The Foreign Corrupt Practices Act goes back decades. It prohibits U.S. companies from bribing officials of other countries for contracts. Even if corruption is the norm in that country. Now the Trump administration says it’s not enforcing the FCPA. For what this means, the Federal Drive with Tom Temin turned to an attorney who’s an expert in this law, Cadwalader partner Martin Weinstein.
Interview transcript:
Tom Temin: Let’s review briefly, precisely, more than my summary said about the Foreign Corrupt Practices Act. What specifically does it prohibit and under what circumstances?
Martin Weinstein: It actually has two parts. Most people think of it as purely an anti-bribery statute, but there’s actually much more to it than that. There is the anti-bribery piece. And that piece says basically that companies or individuals can’t pay directly or indirectly government officials to get some sort of business benefit to win a contract. That part’s pretty straightforward. And that part’s administered by both the Department of Justice on the criminal side and the Securities and Exchange Commission on the civil side. The second part of the FCPA actually gets more attention and there are more prosecutions. And that’s called the internal controls and books and records provisions, or what we call the accounting provisions. And that is actually the statute, the part of statute that has its history back to the Watergate era. So companies have to keep books and records that accurately reflect what they’re doing with the investors money. So they can’t characterize something as particular transaction when in fact, it’s for another transaction. They can’t call it a charity when in fact it’s a gift or a bribe. And if they have controls that allow that sort of thing, then they have a weakness in their internal controls, and that’s a violation of the internal controls provisions. So there’s actually two parts to the FCPA. Anti-bribery, which is better known, and then accounting provisions, which is actually more regularly enforced, because candidly the burden of proof’s a little bit lower there. Both are enforced by the SEC and by the Department of Justice.
Tom Temin: And the foreign part of the accounting part, how does that relate to the foreign piece of the law?
Martin Weinstein: Yeah, that’s actually one of the most interesting parts of the FCPA, which is any company anywhere in the world that avails themselves of U.S. capital markets by trading debt or equity or having a connection to the U. S. in almost any way given the broad reach of the FCPA these days is subject to those accounting provisions of the FCPA. So you could have a company that’s based overseas, pick the company, Germany, Belgium, whatever, whose stock trades in the United States. And their accounting provisions are covered just as if they were based in Iowa.
Tom Temin: Got it. Well, now the Trump administration has said it’s going to relax enforcement of the FCPA. Is it your understanding that they’ll be relaxing the enforcement of both halves or the just the bribery half?
Martin Weinstein: Well, Tom, I think it’s all a little unclear now. First of all, every attorney general and president has the right to take a look at how a statute’s being enforced. So I don’t see that as a problem. I don’ think we particularly know how it’s going to be enforced. We know that there’s been a pause, not a suspension of the statute, because the statute’s still in place. So everything that was illegal on Jan. 10 is still illegal now. There’s been a pause at the Department of Justice. But, at the SEC, it’s a little less clear how they’re handling their cases. And so I think there’s sort of an uncertainty at this period of time. But my experience is that many of these cases are continuing along, maybe not at the same level, maybe at the enforcement level, but I think some of the investigations are going on. And one of the most interesting pieces, Tom, is that there are whistleblower programs and both the SEC and the Department of Justice, that incentivize people to come forward with tips about violations in exchange for potentially getting a big portion of the settlement themselves. And those whistleblower programs have not been suspended at either organization.
Tom Temin: Right, the SEC, I think, gives away some hundreds of millions of dollars a year in qui tam types of disclosures.
Martin Weinstein: It’s not just qui tams. Tom, you’re exactly right. They give away hundreds of millions of dollars in qui tams, but they also give away hundreds of millions dollars for tips that involve actions by companies and a whole variety of other statutes. And the FCPA has been a big winner for people who are whistleblowers to the SEC. Some of them have received tens of millions of dollars.
Tom Temin: And when the president says, I guess this is a question that might be unanswerable, but that the Foreign Corrupt Practices Act straightjackets American business, what could he mean? Does it mean, well, go ahead and give bribes now, it’s okay?
Martin Weinstein: Well, I think to some degree, the president has a more dated view of the FCPA. Nine of the 10 biggest FCPA enforcement actions have been against companies that are not based in the United States. U.S. companies actually really value the FCPA because when they go overseas. and somebody approaches them for a bribe, they can say, I can’t pay you because I don’t want to go to jail. You know how rigorous enforcement is in the United States. I can’t risk it, don’t come to me. And what we find is that U.S. companies are able to compete on the merits and quality of their products. And in many ways, the FCPA has been Kevlar that’s protected them from bribes around the world. As I said, nine of the 10 biggest FCPA settlements have been against companies that are not based in the United States. And if we’re talking these days about tariffs, which is a very popular word, the FCPA has probably been the most successful tariff in the history of the United States code, bringing nearly $6 billion to the United States treasury without any impact on the U.S. economy.
Tom Temin: We are speaking with attorney Martin Weinstein. He is a partner at the Cadwalader firm. And therefore, given this climate, if you will, what is your best advice to federal contractors that are also working overseas in foreign weapons sales and consulting and so forth?
