely because it was not a U.S. company at the time the improper payments were made.

In certain circumstances, the actions of a foreign company prior to its acquisition by a domestic corporation may raise FCPA issues for the acquiring company. This stems from the fact that the Department of Justice does not want to create incentives for foreign companies to bribe public officials by allowing U.S. companies to acquire them at such a price and in such a manner so as to effectively reimburse the foreign company for its corrupt payments.

The indirect liability provisions of the FCPA trigger a U.S. acquirer company's liability. Consistent with liability in normal circumstances, the U.S. successor company's FCPA liability turns on whether it had knowledge of, or authorized, a corrupt payment.

Generally, commentators seem to agree that a "U.S. company should not be liable for the activities of a foreign partner or related company prior to entering the relationship. However, neither the text of the statute, the annotations, or case law, provides guidance on this issue.

Given the Department of Justice's aggressive application of the FCPA, U.S. companies may face liability if circumstances are such that the Department of Justice can reasonably argue that the FCPA's knowledge requirement has been satisfied. Specifically, if a bribe was paid in order to secure a benefit that the acquiring U.S. company will share, and the acquiring U.S. company authorized the payment, or was aware of and consciously disregarded the probability of such a payment occurring, then the company can be charged as vicariously liable.

The limited authority available on this topic suggest two significant factors in determining possible successor liability for past actions:

(1) the extent of due diligence conducted to identify and address potential issues; and

(2) the extent and effectiveness of safeguards adopted to foreclose reimbursement by the U.S. company for past improper actions and to prevent the acquired company from taking improper action in the future.

Viewed in light of the totality of the circumstances, a successor company may face liability for bribes paid by an acquired company when it is reasonable to conclude that the successor company is effectively reimbursing the acquired company for prior bribes, or where the successor acquires a company with knowledge of the fact that the acquired company will make such payments in the future.

Successor liability shares a critical common denominator with the theories of parent company indirect liability discussed above: where the U.S. parent or successor company authorizes a bribe, FCPA liability attaches.  Accordingly, an acquiring company's first obligation must be to conduct sufficient due diligence in order to document the fact that they are not aware of, or consciously disregarding, any past corrupt payments. If the acquiring company learns that the acquired entity paid bribes in the past, the acquiring company faces additional hurdles required to remain clear of FCPA liability.

D. Controlling and Non-Controlling Investors

A related but distinct issue of parent company liability is whether a domestic company with an ownership interest in a foreign company may face FCPA liability. While a parent-subsidiary relationship dictates a degree of control authority in favor of the parent, companies with an investment interest in foreign companies—e.g, investment funds—may not enjoy the same effective control over the business operations of that foreign company; in spite of this difference, it is likely that federal prosecutors will bring charges in these circumstances.

The plain text of the FCPA does not distinguish between a controlling and non-controlling affiliation. As with the other theories of liability, the company's liability will hinge on whether the U.S. company had knowledge of, and authorized, the improper conduct; not on a formal arrangement of control or a majority stake ownership. Accordingly, it is possible that an investment company owning a majority of shares in a foreign company might not face FCPA liability for improper payments made by the foreign company, while an investment company owning a minority of shares in the same company might, based on its knowledge of the foreign company's conduct. This question is one of function over form: a majority shareholder is more likely to face FCPA liability because the majority shareholder is more likely to have knowledge of any corrupt relationship between the foreign company and public officials, not because it owns a majority of the pre-transaction due diligence are expected to commit to implement "rigorous" anticorruption compliance programs.

In an opinion, the Department of Justice addressed the concerns of a requestor who had intended to purchase the stock of a company, when during its due diligence the requestor learned that officers of a foreign subsidiary of said company had authorized payments to foreign officials to obtain business benefits. The Department of Justice concluded that the following actions by the requestor were sufficient to alleviate concern that by acquiring the company it would also acquire criminal and civil liability for the past acts of the company's employees:

(1) continued cooperation and reporting to the Securities and Exchange Commission and the Department of Justice regarding the details of the past transactions,

(2) discipline employees and officers who authorized corrupt payments,

(3) disclose any additional pre-acquisition payments to foreign officials made by the acquired company,

(4) a compliance program will be implemented in the acquired company and all of its subsidiaries, and

(5) requestor ensures that acquired company implements a system of internal controls and makes and keeps accurate books.

