The Foreign Corrupt Practices Act with Dee McWilliams

In 1973 America was gripped by the Watergate scandal, one of the largest and most infamous in the Nation's history. Beginning with the arrest of five men for breaking and entering into the Democratic National Committee (DNC) headquarters at the Watergate complex on June 17, 1972, it would ultimately result in the trials and convictions of dozens of President Richard Nixon's top administration officials and the resignation of Nixon himself.


In February 1973 the Senate created the Select Committee on Presidential Campaign Activities (Resolution S.60) to investigate Watergate and other Nixon campaign abuses, and in May Special Prosecutor (Archibald Cox) was sworn in by the U.S. Department of Justice to direct the investigation. During the course of their work, the Office of the Special Prosecutor charged several corporations and CEOs with using corporate funds for illegal political contributions. The U.S. Securities and Exchange Commission (SEC) soon recognized the significance to public investors, and their own subsequent inquiry revealed falsifications of corporate financial records as well as secret “slush funds” being used for illegal foreign payments and other purposes.

The SEC eventually exposed further corporate abuses ranging from the outright bribery of high foreign officials to so-called "facilitating payments" made to government functionaries for certain ministerial or clerical duties. Major examples included officials of the Lockheed Aerospace Company paying over $14 million in bribes to various foreign officials in the process of negotiating the sale of aircraft, and the "Bananagate" scandal in which Chiquita Brands paid over $2.5 million in bribes to the President of Honduras to lower taxes on banana exports. By the culmination of the SEC investigation, over 400 U.S. companies had admitted making questionable or illegal payments in excess of $300 million to foreign government officials, politicians and political parties.

Originally the SEC wasn't directly concerned with the legal implications of bribery: the international business climate of the time had seen such payments as a necessity in order to remain competitive in a rapidly growing corporate environment. Rather, the specific concerns of the SEC were directed at the nondisclosure of such massive payments to investors; the hidden "slush funds" clearly undermined the integrity and reliability of corporate books and records, and the very foundation of the disclosure system established by federal securities laws.

Congress, however, was seriously concerned with the implications these payments had on U.S. foreign policy. The 1975 Senate Select Committee to Study Governmental Operations with Respect to Intelligence Activities, chaired by Senator Frank Church, had been conducting their own investigation and in a series of hearings that year outlined the involvement of various government organizations including the FBI and CIA. And beyond issues of foreign policy, a "post-Watergate morality" was rapidly coming into play, causing concerns over international perceptions of the U.S. economic stability and the Nation's position as a global leader.

Between June 1975 and September 1977 approximately twenty bills were introduced to address the issue of foreign corporate payments: in March 1976 President Gerald Ford issued a memorandum to various federal agencies establishing a “Task Force on Questionable Corporate Payments Abroad”. Finally, after more than two years of deliberation, Congress passed the first law in the world governing domestic business conduct with foreign government officials in foreign markets.
The Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1) was signed into law by President Jimmy Carter on December 19, 1977 with the intended purpose of ending corporate bribery of foreign officials, and the restoration of public confidence in the American business system. It was amended in 1998 by the International Anti-Bribery Act of 1998 to implement the anti-bribery conventions of the Organization for Economic Co-operation and Development.

Actions:

 The Foreign Corrupt Practices Act (FCPA) essentially addresses a) accounting transparency requirements under the Securities Exchange Act of 1934 and b) the bribery of foreign officials by persons connected to the United States, including:

• U.S. businesses • Foreign corporations trading securities in the United States 
• American nationals or citizens 
• Residents acting in furtherance of a foreign corrupt practice whether or not they are physically present in the United States 
• Foreign natural and legal persons in the United States at the time of the corrupt conduct 
• Foreign firms and/or persons who take any act in furtherance of such a corrupt payment while in the United States.

Regarding accounting transparency, 15 U.S.C. § 78m requires companies with securities listed in the United States to meet specific accounting practices intended to operate in tandem with the FCPA anti-bribery provisions. Corporations covered by these provisions are required to keep books and records that accurately reflect transactions and to maintain adequate internal accounting controls.

The anti-bribery provisions of the FCPA are not restricted to monetary exchanges (the focus is on the intent of bribery rather than the amount), and may include anything of value given to a foreign official for the purpose of obtaining, retaining or directing business to any person or company covered by the law. Specifically, the anti-bribery provisions of the FCPA prohibit:

"...the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person." 

The definition of "foreign official" is broad; examples may include doctors at government-owned or managed hospitals or anyone working for a government managed institution. Employees of international organizations such as the United Nations are also considered to be foreign officials under the FCPA. The Act also governs payments to any recipient if any part of the bribe is ultimately attributable to a foreign official, candidate, or party. It does draw a distinction between "bribery" and "facilitation" payments, which are made to an official to expedite performance of the duties they are already bound to perform. Payments may also be legal if they are permitted under the written laws of the host country, or if they relate to product promotion. 