Martin Weinstein: Well, I work in this area a great deal, and I will tell you what I’m seeing from every company is no relaxation of their own procedures or standards. It would be very, very odd to see a company start saying to its people, well, now you can go ahead and make payments. Let’s remember a few things. Since the passage of the FCPA, an international rubric of laws has grown up in the last 20 or 25 years. You have laws prohibiting this all over Europe. You have a U.N. convention against corruption. You have a whole variety of statutes in addition to the FCPA that prohibit this type of conduct. To be sure, the FCPA and the Department of Justice and SEC were the most aggressive enforcers of their statutes. But there are statutes around the world that prohibit this conduct. So that’s one reason why a company wouldn’t want to engage in this. The second reason is I think it makes their employees susceptible to being shaken down for bribes on a regular basis. And so there’s not a company I know of that’s relaxing their standards. I think we’re all waiting to see what the enforcement priorities are, but most companies believe that competing successfully and legally around the world is consistent with the standards that they have in place now.
Tom Temin: And if someone was to take a chance now and say, give a bribe, and then record it as a charitable donation, they’d be violating both halves of the FCPA. And then they would still be open to prosecution later on if the climate changes or the president says, yeah, we’re going to go back to really being tough on this. So it would be kind of ridiculous to take this as a sign that you can relax your standards anyhow. Fair to say?
Martin Weinstein: Well, Tom, I think it goes even broader than that. I totally agree with your point. It’s important to remember the statute of limitations is five years. So something that you do today is going to be subject to prosecution. At the earliest, the end date will be March of 2030. And there’s likely to be a new administration at that point in time. But it can also go longer, because if you make a payment today that gets you a contract, the benefits of which go on past that five-year period, the statute just keeps running. So the idea that somebody can make a payment today with the idea that they have some sort of immunity—that’s just legally inaccurate.
Tom Temin: And what’s your experience, by the way, in cases where a United States company is, say, dealing in maybe sales against a country that has lower standards? Say you’re competing — and this may not even be the case in reality — against a Russian company or a company in one of the former republics that may not have the ethical fine-tuning that the NATO countries have. What happens in those cases, and are American companies able to compete on a fair basis in those situations, where they’re the only ones that are kind of lily-white, if you will?
Martin Weinstein Well, I’ve been working in this field for over 30 years. When I was a federal prosecutor, I prosecuted the predecessor, the Lockheed Corporation, for making payments in connection with the Egyptian Parliament. So I’ve been doing this a long time. I’ve been all around the world to all these places, and I can tell you, U.S. companies do well, because fundamentally, people want to buy — and I think governments want to buy — products that have merit and quality. And yes, there are unscrupulous competitors around the world. But one of the things that the FCPA has done is to have non-U.S. companies shape up their standards because of the enforcement of companies that are not based in the U.S. The world has taken notice of the FCPA, and many of the competitors that the United States had in a prior time — I can tell you this from many years ago when I was a prosecutor — I don’t think the playing field was as level in those days. But with aggressive FCPA enforcement against non-U.S. companies around the world, the international standard of business has gotten better. And so the possibility that you’re going to run into an unscrupulous competitor is actually diminished. Now, when you do — if it’s a Russian company or Chinese company — I think that ultimately, the government buyer or the counterpart at the site knows that with the U.S. company, you’re going to get what you pay for. You’re going to get quality, and there’s not going to be a padded invoice with a bribe in there. And look, I can’t say it works all the time, but I certainly can tell you that the competitors of most U.S. companies have shaped up their standards. And as we know, the global market has been a major area of success for U.S. companies dealing with governments around the world. U.S. companies have done very well in the global market in the last 25, 30 years.
Tom Temin: And just a detail question: What, in general, is the point at which business entertainment crosses over into a violation of the FCPA? I’m thinking of a publisher I knew 40 years ago who bought lavish wine and champagne for a potential advertiser. He was spending the owner’s money, not his own. But I always wondered, at what point does that crossover from legitimate entertainment in pursuit of business to bribes?
Martin Weinstein: Tom, this is a question I’ve been asked many times through the years—just about every time there’s an Olympic Games or a Wimbledon or a Henley Regatta or something like that. So there are really two ways to look at this. First of all, if you’re entertaining a private customer, then the limitations are not nearly what they would be with a government customer. But most companies have one standard these days, and that standard really deals with gifts in general. And so they might have a limit on the amount of money. But fundamentally, the question is: Traditional business entertainment is totally acceptable, and it’s particularly acceptable when you’re promoting your own goods and services. So if you’re in the entertainment business and you get a client tickets to see a venue that you own, where you’re promoting an event that you want that city to hold, that’s entirely proper. It’s when you start giving lavish gifts that are not traditional business entertainment to government officials or, oftentimes, their spouses or kids or related parties. But traditional business entertainment is just fine.
Martin Weinstein: So what I always say is, if you’d be comfortable putting it on your travel and expense form and handing it back in, you’re going to have no problem with it. But it’s when we get into things that you can monetize—gold pendants or expensive jewelry or things that have nothing to do with traditional business entertainment— that’s when you get into trouble. And there have been cases that primarily deal with travel for government officials and for their families — vacations, things like that. That’s really where you get into trouble. But traditional business entertainment’s fine. And recently, in terms of Olympics and things like that, tickets to events — as long as you go along with your customer to try to continue to sell your product — you’re fine. It’s a much longer discussion, obviously, but I think that’s an area where we’ve sort of found the red lines and the fault lines and been able to stick to them pretty clearly.
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