Companies can face FCPA fines for the misdeeds of overseas consultants and third-party agents
In our last article, we discussed the importance of making sure that you can legally do business with a potential customer located outside the U.S. In other words, know your customer. When looking to expand your business in foreign markets, it is equally important that companies use the same prudence with third-party consultants, contractors and joint venture partners. In other words, know your business partner. A little bit of due diligence on the front end can help avoid a host of problems down the road.
The driving force compelling this caution is the U.S. Foreign Corrupt Practices Act (FCPA). Even casual observers have noticed the headlines in recent years about multi-million dollar fines against U.S. companies, a testament to the government's stepped-up enforcement of the FCPA. But fewer business people are aware of the law's practical implications when reaching out to an overseas business partner.
The FCPA has two main provisions:
- An anti-bribery provision that prohibits corrupt payments to foreign officials to obtain or retain business
- A record-keeping provision that mandates accurate record-keeping and sound systems of internal controls
As a general matter, the record-keeping provision applies only to companies with securities registered with the Securities and Exchange Commission (SEC) and companies that must file reports with the SEC. The anti-bribery provision, however, applies more broadly and encompasses any company with its principal place of business in the U. S.
Importantly, even if a U.S. company does not have any foreign operations, it could be held liable for a FCPA violation committed by a foreign agent, such as a business consultant. Hence, while the FCPA does not prevent the use of consultants or other third parties to solicit business overseas, a domestic company may be liable for illegal payments made by its foreign agents—essentially anyone acting within the scope of its authority for the benefit of the U.S. company. That means companies must vet those agents carefully.
Originally published on InsideCounsel.com
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