Compliance Building

Anti-Kickback Act

The Anti-Kickback Act of 1986, 41 U.S.C. § 51 et seq., modernized and closed the loopholes of previous statutes applying to government contractors. The 1986 law attempts to make the anti-kickback statute a more useful prosecutorial tool by expanding the definition of prohibited conduct and by making the statute applicable to a broader range of persons involved in government subcontracting. Prosecutions under these statutes must establish the following:

Prohibited conduct–the Act prohibits attempted as well as completed “kickbacks,” which include any “money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee“. The act also provides that the inclusion of kickback amounts in contract prices is prohibited conduct in itself.
Purpose of kickback–The Act requires that the purpose of the kickback was for “improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract.” It is intended to embrace the full range of government contracting. Prior to 1986, the “kickback” was required to be for the inducement or acknowledgment of a subcontract.
Covered class of “kickback” recipients–The Act prohibits “kickbacks” to prime contractors, prime contractor employees, subcontractors, and subcontractor employees. These terms are defined in the Act.
Type of contract–The Act defines kickbacks to include payments under any government contract. Prior to this legislation, the statutes’ applicability was limited to negotiated contracts.
Knowledge and willfulness–The Act requires one to knowingly and willfully engage in the prohibited conduct for the imposition of criminal sanctions.

Gratuities Clause

Section 3.201 of the Federal Acquisition Regulations requires the Gratuities Clause in all federal government contracts:

(a) The right of the Contractor to proceed may be terminated by written notice if, after notice and hearing, the agency head or a designee determines that the Contractor, its agent, or another representative—

(1) Offered or gave a gratuity (e.g., an entertainment or gift) to an officer, official, or employee of the Government; and

(2) Intended, by the gratuity, to obtain a contract or favorable treatment under a contract.

(b) The facts supporting this determination may be reviewed by any court having lawful jurisdiction.

(c) If this contract is terminated under paragraph (a) of this clause, the Government is entitled—

(1) To pursue the same remedies as in a breach of the contract; and

(2) In addition to any other damages provided by law, to exemplary damages of not less than 3 nor more than 10 times the cost incurred by the Contractor in giving gratuities to the person concerned, as determined by the agency head or a designee. (This paragraph (c)(2) is applicable only if this contract uses money appropriated to the Department of Defense.)

(d) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.

The Federal Acquisition Regulations can also be found in the 48 CFR Chapter 1.

Bribery of Public Officials

18 U.S.C. § 201 prohibits the bribery of public officials.

“Public Officials” means “Member of Congress, Delegate, or Resident Commissioner, either before or after such official has qualified, or an officer or employee or person acting for or on behalf of the United States, or any department, agency or branch of Government thereof, including the District of Columbia, in any official function, under or by authority of any such department, agency, or branch of Government, or a juror” 18 U.S.C. § 201(a)(1).

OCEG Webcast on Code of Conduct

Scott Mitchell, Chairman and of the Open Compliance & Ethics Group, and Brett Curran, Director of GRC and Privacy at Axentis, conducted a webinar on the Code of Conduct. The powerpoint slides are free, but the webinar itself requires a premium membership.

These are some metrics they propose for measuring the performance of a Code of Conduct:

Reach – Percentage that receives the Code of Conduct
Certification Coverage – percentage that certifies they understand and will uphold the code of conduct
Training Coverage – percentage that are trained about the contents of the Code of Conduct
Awareness – percentage that report they what the code is and what is says
Mastery – percentage that proves through testing that they know the Code and what it says
Reporting Readiness – percentage that know to report violations
Readability – Flesch reading score
Operationalization – percentage that believes that the organization actually adheres to the Code
Organizational Alignment – percentage that believe that the Code accurately reflects the true values of the organization
Personal Alignment – percentage that believe that the Code is aligned with their personal values
Reporting – percentage that believe that Code violations are actually reported
Questions – number of questions received
Incidents – number of reported or discovered incidents of violation

Ding Dong, FCPA Calling

Avon, the beauty products seller, announced that is voluntarily conducting an investigation of its China Operations, focusing on compliance with the Foreign Corrupt Practices Act.

“The Company, under the oversight of the Audit Committee, commenced in June 2008 an internal investigation after it received an allegation that certain travel, entertainment and other expenses may have been improperly incurred in connection with the Company’s China operations. The company has voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. The internal investigation is in its early stage and no conclusion can be drawn at this time as to its outcome.”

Richard L. Cassin, on The FCPA Blog, notes that China forced Avon to market its products through shops and boutiques and restricted direct selling. But two years ago, Avon convinced regulators to allow door-to-door sales.