The question of FCPA liability for affiliating with foreign companies will generally turn on whether the U.S. company had knowledge of the improper conduct. This makes it particularly important for companies to consider whether any employees of the U.S. company are acting as officers or directors for the foreign affiliate. If a foreign company is involved in bribery payments, and employees of the U.S. shareholder are acting as officers or directors, it is likely that these officers or directors have knowledge of the bribes. Whether the U.S. company is a controlling shareholder or not, it is likely that the U.S. company will face FCPA liability. In order to avoid liability, the U.S. company has to, at a minimum, disavow the acts of bribery and take affirmative steps to avoid a reoccurrence. Particularly in the case of a U.S. majority owner of a foreign entity, however, FCPA liability likely exists and these remedial measures, as well as continued self- reporting, serve only as an olive branch designed to mitigate harm and minimize penalties."

E. Complicated Arrangements with Consultants

By now, commentators and corporations are well aware that semantics do not dictate liability; accounting for bribery as "consulting expenses" fools no one. The line separating legal and legitimate consulting agreements from mere conduits of bribery can be sketched out using details of the Justice Department's own aggressive pursuit of FCPA prosecutions, as well as elements of emerging and increasingly complex consulting agreements. Certain factors, such as the reputation of the agent, the agent's compensation, and any suspicious accommodation requests, are relevant when determining whether a domestic company's decision to hire a particular agent will trigger FCPA liability.

If the consultants hired have a reputation for bribing officials, or other corrupt behavior, a presumption of knowing impropriety exists. Similarly, unreasonably large consulting fees in light of services provided will trigger a suspicion that part of the fee went toward an improper bribe. Moreover, the more likely it is that officers of the U.S. company knew of suspicious requests by the consultant, the easier the government's decision to impute knowledge mere formation of a joint venture or establishment of an investment relationship with certain parties—for example, a foreign government official or someone closely connected to such an official—can raise FCPA issues.

The FCPA does not distinguish between government officials acting in a sovereign capacity and a government agency acting in a commercial capacity. Accordingly, virtually any transaction between a person subject to the FCPA and the employees of a state-owned entity . . . can raise FCPA issues. Relationships with state-owned entities will not always give rise to FCPA liability; however, this sort of relationship raises issues that must be addressed and dictates that risk mitigation steps need to be taken. The payment of fees to "consultants" who perform no services has been described as a paradigmatic example of an FCPA violation.

Consider the following example: a consultant was hired by a U.S. company to use his or her "connections" to help secure a contract with the government of the consultant's home country. While it is not the case that consulting agreements based on one's connections are per se illegal, it is quite clear that consulting agreements based on a financial, rather than personal, relationship between said consultant and foreign officials can create FCPA problems. If the hypothetical consultant described above made routine payments to the foreign official in order to protect, or establish, his or her relationships, the U.S. company's knowledge of this arrangement likely satisfies the FCPA's knowledge requirement, and suggests liability. Even though the U.S. company is not making direct payments to the foreign official, and even though the consultant is not just passing along a percentage of the U.S. company's payment to the public official, knowledge of an ongoing connection to a public official based on periodic payments is likely a sufficient basis for FCPA liability.

In short, consulting agreements will subject an entity to FCPA liability if the "consultant" is in a corrupt relationship with the foreign official. This is true even if the money being paid cannot be traced directly to the consulting payments made by the entity. This theory of liability is consistent with a plain text of the FCPA. A company in this situation will be well served by an early guilty plea.

F. Foreign Entity Liability

One of the most surprising developments in the Department of Justice's implementation of the FCPA is the charging of foreign entities. The 2005 charging of Diagnostic Products was the first occurrence. This charge, and subsequent guilty plea, signals a potentially monumental shift in the prosecution of bribery: and one that lacks a solid legal basis. More so than the other theories of FCPA liability discussed in this Article, the Justice Department's newly clarified theory of foreign entity liability must be challenged in court.

The prosecution of foreign entities, outside of certain narrowly defined statutory parameters, must be struck down by federal courts. This conclusion is grounded in both textual interpretation and the extensive legislative history of the act. Prior to 1998, the FCPA did not apply to foreign companies other than "issuers" and foreign nationals. The 1998 amendments expanded the FCPA to provide that a foreign company or person is now subject to liability if it causes, either directly or through an agent, an act in furtherance of the corrupt payment to take place while within the territory of the United States.