Penalties: 

The U.S. Department of Justice is chief enforcement agency for the FICA, with the Securities and Exchange Commission (SEC) acting in a coordinating role. DOJ involvement in an FCPA matter is guided by the Principles of Federal Prosecution in the case of individuals, and the Principles of Federal Prosecution of Business Organizations in the case of companies. Generally, the following circumstances may trigger an FCPA investigation:

• Unusually large commissions, retainers or fees 
• Refusal to make FCPA-related representations 
• Unusual methods of payments 
• Promises of business by or from a government official 
• Family or business relationships with a government official 
• Payments of unusual contingent fees 
• Political contributions 

Penalties for corporations and other business entities found in violation of the FCPA may include fines of up to $2 million; individual directors, officers, stockholders, employees and agents can be subject to fines of up to $100,000 and imprisonment for up to five years, although individuals are only subject to the FCPA’s criminal penalties for violations if they acted “willfully". These fines are imposed per occurrence, and individuals fined for violations of the Act may not be indemnified by their employer.

Both companies and individuals can also be held civilly liable for aiding and abetting FCPA anti-bribery violations if they knowingly or recklessly provide substantial assistance to a violator. The attorney general or the SEC may bring a civil action for violation of the FCPA, resulting in fines of up to $10,000 per violation against any firm, its directors, officers, employees, agents and stockholders. In addition, the SEC may seek to impose fines not to exceed (1) the gross amount of the pecuniary gain to the defendant as a result of the violation, or (2) an amount of up to $100,000 for individuals and $500,000 for business entities.
Under federal law, individuals or companies that aid or abet an FCPA violation are as guilty as if they had directly committed the offense themselves.

Defense: 

The FCPA contains an exception for "facilitating payments" for "routine governmental action," (also known as "grease" payments) intended as a defense for payments, gifts or tips made in facilitation of non-discretionary acts of lower-level officials as long as they have no discretion to award business to the party making the payment. If a defendant can assert that a payment was legal under the laws of the foreign country in which the payment was made, or that a payment was a reasonable expenditure directly related to promotion, demonstration, or explanation of products or services this may also be used as an affirmative defense.

Enforcing anti-corruption laws has become a major focus of law enforcement and regulatory authorities in the U.S. and other nations. Parnham and McWilliams represents clients in FCPA internal investigations, government enforcement and regulatory actions, and other international white-collar defense matters. For more information visit whitecollarfraudattorney.com or call (713) 224-3967 for a free consultation.

Federal Tax Fraud With Richard Kuniansky

Tax fraud (or tax evasion) is the general term for efforts by individuals, firms, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as declaring less income, profits or gains than actually earned; or overstating deductions).
In the United States "tax evasion" is evading the assessment or payment of a tax that is already legally owed at the time of the criminal conduct. Tax evasion is criminal, and has no effect on the amount of tax actually owed, although it may give rise to substantial monetary penalties.

In the case of U.S. Federal income taxes, civil penalties for willful failure to timely file returns and willful failure to timely pay taxes are based on the amount of tax due; thus, if no tax is owed, no penalties are due. The civil penalty for willful failure to timely file a return is generally equal to 5.0% of the amount of tax "required to be shown on the return per month, up to a maximum of 25%. By contrast, the civil penalty for willful failure to timely pay the tax actually "shown on the return" is generally equal to 0.5% of such tax due per month, up to a maximum of 25%. The two penalties are computed together in a relatively complex algorithm, and computing the actual penalties due is somewhat challenging.

Accounting Fraud with Richard Kuniansky

While the Sarbanes-Oxley Act of 2002 enacted post-Enron reforms, accounting fraud is still rampant in both public and private operations alike. In 2010 the executives at Lehman Bros. were accused of fraud, and the actions of Ponzi schemer Bernard Madoff were widely publicized. Healthcare South shareholders plan to finalize a settlement agreement in July 2010 against accounting firm Ernst & Young and Swiss bank, UBS AG, seeking restitution for their part in a multi-billion dollar accounting fraud scandal.

Allegations of accounting fraud may cause serious damage to the reputation of any corporation or business.  The majority of accounting fraud investigations stem from authorities pursuing a case where there is suspicion of corporate fraud and there are signs indicating that evidence of falsified statements, documents, and or transactions exist.  In many cases, federal prosecutors and investigators are involved when someone is suspected of accounting fraud. In these cases the federal prosecution often casts a wide net, bringing charges against persons who may not have had any prior knowledge of the deception.

The accounting practices of smaller businesses in regulated industries are also scrutinized in a manner once reserved for public companies.  What were once viewed as honest, innocent accounting errors can be lumped into an overly aggressive investigation by prosecutors and regulators and pursued as a potential violation of the criminal law.  These sorts of investigations often turn upon very specific and technical accounting practices and decisions.  If you are under investigation for allegations of deceptive accounting methods it is important to hire a white collar criminal defense attorney who is experienced in these complex cases.