Client Advisory: Department of Justice FCPA Opinion Procedure Release 14-01 Addresses Business Transactions between Companies and Government Officials
By: Alana S. Tokayer
On March 17, 2014 the U.S. Department of Justice (“DOJ”) published its first Opinion Procedure Release of the year. Pursuant to 15 U.S. Code §§ 78dd-1(e) and 78dd-2(f), the DOJ is required to provide timely responses to specific inquiries made by issuers and domestic concerns seeking an opinion as to whether specified prospective conduct conforms with the DOJ’s present enforcement of the Foreign Corrupt Practices Act (“FCPA”). If the DOJ determines that the stated conduct complies with its enforcement policy, the Opinion Procedure Release creates a rebuttable presumption that the conduct described therein is lawful. Hence, the Opinion Procedure Releases provide useful insight and guidance for companies and individuals who fall within the confines of the FCPA and are unsure of whether the contemplated conduct violates the FCPA. However, it is important to note that Opinion Procedure Releases have no binding application to parties that do not join in the Request.
Opinion Procedure Release 14-01 concerns the appropriate anti-corruption controls and protections a company ought to implement in a financial transaction with a business partner who is also a government official. This scenario raises a red flag as it could potentially result in a violation of the FCPA provision that prohibits making corrupt payments to foreign officials in exchange for business advantages. Although the FCPA does not prohibit issuers and domestics concerns from entering into business relationships with foreign officials, such relationships present a risk that the foreign official might use his or her position to influence the obtaining of business for the issuer or domestic concern.
The Requestor, a United States financial services company and investment bank, is also a majority shareholder of a foreign financial services company. The Requestor sought an opinion concerning the prospective purchase of the remaining minority interest in the foreign company from a foreign shareholder who holds a senior government position in a foreign country.
When the Requestor purchased its majority interest in the foreign company in 2007, the foreign shareholder was the owner and chairman of the foreign company. He also eventually became the company’s CEO. At that time, the foreign shareholder had no government position.
In late 2011, the foreign shareholder assumed the role of a high level official at the foreign country’s central monetary and banking agency, thus qualifying him as a “foreign official” within the meaning of the FCPA. Although the Requestor is not directly regulated by the monetary and banking agency, the agency has been a client of the Requestor for more than 20 years. Since his appointment, the foreign shareholder/official became a passive shareholder in the foreign company. He also recused himself in his government role from any decision concerning the award of business to Requestor, the foreign company, or their affiliates.
When the Requestor purchased its shares in 2007, the Requestor and the foreign shareholder agreed on a formula to be used to calculate the purchase price of the foreign shareholder’s remaining shares in the event of a buyout. Since that time, market conditions had changed such that using the original formula would result in the shares having no value. Therefore, the parties sought to use a new formula calculated by an independent accounting firm to determine the true market value of the shares.
The DOJ concluded, based on the facts and circumstances presented, that it would not take enforcement action if the Requestor proceeded to buy out the foreign shareholder/official, using the new formula pursuant to which the shares would have market value.
The DOJ highlighted the following factors in its Opinion:
This Opinion Release is interesting for two reasons. First, the DOJ previously opined on a similar issue in a March 2000 Opinion Release, and even referred to this opinion release in its 2014 analysis. The 2000 opinion release involved a partner at a U.S. law firm taking a leave of absence to serve as a foreign official. In reaching a no-action conclusion, the DOJ highlighted the strict recusal and conflict-of-interest measures that were put in place. Second, the 2014 Opinion Release was pending for eight months, although it is clear from the Opinion that the delay involved several back-and-forth exchanges of information and questions. DOJ has stated that it seeks to turn around Opinion Releases within a 90-day period, but the challenges of doing so obviously remain.
The Opinion articulates helpful guidelines for companies engaged in business transactions with foreign officials. Such business transactions must have legitimate purposes and reasonable financial terms to help establish a lack of corrupt intent. Moreover, the transactions and circumstances must be completely transparent to the appropriate parties and strict recusal measures must be taken by both parties.