It is, however, generally accepted that the FCPA's anti-bribery provisions do not apply to foreign subsidiaries of U.S. companies who are acting on their own behalf, and not as agents of covered persons.'' Prior to the Diagnostics charging, the Department of Justice had enforced the Act in a manner consistent with its unambiguous legislative history concerning foreign entity liability. The Department of Justice, through a refusal to prosecute, had implicitly recognized that a foreign subsidiary of a U.S. issuer or domestic concern can not be an agent of its U.S. parent for FCPA purposes. Accordingly, until the Diagnostics case, it was safe to assume that foreign subsidiaries were not subject to FCPA liability unless the entity committed an act in furtherance of a prohibited payment while in the United States.

The fact that foreign subsidiaries that do not satisfy the requirements for liability under the 1998 amendments do not generally face prosecution under the FCPA is evidenced by the legislative history. As enacted by the House, domestic concerns were specifically defined to include foreign subsidiaries of U.S. companies. The House viewed the exercise of jurisdiction over foreign subsidiaries as necessary in order to foreclose "a massive loop-hole."

Through the Department of Justice's aggressive enforcement of provisions and principles previously considered academic, the FCPA has come of age. It is finally possible to understand the severity and robustness of FCPA liability. What began as a financial irritant for large companies has become the Justice Department's primary tool in preventing corruption. In light of the aggressive stance taken by Justice Department officials in the cases discussed above, it is becoming increasingly clear that the Department of Justice is willing to prosecute entities and individuals for conduct that is not obviously actionable under a plain text reading of the FCPA.

Corporate defendants have a strong interest in resolving these matters quickly, given the flurry of unwanted media attention and the corresponding depreciation in stock value that accompanies a bribery scandal. It is of great benefit to federal prosecutors that the incentive to litigate these cases is unusually low. Corporate defendants will continue to operate under a regime in which prosecutors obtain guilty pleas to meritless charges unless there is a challenge to the Department of Justice's authority to prosecute under the FCPA. The FCPA presents a classic economic dilemma—the tragedy of the commons problem: although virtually all corporations stand to benefit from an aggressive litigation of these cases and the favorable case law that will likely result, no single corporate defendant has been willing to risk its reputation and the costs of litigating an issue that, in the normal context of public criminal defense, would have been heavily litigated by now.

Distinct from the protracted appeals and habeas corpus proceedings that ensure the integrity of ordinary criminal prosecutions, FCPA prosecutions are characterized by self-reporting and guilty pleas. Though it is hard to muster much sympathy for American corporations charged with bribing foreign officials, the overwhelming incentive to plead these cases out has provided the Department of Justice with an unusual and unfair interpretive role over the FCPA. The Department of Justice's role as final interpreter must be stopped. A creative collaboration, or courageous corporate defendant, is necessary in order to bring the FCPA back in line with traditional criminal statutes and basic principles of statutory interpretation. There is no question that the FCPA's incubation period—defined by more conversation and controversy than actual prosecution—has given way to an era of aggressive enforcement. However, emboldened by early success, and likely aware of the free-rider dilemma the defendants are facing, the Department of Justice has begun to pursue unreasonable theories of FCPA liability. Just as the FCPA has evolved from talk to action, it is time for FCPA defendants to take an active stance in opposing the unreasonable extensions of FCPA liability. Only if defendants challenge the validity of these theories of FCPA liability will aggressive and unchecked prosecutions be brought under control.

A practical approach to FCPA

A company conducting business in a foreign country must ensure that its employees, subsidiaries, agents and hired contractors comply with FCPA. Investing in a monitoring system that screens all entities that act on behalf of the U.S. company is highly recommended. The first step should be to identify problematic persons or entities that want to represent the company in a foreign market. Refusal to submit written compliance to FCPA guidelines, failing to maintain sufficient books or records, requesting payments for an undisclosed third party, or having any relationship with a member of a political party should serve as red flags to exporters.

