Last week a guest blog post in the FCPA Blog by Ernesto Sanchez, entitled “What’s good for reciprocity may be bad for FCPA prosecutions”, implied that the US District Court’s ruling when it “vacated an SEC Dodd-Frank rule mandating that certain companies publicly disclose payments made to foreign governments in connection with the commercial development of oil, natural gas, or minerals” would have some effect on the enforcement of the Foreign Corrupt Practices Act (FCPA). In his penultimate paragraph Sanchez said, “The SEC may have wanted to mandate certain corporate disclosures to, among other things, ensure greater FCPA compliance in the U.S. energy sector. But what happens when other countries have no FCPA equivalent and view the matter of disclosure quite differently?”

Let me put the answer to that question as succinctly as I can do so. THERE IS NO COUNTRY IN THE WORLD WHICH LEGALLY ALLOWS BRIBERY OF ITS GOVERNMENT OFFICIALS. None, period, end of statement, and end of discussion. Even if countries appear to tolerate it informally, there is no country which has a law which says that it is OK to bribe our government officials.

This message was driven home even more strongly last week with the news from China that the Chinese government had found evidence that the UK pharmaceutical giant GlaxoSmithKline PLC (GSK) was involved in bribery and corruption of Chinese doctors. An article in the Financial Times (FT), entitled “China accuses GSK of bribery” by Kathrin Hille and John Aglionby, reported that “China has accused GlaxoSmithKline of being at the centre of a “huge” scheme to raise drug prices in three of the country’s biggest cities and said the UK-based drugmaker’s staff had confessed to bribing government officials and doctors. China’s Ministry of Public Security said a probe in Changsha, Shanghai and Zhengzhou found that GSK had tried to generate sales and raise drug prices by bribing government officials, pharmaceutical industry associations and foundations, hospitals and doctors.” They reported that some of the techniques used included the issuance of “fake VAT receipts and used travel agents to issue fake documents to gain cash, according to the ministry. Some executives had also taken advantage of their positions to take kickbacks from organising conferences and projects.” Further, ““There are many suspects, the illegal behaviour continued over a long time and its scale is huge,” the ministry said.”

These findings flew in the face of the company’s own internal investigation into allegations of bribery and corruption brought by a whistleblower. Hille and Aglionby reported that “GSK said it had conducted an internal four-month investigation after a tip-off that staff had bribed doctors to issue prescriptions for its drugs. The internal inquiry found no evidence of wrongdoing, it said.” Indeed after the release of information from the Chinese government, which GSK said was the first it had heard of the investigation, it released a statement quoted in the FT article, which stated ““We continuously monitor our businesses to ensure they meet our strict compliance procedures – we have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it,” the company said.”

Unfortunately for GSK, it appears that not only did the Chinese government uncover evidence of bribery and corruption, such information was also reported by the Wall Street Journal (WSJ). Laurie Burkitt, in an article entitled “China Accuses Glaxco of Bribes”, wrote that “Emails and documents reviewed by the Journal discuss a marketing strategy for Botox that targeted 48 doctors and planned to reward them with either a percentage of the cash value of the prescription or educational credits, based on the number of prescriptions the doctors made. The strategy was called “Vasily,” borrowing its name from Vasily Zaytsev, a noted Russian sniper during World War II, according to a 2013 PowerPoint presentation reviewed by the Journal.”

Burkitt reported in her article that “A Glaxo spokesman has said the company probed the Vasily program and “[the] investigation has found that while the proposal didn’t contain anything untoward, the program was never implemented.”” But from my experience, if you have a bribery scheme that has its own code name, even if you never implemented that scheme, it probably means that the propensity for such is pervasive throughout the system. Indeed, we may now need to add the term “Vasily” to the code words for bribery that I discussed last week.

Burkitt also reported that the Chinese crackdown may be a part of a larger crackdown on bribery and corruption. While noting that it was not clear at this point, she went on to state that “scrutiny of foreign corporations operating in China has been heightened in recent months, as the government has launched a campaign to clean up its commercial sector, cracking down on practices authorities view as abusive or anticompetitive.” In another FT article, entitled, “GSK claims show frailty of Chinese system” Andrew Jack said that “The Chinese government has been clamping down on such practices [bribery and corruption] and attempting to keep a lid on drug costs, with an increasing focus on multinational companies. The National Development and Reform Commission in Beijing last week signaled that it was examining pricing by 60 companies.”

