(Profile – The United States Foreign Corrupt Practices Act)
Corruption ruins both businesses and national economies. There are best practices to consider adopting in order to avoid legal and ethical entanglements.1 Honest and ethical business practices are not measured by a universal standard. Rather, the custom and practice of the business location often dictates the boundaries of what is “dishonest” when compared to what is “culturally sensitive.” However, local custom means absolutely nothing when confronted with criminal prosecution by the United States Department of Justice (USDOJ). You and your company need to observe the lessons of those prosecuted under US anti- corruption laws in order to identify what the USDOJ considers “ethical” regardless of where the acts are performed. Follow the discussion in brief of the USA law known as the Foreign Corrupt Practices Act (FCPA).
Please be “practical” as a business leader working with overseas interests. Recognize, for example, that the ruling party (in South Africa and elsewhere in post-colonial Africa) frequently deploys “party cadres” (loyalists) to government positions or government influenced positions in publicly owned businesses.
These deployments poses a risk to you (personally) and to your company that you may inadvertently engage in one or more corrupt practices. South Africa, due to its political choices, has made the risk of corruption higher, and thus the business climate less attractive to USA based investment. No American wants to risk reputation and fortune in order to bring progress and prosperity to South Africa (or any country).
Doing business across borders involves more than the financial returns so business leaders should engage local “guides” to identify corruption risks and mitigate them. USA citizens, non-citizens, and USA companies are all subject to the long arm of American anti-corruption legal jurisdiction which includes Africa and companies (and officers) who wish to work in Africa. As a business leader you must be alert to the myriad types of conduct which is “dishonest” and which violates the FCPA without regard for local customs. There is no legal exception for culturally accepted behaviors. In particular, ruling party cadre deployments (i.e., the children of government members or employees) may fall within the definition of the “officials” the FCPA is intended to isolate away from the USA business leaders. Seek local assistance to identify whether the intended investment will involve “officials” directly or indirectly.
For example, in South Africa, the ruling African National Congress (ANC) is well known to make government jobs and state owned enterprise (SOE) positions available exclusively to party members (without regard for competence).2 There are court cases brought by the opposition parties challenging the constitutional basis of such hiring preferences.3 The allegations of the cases should raise the level of concern and the level of conduct scrutiny for all business leaders wishing to remain in compliance with the FCPA. We are all on “notice” that the employ or board member, or officer to whom we are speaking or with whom we are working may well be considered an “official” under the anti-corruption laws of several major economies. Frequent news stories identify suspect business transactions involving “officials” in the form of family members near and not so near, recognized confidants, and intimate or business partners.4
The Foreign Corrupt Practices Act (FCPA)5 was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the payment of money (or giving anything of value) to a foreign official to influence the foreign official in his or her official capacity. “Since 1977, the anti-bribery provisions of the FCPA have applied to all U.S. persons and certain foreign issuers of securities. With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.”6
Violations of the FCPA start with any sort of “payment” or “value delivered” to an “official” for the purpose of advancing the business interests of the giver. The U.S. Department of Justice (DOJ) has adopted aggressive interpretations of the statute that apply with particular force. There are three significant issues: (1) the meaning of “foreign official”; (2) the meaning of “anything of value”; and (3) the use of third parties that make pass through payments to officials.7 The law is so all inclusive that the hiring of the children of officials or the relatives of officials has been viewed by the US DOJ as a violation.8 The USA based bank, JPMorgan Chase, in November 2016, was fined $264M for a program
1 https://doi.org/10.1787/18151957 OECD(2003), “Business Approaches to Combating Corrupt Practices”, OECD Working Papers on International Investment, 2003/02, OCD Publishing.
2 https://theconversation.com/south-africas-ruling-party-has-favoured-loyalty-over- competence-now-cadre-deployment-has-come-back-to-bite-it-199208
3 https://ewn.co.za/2023/01/30/first-of-two-da-cases-against-anc-cadre-deployment-policy- resumes-at-high-court
4 https://www.news24.com/news24/southafrica/news/r125m-ppe-scandal-govt-acts-against- top-officials-in-limpopo-20220317 ; https://www.news24.com/news24/southafrica/news/four- sandf-members-in-court-for-ppe-corruption-worth-r273m-20220926 ; https://www.iol.co.za/news/south-africa/mpumalanga/top-official-arrested-in-connection-with- r21m-in-ppe-corruption-443cd016-e6f3-4a40-be26-a268d37c1652
5 Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq.
6 https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act
7 https://www.lehmanlaw.com/resource-centre/faqs/administrative-law/faq-relating-to- fcpa.html#:~:text=The%20FCPA%20prohibits%20the%20giving,common%20way%20of%20 doing%20business.
8 https://www.hg.org/legal-articles/hiring-children-of-foreign-officials-may-expose-bank-to- bribery-charges-31177 ; https://www.hg.org/legal-articles/hiring-children-of-foreign-officials- may-expose-bank-to-bribery-charges-31177 ; it named “Sons & Daughters” which gave internships to the children of Chinese officials. The implications are clear that “dishonest” conduct can also be conduct which seems on its face to be innocuous. The risk of unintended corrupt conduct is sufficiently greater in less than transparent countries that a local guide should be engaged to identify risk and mitigate the risk.
Regina Mundi Global Advisors 