A U.S.-based investment advisor seeking to pay a fee to a foreign government entity for its services won’t face an enforcement action under the Foreign Corrupt Practices Act, the Department of Justice said in its first FCPA opinion procedure in six years.
FCPA advisory opinions allow U.S. companies to get the Attorney General’s opinion on whether certain conduct is in line with the Justice Department’s enforcement policy regarding the FCPA’s anti-bribery provisions. The advisory opinions have no binding application to any other party other than the requestor and only to the extent the disclosure of facts and circumstances in its request and supplements is accurate and complete.
In this instance, the requestor in 2017 sought to purchase a portfolio of assets from a foreign investment bank’s foreign subsidiary (Country A Office). A foreign government indirectly owns a majority of the foreign investment bank’s shares. The requestor sought and received assistance from a different foreign subsidiary of the same investment bank (Country B Office) regarding the purchase.
About a year later, the requestor also engaged a local finance company to approach the Country A Office regarding the potential purchase. In February 2019, the requestor ultimately succeeded in purchasing the assets from the Country A Office. The transaction was closed with the assistance of the local finance company.
The following month, the Country B Office sought from the requestor a fee equaling 0.5 percent of the face value of the assets—$237,500—as compensation for “certain enumerated analytical and advisory tasks” the Country B Office performed over the two-year period on the requestor’s behalf. “The requestor represents that the contemplated payment is justified and commercially reasonable,” according to the advisory opinion.
In November 2019, the requestor sought an opinion as to whether the Department “would presently intend to bring an FCPA enforcement action against the requestor if it made such payment to the Country B Office.”
In the advisory opinion posted Friday, the Department said, based on the facts and circumstances represented by the requestor, it “does not presently intend to take any enforcement action” regarding the fee the requestor intends to pay the Country B Office. “This is because there is no information evincing a corrupt intent to offer, promise, or pay anything of value to a ‘foreign official’ in connection with the contemplated payment to the Country B Office,” the Justice Department said.
“Assuming for purposes of this opinion that the Country B Office is an ‘instrumentality’ of a foreign government and that employees of the Country B Office are ‘foreign officials’ as defined in the FCPA, the facts and circumstances, as represented by requestor, show a payment to a foreign government instrumentality, not a foreign official, and do not reflect a corrupt intent to influence a foreign official,” the Justice Department said.
Foreign officials under the FCPA include officers or employees of a department, agency, or instrumentality of a foreign government and can include state-owned or state-controlled entities. In the case United States v. Esquenazi, cited by the Justice Department, the court held the term “instrumentality” is “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”
The Justice Department went on to spell out the reasoning behind its decision in the opinion procedure:
Payment is to the office, not an individual. First, based on the representations of requestor, the payment is to the Country B Office, not to an individual. Second, there is no indication the requestor intends or believes the money will be diverted to any individual, and there is no indication the money will, in fact, be diverted to any individual.
The payment is transparent to the Country B Office and its management. “Indeed, the chief compliance officer of the Country B Office has certified to requestor that the payment into the Country B Office’s corporate bank account will only be used for the benefit of the Country B Office, for general corporate purposes of the Country B Office, and will not be forwarded to any other entity,” the Justice Department said.
There is no apparent intention to corruptly influence a foreign official. “Moreover, the requestor represents that there have been no corrupt offers, promises, or payments of anything of value, directly or indirectly, to any individual in connection with this transaction,” the Justice Department said.
The services of the Country B Office appear legitimate. Moreover, the requestor represented—and the chief compliance officer of the Country B Office certified—the intended payment to the Country B Office is “commensurate with the services the Country B Office provided and is commercially reasonable,” the Justice Department said.
Why the opinion?
There is nothing about this case that screams FCPA violation. In fact, it applies well-settled law. The more compelling question is why this company would request an opinion at all.
“Companies have to be very careful before they invite the fox into the henhouse to advise them on their proposed course of conduct. In doing that, you invite some degree of additional scrutiny that you would not otherwise have had.”
Justin Danilewitz, Partner, Saul Ewing Arnstein & Lehr
“My guess is that there was something particularly risky about this foreign government or this foreign bank, that it, itself, had been involved in a previous investigation or enforcement action,” says Jason Linder, co-leader of Mayer Brown’s Global Anti-Corruption & FCPA practice and a former senior federal prosecutor. If the company knows that’s the case, it might have been compelled “to be extraordinarily careful, for fear that DOJ is still looking at the transactions of that bank,” he says.
Another reason could be the company itself was the focus of a prior FCPA enforcement action or investigation, “and they were taking a very conservative, cautious approach,” says Michael Weinstein, a former Justice Department trial attorney and now chair of the white-collar defense practice at law firm Cole Schotz. They may have felt like they needed the Justice Department to give them the all clear, he says.
Another third potential explanation is the requestor might have felt this was a good insurance policy to have for the future if a real issue were to arise. “It certainly doesn’t hurt to go the belt-and-suspenders approach and get the blessing of the DOJ,” says Justin Danilewitz, a partner at Saul Ewing Arnstein & Lehr. Although the advisory opinion might not immunize all future conduct, it helps the requesting entity demonstrate that it is law-abiding and has no intent to violate the FCPA, he says.
A rare occurrence
Even though there was nothing particularly novel about the facts of this case, advisory opinions are themselves notable to the compliance community, because of the rarity of them. Only 40 have been issued since 1993. In fact, over the course of four decades, this is the longest gap in time on record between the issuance of opinion procedures.
“The reason these are so rare is because companies are not asking for them, not because DOJ is stifling them or sitting on them,” Linder says. There are a few reasons for that, not the least of which is that “you’re inviting the government into your house, where they might then see problems,” he says.
“Companies have to be very careful before they invite the fox into the henhouse to advise them on their proposed course of conduct,” Danilewitz says. “In doing that, you invite some degree of additional scrutiny that you would not otherwise have had.”
Another reason you don’t see many advisory opinions is the amount of time it typically takes to get a response. The statute requires the Justice Department to respond within a month of a submission unless they seek additional information from the requestor, as often is the case. Some companies cannot afford to wait that long.
Lastly, between issuance of the FCPA Resource Guide, the FCPA Corporate Enforcement Policy, and other supplemental guidance over the last few years, companies and the compliance community have become much more knowledgeable and sophisticated about many of these issues themselves.