A starting point should be to require all contracts to include concise FCPA compliance language. Companies should insist that all payments be made via check or wire transfer, and avoid any party that insists on using offshore accounts. They also should require all applicants for foreign office positions undergo background checks to confirm that they don't have close ties to a foreign government. To ensure that their executives are aware of the Foreign Corrupt Practices Act and that they strictly comply with the FCPA,  certain proactive measures, including the following, may be implemented:

  • Incorporation of FCPA into companies' guidelines for complying with the Sarbanes-Oxley Act and supply-chain regulations.

  • Awareness training for executives and development of standard operating procedures to deal with potential situations that may threaten their companies with FCPA violations.

  • Development of specific standard operating plans that are incorporated into all operating guidelines, and senior management s communication of its insistence on strict compliance.

  • Annual audits by outside consultants, law firms and specialists to analyze potential F'CPA violations.

  • Creation of internal resources and "call centers" to advise any executive who needs help in dealing with a potential FCPA violation or potential problem situation.

  • Identification of high-risk situations, countries and customers that may be vulnerable to a FCPA violation, and action to mitigate these "hot spots."

Deciding Whether to Make a Voluntary Disclosure

Although not mandated by the FCPA, voluntary disclosure of an FCPA violation to the DOJ and/ or SEC, as appropriate, may help a company avoid prosecution or obtain partial mitigation of civil and criminal penalties.

Although there is no way to quantify the mitigation impact of a voluntary disclosure, voluntary disclosure and exceptional cooperation can result in relatively lenient criminal and administrative sanctions.

The "credit" given for voluntary disclosure and cooperation in any particular case remains  uncertain. However, corporations must weigh the potential benefits of mitigation, against the costs of such disclosure, including the expense and resources required to cooperate with a government investigation, the uncertain scope of civil and criminal penalties, the risk and expense of private litigation, and the public relations and business consequences, both in the United States and overseas.

Due Diligence Is Necessary

In the merger and acquisition context, and because of the substantial civil and criminal penalties possibly imposed for violations of the FCPA, corporations must remain focused on proper diligence before, during, and after the proposed acquisition. Although the type and scope of FCPA due diligence required before an acquisition will vary depending on the particular risks involved, most pre-acquisition FCPA due diligence should contain the following elements:

  • A determination of the risk that the target company has engaged in violations of the FCPA, based on the target company’s line of business and the countries where the target company is located or does business;

  • A review of the effectiveness of the target company’s FCPA compliance program and policies and procedures for marketing-and-entertainment-related expenditures;

  • Interviews with employees of the target company and other knowledgeable individuals regarding rumors of unethical or suspicious conduct by the target company, its employees, or its agents, consultants or representatives;

  • A review of the target company’s books, records and accounts to determine whether such books, records and accounts accurately and fairly reflect all transactions and expenditures by the target company;

  • An enhanced review of all contracts between the target company and any foreign government,  foreign government-controlled entity, foreign government employee or foreign political candidate;

  • An enhanced review of all contracts between the target company and any foreign agent, consultant or representative of the target company; and

  • An enhanced review of any “red flags” indicating that violations of the FCPA may have occurred.

Maintain Adequate Compliance Program and Internal Controls

To minimize exposure to penalties under the FCPA, companies should establish, implement, and maintain an effective FCPA compliance program. This program must be designed to deter violations of the FCPA and detect possible violations of the FCPA before they occur. An effective FCPA compliance program also must be tailored to a company’s size, line of business, scope of international operations, and associated risk of violating the FCPA, among other factors.

At the very least, an effective compliance program should contain the following:

  • Policy Statement/Code of Conduct: The CEO or other member of senior management should issue a company-wide policy statement, included in the company’s Code of Conduct, that clearly affirms the company’s commitment to comply fully with the FCPA and to maintain the highest level of ethical standards in the conduct of its business.

  • Compliance Manual: The company should prepare and distribute an FCPA Compliance Manual containing written standards and guidelines to be followed by the company’s officers, directors, employees and agents to ensure their full compliance with the FCPA.

  • Compliance Officer: The company should designate an individual from the company’s senior management or general counsel’s office to serve as the company’s FCPA Compliance Officer.

  • Education and Training Programs: The company’s FCPA compliance program should include appropriate educational and training programs for all of the company’s directors, officers, employees and agents. • Confidential Hotline: The company should establish a confidential telephone hotline that may be used by the company’s officers, directors, employees and agents to report any suspected or actual violation of the company’s FCPA Compliance Manual.

