Friday, July 29, 2011
DOJ's Expansive View of "Obtain or Retain Business"
The News Corp scandal has focused attention on the interpretation of the FCPA element which requires that bribes be paid (or attempted) to "obtain or retain business." Some commentators have claimed that the News Corp facts cannot satisfy this element because the bribes paid to police officers were made for "information."
In the past few years, the SEC and DOJ have broadly interpreted the "obtain or retain business" element of the FCPA to capture a wide range of conduct beyond the clear example of a payment to win a contract award, including payments to expedite and approve patent applications, to obtain favorable treatment in pending court cases, to schedule inspections, to obtain product delivery certificates, to alter engineering design specifications in favor of a particular bidder, to obtain preferential customs treatment, to avoid or expedite necessary inspections, to alter the language in an administrative decree, to obtain governmental reports and certifications necessary to market a product, and to reduce taxes. This interpretation was praised by the OECD in its Phase 3 Report on the U.S. anti-corruption efforts.
The News Corp case is likely to reopen the debate as to the meaning of the “obtain or retain business” element. In its 2004 decision in U.S. v. Kay, the Fifth Circuit appeared to have ended the debate, holding that the FCPA was not limited to bribes to obtain business from a foreign government or even to bribes that led “directly to the award or renewal of contracts.” The Kay court ruled that “bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA’s proscription.” The court warned, however, that the scope of the statute was not limitless, stating, “We hasten to add, however, that this conduct does not automatically constitute a violation of the FCPA: It still must be shown that the bribery was intended to produce an effect – here, through tax savings – that would ‘assist in obtaining or retaining business.’”
In the Panalpina cases, most of the payments were made to customs or tax officials to reduce duties and taxes, to expedite customs clearances, or to evade import regulations. In the latter cases, the government made very little effort to link such payments to obtaining or retaining business. For example, in Pride International, the DOJ alleged a number of what it termed “bribery schemes,” including payments to a Mexican Customs Official “to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International.” Similarly, in GlobalSantaFe, the SEC alleged that through a number of “suspicious payments” the company “avoided costs and gained revenue.” Without more explanation, such barebones allegations create the impression that the government equates gaining revenue or reducing costs generally with “obtaining or retaining business.”
By reducing costs and increasing profits, a company does not necessarily "obtain or retain" business. While this may seem like a hyper-technical reading of the statute, Congress' intent was clearly to link the bribery payment to a business motive for additional (or preserving existing) business. There are bound to be circumstances in which such a cost reduction does nothing other than increase the profitability of an already-profitable venture or ensure profitability of some start-up venture. Indeed, if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage.
Some of the Panalpina payments fall within the Kay rule, e.g., some payments appear to have allowed the importers to bring in equipment and rigs without which they could not perform new or existing contracts. It is even possible that, similar to the facts in Kay, the importers could not have competed for existing or new business had they paid the full duties or taxes or complied with other local requirements. Unfortunately, the government’s pleadings in the Panalpina cases do more to blur than clarify the limits of the law.