Under the FCPA there is a ‘Local Law” defense to an allegation of bribery. However, it is incumbent to note that any company which tries to avail itself of the “Local Law” defense under the FCPA must put forward evidence that the payment was lawful under the written laws of the foreign country. As the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) stated in their FCPA Guidance, “For the local law defense to apply, a defendant must establish that “the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country.” The defendant must establish that the payment was lawful under the foreign country’s written laws and regulations at the time of the offense.” Further, as stated in the FCPA Guidance, one of the “hallmarks of appropriate gift-giving are when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”

The FCPA Guidance makes clear the answer to Sanchez’s query that “what happens when other countries have no FCPA equivalent and view the matter of disclosure quite differently?” Even if there is no FCPA equivalent, there is no country which says that you can bribe our government officials. So please do not think that the District Court’s ruling on the SEC conflict mineral disclosure has any effect on the FCPA or FCPA enforcement. It has the same effect as the number of countries which say it is acceptable to bribe our government officials – NONE.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

3 comments
Ernesto J. Sanchez
Ernesto J. Sanchez

Dear Mr. Fox, As the author of the post to which you respond, I would like to say that I am fully aware that bribery of government officials is illegal (though, unfortunately, sometimes not in practice) in every country. And I was by no means trying to imply the opposite. What I was pointing out (or trying to) was that some countries, for whatever the reason, have different disclosure requirements than the ones at issue in the ruling. And sometimes that may be a reflection that they unfortunately do not take the matter of their citizens or businesses bribing other countries' government officials, or their own, as seriously as we do. As you are undoubtedly aware, the FCPA was a pioneering statute at which so many US competitors' business communities scoffed for many years. The UK FCPA equivalent (the Bribery Act), for example, only went into effect in 2011. What we had before the FCPA, if I'm not mistaken, was a hands-off US approach to business bribing foreign officials, consistent with the presumption against extraterritoriality absent specific congressional indication. So if some businessman tried to bribe the wrong foreign government official, the official would have been perfectly within his rights to report the attempt to the police and have the businessman arrested. And there is nothing the US could have done. But many countries do not enforce laws on the books as well as we do - if you look at the constitutions of numerous dictatorships, for example, you'll see that everything appears just fine (save for maybe something like a state of emergency clause allowing the suspension of constitutional rights etc.). Now surely, requiring the disclosures at issues in the case would have given up information to follow up on for investigative purposes, thus ensuring that companies would be more vigilant about FCPA compliance. At no time do I believe it is right for a US businessperson to bribe a foreign official and I, as a lawyer, would be violating every core value of my profession and my personal ethics if I advised a client that it was OK. It is unfortunately a sad reality that foreign countries sometimes have different disclosure rules, rightly or wrongly. And sometimes those foreign disclosure rules might enable unscrupulous individuals to violate the FCPA. You will surely agree with me that just because the FCPA is in force does not mean that violations will not occur. Could this ruling complicate FCPA enforcement efforts? I can see scenarios where it will and the SEC appears to agree - why else would they be reworking the rule, if not appealing? The greater problem this ruling illustrates is that multinational companies have to take the laws of every country where they do business into account. Such companies may have completely ethical management with effective FCPA compliance mechanisms in place. But if they want to operate in a certain country, they have to follow the country's law whether it's justifiable from any perspective or not. When the law conflicts with a U.S. law, problems can arise. What was happening here was that the SEC was asking the companies to choose between US law and foreign countries' laws that, for all I know, may have been perfectly reasonable and justifiable on the whole from those other countries' perspective (i.e., even if it does have the shortcomings described above). So the policy issue here is the extent to which the U.S. government has the right to de facto regulate where a company can do business? That issue is central to more high-profile matters like economic sanctions like Cuba and Iran. I appreciate the fact that you allow for replies on your blog. But I respectfully disagree with your assertion that I implied that some countries officially allowed bribery of their own government officials. And your mention of the GSK case is illustrative. I have read of many FCPA compliance programs that have warned of transparency and corruption issues in China. Chinese authorities, however, appear to have decided to enforce their very appropriate domestic law in this case. Perhaps this is the beginning of a positive trend. Best regards!

tfoxlaw
tfoxlaw

Ernesto-thank for the thoughtful reply. However where I disagree with your analysis is equating the Dodd-Frank disclosure requirement with FCPA enforcement. I view the Dodd-Frank disclosure requirement as separate and apart from FCPA enforcement. I believe that they are two different things altogether.