James H. Fries, Jr. on The Objectives and Conduct of Bank Secrecy Act Enforcement

James H. Fries, Jr., the Director of Financial Crimes Enforcement Network at the U.S. Department of Treasury spoke about The Objectives and Conduct of Bank Secrecy Act Enforcement at the ABA/ABA Money Laundering Enforcement Conference in Washington D.C. on October 20, 2008.

“An essential principle of FinCEN’s enforcement program is to uphold the public policy choice made by the Congress when it enacted the BSA in 1970, and expanded it with the passage of Annunzio-Wylie Anti-Money Laundering Act of 1992, The Money Laundering Suppression Act of 1994, and the USA PATRIOT Act of 2001.”

New Massachusetts Regulations to Mandate Comprehensive Information Security Requirements

Goodwin Procter LLP published a summary of the New Massachusetts Regulations to Mandate Comprehensive Information Security Requirements.

The regulations have broad coverage, applying to all entities that own, license, store or maintain personal information about residents of the Commonwealth of Massachusetts, regardless of whether or not the entity has operations in the Commonwealth. Federally regulated financial and other entities are not exempt from the Massachusetts regulations, raising the question of whether entities that are in compliance with Gramm-Leach-Bliley, HIPAA and/or SEC information security requirements will be considered to meet the new Massachusetts requirements. Significantly, “personal information” has a somewhat limited scope, and is defined as a resident’s first and last name or first initial and last name in combination with a Social Security number, driver’s license number or financial account number. The regulations impose two principal requirements: (i) the duty to develop, implement and maintain a very comprehensive written information security program that meets very specific requirements; and (ii) the obligation to meet specific computer information security requirements.

Privacy and Security Alert: Massachusetts Has New Data Security Regulations

Cynthia Larose, Elissa Flynn-Poppey and Julia M. Siripurapu of Mintz Levin Put together an alert with a a summary of the new Massachusetts Data Security Regulations: Privacy and Security Alert: Massachusetts New Data Security Regulations Effective January 1, 2009.

The alert has a summary of some of the changes to the changes to the regulations since comments were made in january 2008.

Text of the Foreign Corrupt Practices Act

You can find the complet text of the Foreign Corrupt Practices Act on the Department of Justice’s Foreign Corrupt Practices Act site.

§ 78dd-2. Prohibited foreign trade practices by domestic concerns

(a) Prohibition

It shall be unlawful for any domestic concern, other than an issuer which is subject to section 78dd-1 of this title, or for any officer, director, employee, or agent of such domestic concern or any stockholder thereof acting on behalf of such domestic concern, to make use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to–

(1) any foreign official for purposes of–

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person;

(2) any foreign political party or official thereof or any candidate for foreign political office for purposes of–

(A) (i) influencing any act or decision of such party, official, or candidate in its or his official capacity, (ii) inducing such party, official, or candidate to do or omit to do an act in violation of the lawful duty of such party, official, or candidate, or (iii) securing any improper advantage; or

(B) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person;

(3) any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office, for purposes of–

(A) (i) influencing any act or decision of such foreign official, political party, party official, or candidate in his or its official capacity, (ii) inducing such foreign official, political party, party official, or candidate to do or omit to do any act in violation of the lawful duty of such foreign official, political party, party official, or candidate, or (iii) securing any improper advantage; or

(B) inducing such foreign official, political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person.

(b) Exception for routine governmental action

Subsections (a) and (i) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.

(c) Affirmative defenses

It shall be an affirmative defense to actions under subsection (a) or (i) of this section that–

(1) the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country; or

(2) the payment, gift, offer, or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to–

(A) the promotion, demonstration, or explanation of products or services; or

(B) the execution or performance of a contract with a foreign government or agency thereof.

Who is a Foreign Official under the FCPA?

The FCPA defines “foreign official” as:

[A]ny officer or employee of a foreign government or any department, agency, or instrumentality thereof, or a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

It is obvious that person holding political office is a foreign official. In this age of increasing privitization of government services and the sudden investment of government investment in private businesses, it is not clear when an entity is an “instrumentality” of a foreign government.

The OECD Anti-Bribery Convention uses the term “public enterprise” which it defines to include “any enterprise in which the government holds a majority stake, as well as those over which a government may exercise a dominant influence directly or indirectly.

Under the FCPA, Who Is a Foreign Official Anyway? by Joel M. Cohen, Michael P. Holland, and Adam P. Wolf of Clifford Chance examine some of thses issues in great detail. You can find the article in the August 2008 edition of The Business Lawyer.