Carlos F. Ortiz, Mayling C. Blanco, and Alexandra Clark
As a preliminary matter, for over a decade, the oil and gas industry has been the focus of investigation and has seen more FCPA enforcement actions than any other industry.1
In the last two years, however, some of these actions have involved maritime companies in the oil and gas trade. For companies with an international presence, which is the case for many maritime companies, a single bribe could expose the company and its employees to violations of anti-bribery laws in multiple jurisdictions. The maritime industry should understand the risks of violating the FCPA, how to mitigate them, and the consequences for violations.
What Does the FCPA Prohibit and to Whom Does It Apply?
The anti-bribery provisions of the FCPA prohibit providing or promising to provide anything of value to a foreign official to gain an improper business advantage.
The FCPA originally applied only to U.S. companies and individuals and issuers of U.S. securities. In 1998, the FCPA’s jurisdiction expanded to apply to any individual or company, regardless of nationality, engaging in prohibited acts in the United States. For foreign companies, the FCPA’s expanded jurisdiction has a significant impact. Foreign companies can be liable for FCPA violations if a prohibited act occurs in the United States. Prohibited acts can be as simple as the transfer of money through U.S. banks or the routing of an e-mail through a U.S.-based server. Moreover, the FCPA imposes derivative liability on companies for the actions of its employees and for any third party acting on the company’s behalf, as well as individuals involved in or authorizing such conduct.
What Are the Consequences of a Violation of the FCPA?
Violators of the FCPA face serious consequences. Companies found guilty of violating the FCPA often pay tens of millions of dollars (or more) in criminal fines and/or civil penalties, and are forced to disgorge all profits obtained in connection with the bribery. In addition, a company in violation of the FCPA must bear the cost of investigation, the risk of potential imposition of a compliance monitor, suspension and/or debarment from government contracts, a limit on its ability to obtain an export license, and reputational damage. And it is not only the company facing liability—executives and employees at all levels may also be prosecuted for FCPA violations. In recent years, the government has enforced its stated policy to hold individuals accountable for FCPA violations. Individuals found guilty of violating the FCPA face criminal fines, civil penalties, and imprisonment.
What Are the Risk Areas in the Maritime Industry?
The high-risk areas for FCPA violations in the maritime industry are:
- tendering process and requests for proposals with governments or state-owned businesses;
- use of third parties (e.g., local agents, consultants, customs brokers, and freight forwarders);
- excessive gifts, entertainment, and travel provided to foreign officials that are not tied to a proper business purpose;
- mergers, acquisitions, and joint ventures;2
- tax and customs avoidance; and
- regulatory avoidance (e.g., permits, environmental issues, and audits).
What Can a Maritime Company Do to Mitigate Its Risks?
Because violating the FCPA requires an offer to give or giving something of value to a foreign official, companies should evaluate their FCPA liability by assessing their interactions with foreign officials. The FCPA’s definition of “foreign official” is broad and includes employees of government agencies, legislators, employees of state-controlled entities, and consultants working on behalf of a government. Unique to the maritime industry, companies may deal with foreign officials who are employees of state-owned commodities, energy, or petroleum companies; government-controlled ports; and consultants working with or on behalf of foreign governments.
Companies must evaluate the risk of using third parties to conduct business outside of the United States. An intermediary, such as a local agent, can create individual and corporate FCPA liability by making payments to a foreign official on behalf of the company. Past FCPA prosecutions have included payments of commissions to third parties who used those funds, in part, to bribe foreign officials in exchange for contracts with state-owned companies. For companies concerned about FCPA exposure, the first question is whether the company is operating and/or transacting any type of business abroad with a foreign government, government-owned entities, or involving foreign officials—either directly, through joint ventures, or through agents. Implementation of an FCPA compliance program, educating employees about anti-corruption laws applicable to the company’s operations, and thoroughly vetting third-party agents are important steps that a company must take to minimize risk.
What Can a Company Do If There Already Has Been a Violation?
The FCPA does not mandate self-disclosure of wrongdoing. However, remediation of any known violation is necessary to minimize exposure. The DOJ offers credit for self-disclosure, and a company that uncovers and remediates a violation should decide if self-disclosure is a good option. Companies must have an effective anti-corruption program, and not merely a manual on the shelf. However, that program can be tailored to fit the size and operations of the company, taking into consideration its risks and resources.
Why Is Now So Critical?
As a result of the investigations involving government officials in the oil and gas industries, most recently in Brazil and Venezuela, the DOJ has prosecuted numerous companies and individuals. These investigations and prosecutions, and the resulting cooperation agreements, provide prosecutors with a wealth of information and industry insight that will lead to additional investigations and prosecutions. The time to act and become compliant is now, before the DOJ or SEC comes calling
This article was first published in the December 2018 edition of Blank Rome’s White Collar Watch newsletter.
1. See, e.g., Heat Map by Industry, Stanford Law School Foreign Corrupt Practices Clearinghouse, fcpa.stanford.edu/industry (Last accessed March 2019).
2. Blank Rome has reported on the DOJ’s policy with respect to voluntary disclosures in the context of mergers and acquisitions. See DOJ Urges U.S. Companies Acquiring or Merging with Foreign Companies to Self-Disclose FCPA Misconduct Identified during Due Diligence.