Focus: U.S. regulators issue guidance on corruption act

In mid-November, the U.S. Department of Justice and the U.S. Securities and Exchange Commission released their long-anticipated guidance on the U.S. Foreign Corrupt Practices Act.

Intended to be a one-stop shop for direction on compliance and enforcement issues in relation to the act, the guide will be of interest not only to Canadian companies subject to the legislation but also to companies falling within the ambit of our own Corruption of Foreign Public Officials Act.

“The value of the guide in a Canadian context is that it is a high-level blueprint and reasonable forecast of how Canadian officials may proceed in similar circumstances,” says Paul Blyschak of McCarthy Tétrault LLP’s Calgary office.

Indeed, the U.S. and Canadian laws have many similar substantive provisions and all indications are that authorities in both countries are co-operating and even co-ordinating their anti-corruption activities.

“We are expecting a certain similarity of approach and that makes sense in the big
picture not only for practical reasons but because certain companies and transactions are subject to both statutes and the similarity of approach will make co-operative efforts easier,” says Blyschak.

“This having been said, it’s also important to remember that these anti-corruption statutes are not enforced in a vacuum but in the context of domestic laws and particularly criminal laws that may deal in different ways with the liability of corporations and their human agents as well as with jurisdictional and territorial differences.”

It’s also important to understand that Canadian and U.S. authorities may approach prosecutions differently despite any similarity in their enforcement policies.

“For example, there are a number of procedural avenues available to U.S. prosecutors, such as deferred prosecutions and
non-prosecution agreements, that are not available to their Canadian counterparts,” says Blyschak.

Although Canadian and U.S. lawyers practising in the anti-corruption area have for the most part welcomed the guide, it has also disappointed many observers who say it fails to break new ground.

“The big-picture takeaway is that the guide reiterates many of the positions that the government has taken in previous enforcement actions, which is not to say that the guide is not a valuable document because it is of course very helpful to have all these issues appear in a condensed form,” says Kevin Harnisch, co-head of Fried Frank Harris Shriver & Jacobson LLP’s anti-corruption compliance and enforcement group in Washington.

Many grey areas remain, especially
regarding the most controversial issues.
“In some ways, it’s not surprising that the government has not articulated bright-line tests and that the SEC and the DOJ are trying to give themselves a lot of wiggle room,” says Harnisch.

“But even where they try to give helpful advice, the tendency is to follow with a caveat that detracts from the guidance.”

More particularly, the guide lacks specificity on the particulars of who will be regarded as a “foreign official; on the compliance defence; on successor liability and due diligence in an M&A context; on the distinction between allowable and non-allowable gifts, entertainment, and travel expenses; on third-party due diligence; and on facilitating payments. So far as the really difficult issues are concerned, the guide merely reiterates that each case depends on what is reasonable in particular facts and circumstances,” says Harnisch.

Lawyers and clients were also hoping for more clarity on which entities the law would regard as being under the ownership or control of foreign governments.

“What the guide tells us is that if a foreign state doesn’t own a majority stake or control in an enterprise, it will probably not be regarded as a government entity,” says Harnisch.

“But then the guide goes on to say that there may be circumstances that lead regulators to a different conclusion even where a company is not majority-owned by the foreign state.”
In other words, there’s a dearth of new substantive information for lawyers practising in this space.

What’s clear, however, is that enforcement of the act continues to be a priority for regulators.
“There are numerous examples that reiterate some of the government’s more aggressive positions and suggest that it won’t be bashful about continuing them in the future,” says Harnisch.

A continuing emphasis on compliance programs is also apparent. In fact, the guide is the first compilation of U.S. regulators’ perspectives on the hallmarks of effective compliance programs.

That perspective includes a commitment from senior management to the program; a clearly articulated corporate policy; establishment of a code of conduct, compliance policies, and procedures; risk assessments that focus on the program; ongoing training and continuous advice to employees, directors, officers, and affected agents and partners; incentives and disciplinary measures to reinforce the program; risk-based third-party due diligence and monitoring of third-party payments and relationships; confidential reporting and investigative processes; periodic reviews; and pre-acquisition due diligence and post-acquisition integration in the mergers-and-acquisitions context.

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