FCPA Compliance and Ethics Blog

September 28, 2010

FCPA Compliance Contract Template

Filed under: compliance programs,FCPA — tfoxlaw @ 6:43 pm
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Speaking at the Seventh Annual IQPC Advanced Contracts Risks Management for Oil and Gas Conference, Don Butler, General Counsel, Seneca Resources discussed contract templates and the use of these documents in transactional work. The concepts which Mr. Butler discussed are applicable when drafting templates which include language related to Foreign Corrupt Practices Act (FCPA) contractual terms. 

He began his presentation by noting that by use of the word ‘template’ he meant that it was a form of contract drafted by his company for use in certain transactions. It was designed to be more than just a starting point for negotiations. The template has several benefits for Seneca which, as he related, include: (1) the language is tested against real events; (2) the language assists the company in managing its risks; (3) the language fits into a series of related contracts; (4) the language is straight-forward to administer and (5) the language helps to manage the expectations of both contracting parties. 

The contracting concepts are equally applicable to contracts which a company, subject to the FCPA or UK Bribery Act, would enter into with a  foreign business partner such as an agent, distributor, reseller, joint venture partner or any other person or entity which might represent a US or UK business internationally. Such templates must have compliance obligations stated directly in the document, whether such document is a simple agency or consulting agreement or a joint venture with several formation documents. The FCPA compliance language should include representations that in all undertakings the foreign business partner will make no payments of money, or anything of value, nor will such be offered, promised or paid, directly or indirectly, to any foreign officials, political parties, party officials, candidates for public or political party office, to influence the acts of such officials, political parties, party officials, or candidates in their official capacity, to induce them to use their influence with a government to obtain or retain business or gain an improper advantage in connection with any business venture or contract in which the Company is a participant. 

In addition to the above affirmative statements regarding conduct, a FCPA template contract should have the following compliance terms and conditions in a foreign business partner contract. 

  • Indemnification: Full indemnification for any FCPA violation, including all costs for the underlying investigation.
  • Cooperation: Require full cooperation with any ethics and compliance investigation, specifically including the review of foreign business partner emails and bank accounts relating to your Company’s use of the foreign business partner.
  • Material Breach of Contract: Any FCPA violation is made a material breach of contract, with no notice and opportunity to cure. Further such a finding will be the grounds for immediate cessation of all payments.
  • No Sub-Vendors (without approval): The foreign business partner must agree that it will not hire an agent, subcontractor or consultant without the Company’s prior written consent (to be based on adequate due diligence).
  • Audit Rights: An additional key element of a contract between a US Company and a foreign business partner should include the retention of audit rights. These audit rights must exceed the simple audit rights associated with the financial relationship between the parties and must allow a full review of all FCPA related compliance procedures such as those for meeting with foreign governmental officials and compliance related training.
  • Acknowledgment: The foreign business partner should specifically acknowledge the applicability of the FCPA to the business relationship as well as any country or regional anti-corruption or anti-bribery laws which apply to either the foreign business partner or business relationship.
  • On-going Training: Require that the top management of the foreign business partner and all persons performing services on your behalf shall receive FCPA compliance training.
  • Annual Certification: Require an annual certification stating that the foreign business partner has not engaged in any conduct that violates the FCPA or any applicable laws, nor is it aware of any such conduct.
  • Re-qualification: Require the foreign business partner re-qualify as a business partner at a regular interval of no greater than every three years.  

Traditional contracting techniques are a useful tool in the FCPA contracting area. By having such template language, a company can put forward the compliance terms and conditions which will not only communicate the foreign business partner’s FCPA compliance obligations but also protect a business, to the highest degree possible, through risk shifting-clauses. 

So what is in your FCPA contract template? 

To see a video of Mr. Butler’s presentation, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

FCPA Investigations – Now Call First?

Ed. Note-today we are pleased to host a guest posting by our colleague James McGrath

At the Compliance Week 2010 Annual Conference one of the issues discussed by Assistant Attorney General, for the Criminal Division of the US Department of Justice, Lanny Breuer, was what the Department of Justice (DOJ) might consider as an “effective compliance and ethics program” under the Foreign Corrupt Practices Act (FCPA) if an FCPA violation occurs and a company’s compliance program comes under scrutiny from the Criminal Division of the DOJ. Breuer noted that the most effective type of compliance program is one that “prevents fraud and corruption in the first place but when such compliance program has not done so, there are defined policies in place to “quickly detect, fix and report the [FCPA] violations.” 

Mr. Breuer’s call for defined compliance and ethics policies to “quickly detect, fix and report the [FCPA] violations” preceded his suggestion that “[a] corporation should seriously consider seeking the government’s input on the front end of its internal investigation.”  From an investigations perspective, this “call first” game plan presents immediate business and legal concerns. 

While the goal of both the government and corporate citizens under the USSG is self-policing, the pursuit of that objective has heretofore been initiated and controlled at the outset by companies themselves.  For example, a hotline call comes in alleging misconduct: Company X evaluates the substance of the claim, and if deemed credible, initiates an internal investigation in line with a robust compliance and ethics program.  If the assertion is serious and sensitive enough, Company X entrusts the inquiry to in-house or outside counsel.  This is specifically done to protect the existence and yield of the investigation through application of the attorney-client privilege and work-product doctrine.  

The foregoing protections are advisable and well within the long-protected rights of the corporation.  See: Upjohn Co. v. United States, 449 U.S. 383 (1981).  And they serve two vital purposes.  After all, a poker player does not show his hand to his opponents until called and a moviegoer does not yell fire in a crowded theater without seeing flames. 

The DOJ’s shift to a “call first” policy is seismic and defeats both of the foregoing tenets.  If a company involves the government in the investigation process from the outset, its hand is tipped and, there can be no assertion of attorney-client privilege and the work-product doctrine protection in subsequent reviews or in litigation. In addition and once DOJ is involved, its knowledge of Company X’s alleged problem becomes part of the public domain and subject to disclosure to the investing public on a schedule of the government’s own making. 

As a result, while following Mr. Breuer’s suggestion may be advisable for a given company in a given situation, the pitfalls of a blanketed adherence to this recommendation should be carefully considered by the business, compliance, and legal functions of every corporation. 

© James McGrath 

James McGrath is the managing partner of McGrath & Grace, Ltd., a law firm that specializes in conducting independent corporate internal investigations for companies across the United States and around the world.

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