Foreign Corrupt Practices Act (FCPA): Israel Beware – Trends In Enforcement

Author:Mr Daniel Harary
Profession:Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
 
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Intuitively, Israeli companies and their directors would likely assume that their businesses are immune to investigation and the assessment of penalties by US regulators that are separated by a vast ocean and located more than 9,500 kilometers away. The reality, however, stands in contrast with intuition, as Israeli companies and individuals have recently come under the scrutiny of US regulators investigating possible violations of the Foreign Corrupt Practices Act ("FCPA"). The investigations have touched upon several key sectors of the Israeli economy, including technology, energy, defense, health care and life sciences, and mining, and, in at least one instance, significant penalties have been assessed. Therefore, Israeli companies and their boards of directors should be asking (i) What is the FCPA and (ii) what steps can be taken to avoid an unwelcome investigation and/or liability?

The FCPA is a United States anti-bribery law with worldwide reach. Generally speaking, the law makes it unlawful for companies or persons within its scope of coverage to provide money or other benefits to any foreign official in order to obtain or retain business. More specifically, the law covers a variety of circumstances not immediately obvious that are critically important for international companies to recognize. The statute is comprised of two sections: (i) an anti-bribery prohibition and (ii) a books-and-records provision. The Securities and Exchange Commission ("SEC") of the United States enforces the statute civilly, while the Department of Justice ("DOJ") oversees criminal prosecutions.

As Israeli individuals and companies continue to have a significant impact on the international marketplace, their exposure to FCPA investigations and liability is likewise enhanced. Awareness of the scope and reach of the FCPA and the following of some basic preemptive rules can assist Israeli companies with avoiding the unwanted and severe consequences of FCPA investigations and enforcement actions by U.S. regulators. Criminal and civil fines and penalties imposed under the FCPA can be enormous, and can also attract unwelcome publicity to a company alleged to have violated the statute.

This article explains the basic provisions of the FCPA, provides recent trends in FPCA enforcement generally and specifically with regard to Israeli companies and individuals. Finally, the article provides critical advice for limiting exposure to FCPA liability.

The FCPA Explained

The Anti-bribery Prohibition

The anti-bribery prohibition makes it illegal to corruptly offer, promise to pay, authorize the payment of any money or authorize the giving of "anything of value" to any "foreign official" for the purposes of obtaining or retaining business. Courts have noted that the "[t]he term 'anything of value' is construed broadly to include such benefits as employment offers, travel expenses, and charitable contributions."1 This term also includes entertainment, meals, use of facilities or equipment or anything else the recipient views as having value.2 Likewise, "foreign officials" is broadly defined under the statute to include all levels of officials, candidates for foreign office and employees of a foreign government at any level.3 The term "foreign officials" can also include employees of state-owned or state-controlled entities. Government control or ownership is especially prevalent in such areas as aerospace and defense manufacturing, banking and finance, health care and life sciences, energy and extractive industries, telecommunications, and transportation, and therefore, FCPA exposure in these sectors is increased.4

In other words, companies can be found liable for violating the FCPA in situations where it is not obvious that the person to whom they are providing something is actually a foreign official. The fact that employees of state-owned businesses fall within its scope is one example of how FCPA violations may arise in areas far removed from a traditional notion of a "foreign official."

Similarly, the FCPA casts a wide net with respect to both individuals and companies who may incur liability. Critically, liability may be imposed upon a company or an individual, both domestic and foreign. Indeed, the anti-bribery section of the FCPA applies to: (i) issuers and their agents; (ii) domestic concerns and their agents; and (iii) any person who violates the FCPA while in the territory of the United States. Issuers are companies with securities listed on a national exchange in the United States, or companies with securities quoted in the over-the-counter market in the United States and required to file a report with the SEC.5 Issuers also include foreign companies whose securities are traded on domestic stock exchanges...

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