* The recent Rio Tinto case in China is a powerful reminder why a vigilant and robust Foreign Corrupt Practices Act of 1977 (FCPA) corporate compliance program is important.
The FCPA imposes civil and criminal penalties on U.S.-listed companies and individuals for bribing, or offering to bribe, foreign government officials.
On March 29, a Shanghai court sentenced four employees of British-Australian mining conglomerate Rio Tinto to 10 to 14 years in prison for accepting bribes and stealing commercial secrets. The court stated that the employees took money from private Chinese steelmakers in exchange for supplying iron ore at better prices than from state-owned steel mills. The court further held that the defendants illegally obtained confidential information from executives of a major Chinese steel-maker which detailed China's negotiating position in iron ore price discussions and the production plans of key Chinese steel-makers, and then passed that information to Rio Tinto.
The Rio Tinto verdict comes as multinational companies encounter increasingly strict oversight into their worldwide operations, with the United States, China, other industrialized nations and developing countries all expanding anti-corruption enforcement.
In this environment of intense regulatory scrutiny, U.S. companies seeking to do business in China and other foreign markets must understand the FCPA. In general, the act bars companies and their agents from bribing foreign government officials. It consists of anti-bribery provisions and accounting provisions.
Under the anti-bribery provisions, any issuer--a corporation that has issued registered securities or is otherwise within the jurisdiction of the Securities and Exchange Commission--domestic concern or foreign person in the United States is barred from paying money or giving anything of value to a "foreign official" to obtain or retain business. The person making or authorizing the payment must have corrupt intent, and the improper payment must be intended to induce the foreign official to misuse his position to wrongfully direct business to the payer. The FCPA exempts "facilitating payments," but the burden of establishing the elements for this defense is on the payer, requiring a robust system of authorization and documentation.
The FCPA's accounting provisions apply only to "issuers" and have two sections: "books and records" and "internal controls." These requirements bar accounting practices that could conceal corrupt payments. Mere negligence is sufficient to violate the accounting provisions.
In January, the SEC announced the creation of a unit focused exclusively on anti-bribery enforcement, using tactics such as targeted sweeps and industry-wide investigations. One week after this announcement, in the largest single investigation and prosecution against individuals in the FCPA's history, 22 executives were indicted in a high-profile "sting" operation at an arms industry trade show in Las Vegas. These executives were charged with scheming to bribe foreign officials. …