  • Internal Audit: In addition to regular financial audits, the company should periodically review and test compliance with its FCPA compliance program.

  • Miscellaneous: An effective compliance program should also:

    • (i) require annual certifications from employees that they have reviewed and agreed to comply with the FCPA Compliance Manual;

    • (ii) help avoid unusual or extravagant payments or gifts;

    • (iii) prohibit or require approval of gifts;

    • (iv) provide FCPA guidance in all foreign  languages where the company conducts business;

    • (v) encourage employees to elevate FCPA issues;

    • (vi) thoroughly screen third-party agents; and

    • (vii) identify “red flags.”

  • Given the continued proliferation of FCPA enforcement activity in 2006, we expect US authorities to initiate an increasing number of enforcement actions in the next few years and to seek more severe penalties for FCPA violators. A company’s investment in an effective FCPA compliance program could help it avoid liability altogether or reduce the severity of penalties imposed against the company if it or one of its of agents violates the FCPA.

As If Your Life Depended On It... or How to get to Carnegie Hall? - Practice, practice

Collective plural

In U.K. English it is common to see statements like "Parliament have raised many questions about the proposal" in which because Parliament is made up of many individuals, several of whom are raising questions, the word is treated as if it were plural in form and given a plural verb. This is the proper-noun form of what is called the "collective plural." Many U.K. authorities object when this pattern is applied to organization names if the organization is being discussed as a whole and not as a collection of individuals. According to them, "The BBC have been filming in Papua New Guinea" should be "The BBC has been filming..."

This sort of collective plural applied to the names of organizations is almost unheard of in the U.S., and in fact strikes most Americans as distinctly weird, with the exception of an occasional sports team with a singular-form name like the Utah Jazz, the Miami Heat, the Orlando Magic, or the Seattle Storm. There's a sarcastic saying, "The Utah Jazz are to basketball what Utah is to jazz."


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  • Historia Verdadera


Argentina y Uruguay reiniciaron las conversaciones sobre el conflicto por la instalación de las papeleras de la compañía finesa Botnia en la frontera. Los delegados de ambos países se reúnen en las oficinas neoyorquinas de la Embajada de España ante miembros de las Naciones Unidas. En esta segunda ronda de negociaciones se espera que se ponga fin a más de seis meses de enfrentamientos entre vecinos de ambas naciones.

Veto a la altura

La decisión de la FIFA de prohibir la práctica del balompié en ciudades a más de 2.500 metros de altura provocó una airada protesta del gobierno y de varias instituciones bolivianas. Los medios de comunicación en grandes titulares apuntaron a Brasil como el principal país que canalizó la petición de veto a la altura ante la FIFA. El presidente Evo Morales se reunió con los alcaldes y prefectos de las cuatro ciudades afectadas con el veto –La Paz, Cochabamba, Potosí y Sucre—para elaborar una estrategia de defensa paralela a la representación que realizará Federación Nacional de Fútbol en Zurich.


El  81,4% de las mujeres que han practicado el aborto legal en el Distrito Federal son católicas y el 50% tienen pareja estable y su nivel educativo es de bachillerato y licenciatura. Ese es el informe del secretario de Salud de la capital, Manuel Mondragón, al detallar sobre los primeros resultados de las reformas que despenalizan el aborto, norma que fue aprobada recientemente bajo una fuerte polémica con grupos religiosos.


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  • Brief News

Bush chooses new World Bank boss

President Bush chooses former top diplomat Robert Zoellick to replace Paul Wolfowitz at the World Bank, officials say.

Venezuela head in new TV warning

Chavez has denounced what he called fresh plots to destabilize his government, after he closed an opposition TV channel. He urged supporters to be on alert for a coup attempt and threatened a second TV network, Globovision.

Argentina uncovers Eichmann passport

A student has found the passport used by Nazi war criminal Adolf Eichmann to enter Argentina in 1950. The passport was issued by the Red Cross, in the Italian city of Genoa, under the name of Ricardo Klement. The student found the passport among court documents while investigating Eichmann's capture in 1960 by the Israeli secret service.

