The Justice Department has published its first FCPA Opinion Release in six years, saying a U.S. investment adviser does not need to worry about paying a $237,500 fee to the banking subsidiary of a foreign government for services rendered.
FCPA Opinion Releases are short Justice Department analyses of specific fact patterns that might leave a company exposed to FCPA liability — meaning, there really is some investment adviser out there that worked with some foreign government’s banking subsidiary, now sitting on a $237,500 claim from that bank.
The opinions are meant to give companies a more certain sense of their FCPA exposure. We’ve never seen more than a handful of opinion releases in any year, and the one issued Monday is the first since 2014.
So what are the facts as outlined in the release?
The company in question is an investment adviser. In 2017, the firm wanted to purchase a portfolio of assets from a foreign bank’s subsidiary, which the Justice Department dubbed “the Country A Office.” A majority of that foreign bank is owned, directly or indirectly, by a foreign government. (Which one? The release doesn’t say.)
To help with that deal, the firm worked with a different foreign subsidiary of the same bank, “the Country B Office.” That assistance never proved fruitful, and ultimately the firm used a different, private adviser to acquire those assets from the Country A Office.
Now the Country B Office wants the $237,500 as payment for the analytical and advisory help it performed. That amount is roughly 0.5 percent of the total value of assets ($4.75 million, if you do the math), and the Country B Office did indeed perform “various legitimate and commercially valuable services,” the opinion release says.
Test time! Does the firm have an FCPA concern?
Nope, No FCPA Issue Here
The Opinion Release waved away FCPA worries for several reasons.
First, that $237,500 is payment to a business, rather than an individual. Yes, the Country B Office may still qualify as a “foreign instrumentality” under the FCPA statute, but so what? The FCPA doesn’t prohibit all payments to foreign instrumentalities, only payments with a corrupt intent. A legitimate transaction is perfectly fine to execute.
Second, there is no evidence that the payment will be diverted to an individual. The firm in question says nobody at the Country B Office proposed anything like a quid pro quo for this transaction. On the contrary, the Country B Office has its own chief compliance officer, and that CCO certified to the firm that the $237,500 will only go to Country B Office’s corporate bank account, to be spent on general corporate purposes.
Third, the payment is for fairly priced, legitimate services rendered. Again, the CCO at the Country B Office certified that the work performed was done at a commercially reasonable rate for that country. (I’m no whiz at acquisition deals, but 0.5 percent of total purchase price is a fee I’ve seen many times over the years.)
When we add those three circumstances together, we don’t see any evidence to suggest the firm was trying to make a corrupt payment to a foreign official: no corrupt intent, no foreign official, no sham transaction.
Hence, based on the facts we see, no FCPA enforcement risk. That’s no surprise, but still welcome news.
Points to Consider
What strikes me about this transaction is the presence of documentation; and the company’s foresight to get documentation, which allowed it to ask for an FCPA opinion release.
For example, those certifications from the Country B Office chief compliance officer seem to play an important part in the Justice Department waving off the enforcement risk here. They demonstrate that the company took its FCPA compliance risks seriously, and did its due diligence to determine that its transaction with the Country B Office was honest.
(Just imagine how this opinion release would read if the company didn’t have those certifications. Many of us would be less sanguine about the company’s prospects.)
The Justice Department encourages companies to submit FCPA opinion release requests, and they’re a useful service for companies wondering about their FCPA trouble.
My point is simply that the more documentation you have, the better you can participate in the opinion release process — and, I suspect, the more likely you are to get a pleasing answer, since you’ve done your homework on the transaction. (If you have plenty of documentation for a mess of corruption, you’re probably not submitting that to an opinion release anyway.)
So take compliance and documentation seriously — that seems to be the message in this release.