Tuesday, April 26, 2011

The Critical Compliance Question: What is the Employee's Intent?

One area where compliance officers and practitioners need to focus is on the requisite intent for a criminal violation. For compliance officers facing difficult policy choices on FCPA compliance policies, the touchstone of such policies should be the employee's intent -- was it criminal, negligent or benign?

 It is one thing to have a policy which requires prior approval for any gift to a foreign official with a value of over $50 but it is another to examine the amount, the employee's intent, the context and the surrounding circumstances to determine if the employee was giving the gift with the intent to break the law – ultimately that is the question and the standard to apply.

The FCPA has three separate knowledge or scienter standards for an anti-bribery criminal violation:

(1) any violation must be done “corruptly”;

(2) for criminal penalties to be imposed on an individual, the individual must additionally have acted “willfully” (for corporations, there is no requirement that the violation be committed “willfully”); and

3) if liability is premised on a payment to a third party, the payment must have been made “while knowing” that the money or thing of value would be directed in whole or part to a foreign official.

Of the three, only one—the requirement of knowledge that a payment to a third party will be directed to a foreign official—is defined in the statute. There is no definition of “corruptly” or “willfully.”

For payments to third parties, the statute provides that a person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if: a) the person is aware that he is engaging in the conduct, that the circumstance exists or that the result is substantially certain to occur; or b) the person has a firm belief that the circumstance exists or that the result is substantially certain to occur. Knowledge of the existence of a particular circumstance is established if the person is aware of a high probability of the existence of such circumstance, unless the person actually believes that the circumstance does not exist.

The “high probability” standard was intended by Congress to ensure that “knowledge” encompassed the concepts of “conscious disregard” and “willful blindness.” The head-in-the sand or “ostrich” concept is thus addressed: recklessly ignoring red flags can and will lead to a finding of knowledge under the anti-bribery provisions. This knowledge standard is important because very often a payment in violation of the FCPA is made to a foreign official by a third party, such as a foreign agent.

But what about “corruptly” and “willfully”?

Although neither of these terms is defined in the statute, the legislative history of the FCPA provides guidance on the meaning of “corruptly.” The Senate indicated that the purpose of including the word “corruptly” was “to make clear that the offer, payment, promise, or gift, must be intended to induce the recipient to misuse his official position in order to wrongfully direct business to the payor or his client. Thus, the word ‘corruptly’ connotes an evil motive or purpose, an intent to wrongfully influence the recipient.

Courts now define an act done as “corruptly” done if done voluntarily and intentionally, and with a bad purpose or evil motive of accomplishing either an unlawful end or result, or a lawful end or result but by some unlawful method or means. The term “corruptly” in the FCPA requires that the act was done with intent to induce the recipient to misuse his official position.

With respect to the term “willfully,” the Supreme Court has long criticized Congress for using such term because of its inexact meaning. In the FCPA context, it has been defined to require that the individual knew he was doing something generally “unlawful” at the time of his action.

The bottom line when it comes to compliance is that the alleged criminal acts have to be done “corruptly” and “willfully” if for an individual – meaning with a bad purpose or evil motive to induce the recipient to misuse his or her official position, and while knowing that he or she was doing something unlawful at the time of his or her action.

The intent can be inferred from the surrounding circumstances but the implication for compliance purposes is obvious – for example, if a gift is given with documentation of a review and approval process which confirms the lack of any illegal intent, then the compliance program has done all that it can and should do to protect the company and the individuals.


  1. How far should in-house counsel go too to stop a corrupt act? Should they remain with the company or walk if the actions fail to cease after shouting as loud as possible? If they remain with the company, will they be viewed as complicit the longer they stay? Is Dodd Frank sufficient protection for whistleblowers? How is a whistleblower to be protected where a company engages outside counsel who staunchly oppose Dodd Franks? Should outside counsel act in the best interest of the client or the law?

  2. This is a very tricky issue. I have encountered situations like this and can be messy. In house counsel should paper as much as possible his/her belief as to illegal conduct and stepos he or she has taken. I would be concerned that some may try to pin blame on in house counsel (depending on role). If I were in house counsel, I would retain an attorney and review options. What is position of other managers? Board? Audit Committee head? Dodd-Frank whistleblower status is indeed protective bbut situation is complicated because of possible privilege claims. The circumstances here need to be carefully review by counsel for GC. Outside counsel's interest is to the company. If htey see a violaiton, they need to make it clear that it is a violaiton and everyone is at risk, including the individual Board members. The situation may be untenable and need to be fixed. You can write me more here or better email me at mvolkov@mayerbrown.com

  3. it is extremely messy when the GC and the board are complicit. In-house does have counsel and the options have been assessed. Sadly the corporation is lining up to move on in-house, at the same time the SEC has been alerted. The stress, anguish and isolation is far from enjoyable and undeserved.

  4. Well, I am involved in a similiar situation (not representing the WB) but representing a new Board member who is concerned about an issue and now has to protect himself as everyone lines up against in-house counsel (who himself has a lawyer) It is getting messy.

  5. As in-house who becomes aware, makes numerous documented attempts at alerting the company, GC, the Board and the Audit committee, only to suffer retaliation in numerous ways, having taken the ultimate stance by reporting to corrective their integrity and ethical position. The conflict of in-house is, notwithstanding privilege and confidentiality that may be claimed and exists between in-house and the corporation, in-house has an over-arching duty to the laws and courts they operate within. Even more complexed is where in-house is a foreign lawyer who must adhere to his home jurisdiction obligations in order to remain licensed as well as adhere to applicable laws in multiple jurisdictions. A foreign lawyer can be held accountable for violations under the FCPA, AML, foreign jurisdictions of an Asian Pacific parent or holding company, the jurisdiction of the Special Purpose Company, the jurisdiction of the country where the SPC operates i.e. Indonesia, Malaysia, Vietnam etc. There is no excuse for complicit behaviour, head in the sand mentality went out years ago. Life is even more complicated when in-house sits on numerous boards. Definite need for an attorney and strength.

  6. You have definitely captured in one paragraph the difficulty of in-house positions in global companies. What makes it all the more scary is that DOJ is targeting gatekeepers (attorneys, accountants and others) for criminal prosecution (e.g. Glaxo case against Laura Stevens). Keep in mind that FCPA and other folks in DOJ want to do a wiretap case against a company like the recent insider trading case, only in the FCPA area. Good luck as you move forward. If there is anything I can do to help, let me know

  7. Unfortunately, I learnt today that I am being run off, not clear of the terms. Outside counsel has moved on leaving those like me to suffer the consequences. Fortunately I have counsel and reported although now have to face the uncertainty of no job and the scares of being an ethical human being who stood up to a very powerful corporation. In a big way it is a sigh of relief as at the end of the day I can not work alongside unethical, immoral and criminal beings, and thats just describing the legal department I was a part of, it all comes down to greed and what people are willing to do to in order to earn a big pay check. Its not difficult to work our what counts the most, integrity, ethics and well being of you and your family.

  8. Good luck -- I hope things work out for you. You should rest assured that you did the right thing.

  9. Yes always self gratifying i have made a stance towards stamping out social injustice, unfortunately, i have to survive on the hope of a new job while corruptors continue their ways

  10. I can not name the corruptors for fear of my and my family's life, sad to see expatriates join such a corrupt world of sand lubbers, i stress that no one descent to work in the middle east, it will end your career and potentially your life.