 Deutsche Telekom backs VoIP firm

Deutsche Telekom is investing in the internet telephone company Jajah, joining the rush of major telecoms groups to back the technology. Jajah provides voice over internet protocol (VoIP) services, which allow people to make calls over the internet at a fraction of the usual prices.

Google may faces in-depth probe

US regulators may hold an in-depth inquiry into Google's planned takeover of internet advertising firm Doubleclick, the search giant has said. The Federal Trade Commission (FTC) has requested extra information about the $3.1bn deal. Such requests usually lead to a lengthy anti-competition review. The FTC's inquiry began after rival Microsoft, which recently bought web ad firm Aquantive, complained the merger could have a monopolistic effect.

High Court Limits Discrimination Cases

A US Supreme Court ruling Tuesday limits workers' ability to sue employers for pay discrimination that results from decisions made years earlier. The decision says employers would otherwise find it difficult to defend against claims "arising from employment decisions that are long past."

Russia test fires massive new long-range missile

Russian military officials have confirmed that the country has tested a new inter-continental ballistic missile designed to evade missile defense systems.

Brazil food companies move closer to global stage

Fueled by a strong national currency and high food commodity prices, Brazilian food companies are making their presence felt globally. Two recently announced international acquisitions by leading Brazilian food companies seem to be setting the stage. The first of the two acquisitions came last week when Brazilian food company Perdigao said it had reached an agreement to pay EUR30 million for Plusfood, a distribution company owned by Cabeco Group BV of the Netherlands. The purchase would give Perdigao another brand-name meat product to sell primarily in the U.K., Italy, the Netherlands, Spain, Germany and France. All are coveted chicken and frozen food markets for Brazilian exporters. On Tuesday, a much larger deal was announced, with JBS SA saying it would pay $1.4 billion to acquire privately held Swift Foods Co., the third-largest U.S. beef and pork processor which also has operations in Australia. The purchase would make JBS's meatpacker, the Friboi Group, the world's No. 1 beef company, toppling Tyson Foods. It would also give Friboi unprecedented access to the U.S., the world's leading beef consuming nation.

Brazil Senate leader denies taking kickbacks

The leader of Brazil's Senate, the latest politician to be snared in an unfolding scandal over kickbacks for government contracts, declared his innocence before fellow legislators on Monday. Renan Calheiros, a close ally of Lula, is accused of taking cash from a lobbyist in exchange for favoring a construction firm.

EU seeks partnership with Brazil 

The European Commission will propose upgrading European Union (EU) relations with Brazil to a strategic partnership, putting the Latin American giant in a select club with China and the US. The aim is to boost cooperation on such hot issues as energy and the environment as well as improving coordination between the European Union and Brazil within international organizations. The Commission wants the strategic partnership to be the main subject of an EU-Brazil summit to be held in Lisbon on July 4, just after Portugal takes over the EU's rotating presidency at the start of the month. In the absence of a long-sought free-trade agreement with Mercosur, the new push for closer relations with Brazil aims to answer some European leaders’ calls for the emerging economic powerhouse to be the anchor of Europe's relations with South America.

The Shape of Computers to Come?

Microsoft will unveil a computer designed like a table with a touch-screen. The system, which goes on sale later this year, will be aimed initially for use in hotels and casinos.

Tested Allegiances

The SEC is coming under pressure to side with investors in a Supreme Court case involving Enron that will answer whether shareholders can sue third parties for another company's fraud. The case has become a test of the SEC's leanings, amid concern that it is too pro-business.

Soft-Drink Suit Can Proceed

A lawsuit that alleges soft-drink manufacturers, including PepsiCo Inc., are selling drinks made with ingredients that can form cancer-causing benzene can go move forward, a Kansas federal court has ruled. The suit is one of five lawsuits filed in various states. Plaintiffs are asking soft-drink makers to remove the drinks from store shelves, reformulate their products, and offer refunds to consumers who bought them. Benzene can form in soft drinks containing vitamin C, also called ascorbic acid, and either sodium benzoate or potassium benzoate. Scientists say factors such as heat or light exposure can trigger a reaction that forms benzene in the beverages.

