The "Obtaining or Retaining Business" Requirement: Breathing New Life into the Business Nexus Provision of the Fcpa
Lu, Tiffany, Fordham Journal of Corporate & Financial Law
Congress passed the Foreign Corrupt Practices Act in 1977 as a component of the 1934 Securities Exchange Act. The purpose of the FCPA was to hold U.S. corporations and individuals criminally responsible for bribing foreign officials. The Act contains a series of requirements, prohibitions, terms and concepts with which companies are required to comply. Within one of these prohibitions, the business nexus provision states that U.S. companies and their personnel are prohibited from corruptly paying or offering to pay anything of value to a foreign official "in order to obtain or retain business."
The Fifth Circuit decision in United States v. Kay addressed the business nexus provision in a case of first impression. The issue in Kay concerned whether payments to Haitian foreign officials in an effort to reduce customs and sales taxes owed to the Haitian government fell within the FCPA's scope. The issue presented was in contrast to a more common FCPA scenario in which a company allegedly makes improper payments to a "foreign official" to secure a foreign government contract. The Kay court held that bribing such officials to get lower tax payments could in fact be considered obtaining or retaining business. Thus, the court concluded that obtaining or retaining business by way of a bribe improves the business opportunities of the payor, irrespective of whether that assistance is direct or indirect, whether it is related to administering the law, awarding, extending, or renewing a contract, or whether the purpose is the execution or preservation an agreement. This expansion of the business nexus element resulted in an increased number of enforcement actions brought under the Act.
This Note argues that the Fifth Circuit court in Kay incorrectly interpreted the business nexus provision of the Foreign Corrupt Practices Act by holding that any bribe that results in an increased profit margin will then satisfy the business nexus element, so long as it can be shown that the increased profits helped the company obtain or retain business in some specific manner. It contends that because every bribe that a company makes is assumedly going to increase profits for a company by reducing costs in some manner or another, increased profits lead to increased business, unavoidably helping the company obtain or retain business. Therefore, the holding in Kay mandated that increased profit margins satisfy the business nexus requirement so long as it can be shown that the increased profits helped the company obtain or retain business; this Note, however, ultimately concludes that the precedent set by the Fifth Circuit in Kay should no longer be followed as the circuit's interpretation allows for the provision to become a self-fulfilling requirement. The correct interpretation for the business nexus requirement should be restricted to obtaining or retaining contracts with any entity deemed to be a foreign official. The requirement should be read to restrict bribes made to assist the issuer or domestic concern in obtaining or retaining contracts with any entity deemed to be a foreign official.
While today's public distrust of politicians and business institutions seems to be at an all-time high, the aftermath of the Watergate scandal left the public in a comparable state of suspicion of those who were expected to be leading the country at the time.1 Watergate revealed that many large multinational corporations maintained "slush funds" - or funds for financing political or commercial corruption - for illicit payments made both domestically and abroad. 2 Following the Watergate crisis and subsequent political turmoil, the Securities Exchange Commission ("SEC") conducted an investigation to discover the extent to which corporations were making illegal contributions to political campaigns.3 The SEC uncovered widespread abuse of these "slush funds."4 In an effort to illuminate and eliminate corporate corruption, the SEC indicated it would refrain from bringing enforcement actions against corporations who voluntarily disclosed making similar illicit payments; over 400 companies, including over twenty percent of Fortune 500 companies, admitted to making improper or illegal payments overseas to foreign officials in order to receive favorable treatment. …