European, Asian states agree to deadline on greenhouse gases pact but US balks

Asian and European countries agreed Tuesday to set new international emissions standards by 2009, after a two-day conference in Hamburg, Germany that included representatives from over 40 nations. Supporters of the new deadline said it was necessary in light of the impending 2012 expiration of the Kyoto Protocol , which currently governs international greenhouse gases. Attendees also discussed the need for global promotion of alternative energy sources, agreeing to a tentative outline for the different responsibilities of richer and poorer nations in emissions reduction . The European Union has begun exerting pressure on major polluters in Asia, but many Asian countries have indicated they will only reduce emissions in exchange for European green technology. The EU has so far been reluctant to accept the trade, but the first round of negotiations is scheduled to begin in December in Bali, Indonesia. The US has rejected the conference's deadline to reduce emissions globally as too broad. According to chairman of the White House Council on Environmental Quality James Connaughton , the Bush administration favors a policy which sets goals in the context of national circumstances, rather than a global mandate.

  • Daily Press Review


Raila's plea to Uhuru
East African Standard, Liberal daily of Nairobi, Kenya

Dons battle Ansa Asare   Court told to declare him unfit to hold public office
Ghanaian Chronicle, Independent, published  in Accra, Ghana

SA rejects tough line on Zimbabwe
Mail and Guardian, Liberal daily of Johannesburg, South Africa

Power struggle erupts in Nesawu
Times of Zambia, Government-owned daily of Lusaka, Zambia


Cave Hill campus must expand
Barbados Advocate, Independent daily of St Michael, Barbados

Barred from elite school
Buenos Aires Herald, Liberal daily of Buenos Aires, Argentina

Canadian firms accused  of violations abroad
The Globe And Mail, Centrist daily of Toronto, Canada

'Break corrupt links' - UN urges end to political criminality in region
Jamaica Gleaner, Centrist daily of Kingston, Jamaica

Canada and Mexico move together on investigations
The Guadalajara Colony Reporter, Independent weekly of Guadalajara, Mexico

Asia Pacific

Jobless rate falls to 9-year low of 3.8% Situation for young people notably rosier
Daily Yomiuri, Conservative daily of Tokyo, Japan

China calls for global efforts to aid for Darfur's development
People's Daily Online, Pro-government daily of Beijing, China

War crimes charges possible
The Sydney Morning Herald, Centrist daily of Sydney, Australia

Indian, US Envoys Meet Nepal
The Himalayan Times, Independent daily of Kathmandu, Nepal

Kampi chief fires back at de Venecia
The Manila Times, Pro-government daily of Manila, Philippines

Suaram: Powers given to Rela institutionalised vigilanteism
The Sun, Independent daily of Kuala Lumpur, Malaysia


European Data Privacy Officials Worry About Big Brother Google
Deutsche Welle, International broadcaster of Cologne, Germany

Greenpeace stages protest at nuclear construction site - Finnish authorities want explanation
Helsingin Sanomat, Centrist daily of Helsinki, Finland

Belarusian KGB detains Belneftekhim head (Part 2)
Interfax, Government-owned news agency, Moscow, Russia

Mahon: 'We're not out to get Taoiseach'
Irish Examiner, Centrist daily of Cork, Ireland

Putin Finds an Ally in Portugal
The Moscow Times, Independent, English-language daily of Moscow, Russia

Rogue police may have snatched security guards and analyst in Iraq
The Scotsman, Centrist daily of Edinburgh, Scotland

Mediterranean project vs. EU: An illusion or reality for Turkey?
Turkish Daily News, Independent daily of Istanbul, Turkey

Middle East

Lebanon's new war?
Al-Ahram Weekly, Semi-official, English-language weekly of Cairo, Egypt

Cooperation From Govt Bodies Lacking: NSHR
Arab News, Pro-government, English-language daily of Jidda, Saudi Arabia

Fighting escalates between Lebanese Army, militants
The Daily Star, Independent, English-language daily of Beirut, Lebanon

Britons abducted in Iraq
Gulf News, Independent daily of Dubai, United Arab Emirates

Meshal: Hamas intends to continue attacks on Israel
Ha'aretz, Liberal daily of Tel Aviv, Israel

Iran ready for talks with no precondition: Larijani
Islamic Republic News Agency, Government-owned news agency of Tehran, Iran

Peres formally declares candidacy for president
The Jerusalem Post, Conservative daily of Jerusalem, Israel


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