A Rare FCPA Advisory Opinion From the DOJ: Cause and Effect

The Foreign Corrupt Practices Act (FCPA) advisory opinion procedure allows domestic companies and companies listing securities on a U.S. national exchange to request an opinion from the U.S. Department of Justice (DOJ) on “whether certain specified, prospective—not hypothetical—conduct conforms with [the FCPA’s] antibribery provisions.” 28 C.F.R. 80.1. A “Requestor” that obtains an opinion condoning the prospective conduct is entitled to a rebuttable presumption that the conduct is in compliance with the FCPA. 15 U.S.C. §78dd-2(f). On Aug. 14, 2020, the DOJ issued an FCPA opinion (the Opinion) to an unnamed multinational investment advisory firm. It was the first FCPA advisory opinion issued in six years, and its release raised eyebrows in the legal and international business communities. The Opinion shed some light on circumstances in which the DOJ would consider a payment to a foreign-government-owned company to be a violation of the FCPA. While the Opinion may have been helpful to the requesting company, its usefulness to other companies is severely limited for a variety of reasons. More generally, using the FCPA advisory opinion procedure remains impractical and potentially even unwise in many circumstances.

The Aug. 14, 2020 Opinion

The Opinion itself concerned a domestic company that bought assets from a subsidiary of a foreign bank and was assisted in that transaction by a different subsidiary of the same foreign bank. A majority of shares of the foreign bank was owned by a foreign government. The domestic company requested an opinion as to whether payment to the assisting subsidiary for its role in facilitating the transaction would violate the FCPA.

Answering in the negative, the DOJ noted that the payment was to be made not to a government official, but to the subsidiary company for specific, legitimate services. One important takeaway from the Opinion is its focus on the distinction between payment to an individual and to an entity. Companies should have this distinction in mind in carrying out overseas transactions, and should take steps to ensure potentially questionable payments are made at the corporate level and that the payment will not thereafter be diverted to any individual. For example, in the Opinion, the DOJ noted that the payee foreign bank had certified to the Requestor that the funds would be used only for the benefit of the subsidiary office for general corporate purposes and would not be forwarded to any individual.

In addition, the nature of the services provided for the payment is important; the DOJ noted that in this case the payment was for “specific, legitimate services” and involved a payment amount that was “commercially reasonable.” Based on the above, the DOJ concluded that that there had been no corrupt intent to influence a foreign official.

While the above takeaways are potentially helpful for FCPA practitioners, the precedential value of the Opinion is limited. The Opinion is not a judicial decision and has no binding application on any party other than the Requestor. Furthermore, the insight a company may glean from the Opinion is restricted by the very brief analysis set forth in the Opinion (approximately one page) and the recitation of only a summary of the factual background that the DOJ relied upon. In other words, the Opinion applies only to a specific set of circumstances, and the reader is limited in understanding the details of those circumstances.

FCPA Opinions Are Rare

Because of its limitations, the DOJ’s FCPA advisory opinion process has been used by companies only sporadically. Since 1980, a period of 40 years, only 62 such opinions have been issued. Since 1993, 40 opinions have been issued; and since 2010, only 10 have been issued. Indeed, the frequency of FCPA advisory opinions is decreasing over recent years, despite the general increase in companies conducting multi-national business. Pankaj Ghemawat, Steven Altman, The State of Globalization in 2019, and What It Means for Strategists, Feb. 6, 2019.

This apparent paradox is explained by a multitude of reasons. First, a request for an advisory opinion cannot be submitted anonymously, requiring any company to weigh the pros and cons of voluntarily putting itself on the DOJ’s radar screen. 28 C.F.R. 80.6. Given the more than 20 million active businesses in the United States (DMDatabases.com, USA Business List—Employee Size Profile), companies frequently ask themselves before contacting the DOJ if they are inviting a problem that otherwise would never have been an issue.

Second, submitting a request requires significant time and effort (and therefore expense). The request must be in writing, sent to the DOJ with an original plus five copies (28 C.F.R. 80.2), signed and certified by a senior officer of the company, and accompanied by “all relevant and material information bearing on the conduct for which an FCPA Opinion is requested … including background information, complete copies of all operative documents, and detailed statements of all collateral or oral understandings, if any.” 28 C.F.R. 80.6. Often, the DOJ will thereafter ask for supplemental submissions; for the recent Opinion, for example, the Requestor provided supplemental information four separate times. A Requestor must, moreover, exercise care in submitting such information as the information must be accurate for a Requestor to receive the benefit of the rebuttable presumption. 15 U.S.C. §78dd-2(f). Theoretically a Requestor could also face legal exposure for knowingly and willfully making a materially false statement to the Federal Government (18 U.S.C. §1001), not to mention any arguably illicit prior conduct the DOJ might glean from the submissions.

A Requestor’s affairs may also end up being publicized; even though a Requestor’s identity is typically kept confidential, a shrewd competitor or journalist might be able to piece together a Requestor’s identity. Though the materials submitted by a Requestor are exempt from Freedom of Information Act disclosure under 5 U.S.C. §552, the DOJ has a “right to issue, at its discretion, a release describing the identity of the requesting issuer or domestic concern, the identity of the foreign country in which the proposed conduct is to take place, the general nature and circumstances of the proposed conduct, and the action taken by the Department of Justice in response to the FCPA Opinion request.” 28 C.F.R. 80.14.

Another factor that discourages would-be Requestors is the length of time it takes for the DOJ to issue an opinion. For example, the recent Opinion was issued nine months after the initial request. The opinion before that one was issued more than six months after the initial request. Since 2010, the median wait time for an opinion is approximately four months. Few business decisions can await such a lengthy determination period. While the DOJ has signaled in public remarks that the DOJ would be willing to expedite the advisory opinion process to accommodate Requestors’ needs, the length of time the process has taken speaks for itself. Moreover, while FCPA regulations permit withdrawal of a submitted request, the DOJ “reserves the right to retain any FCPA Opinion request, documents and information submitted to it under this procedure or otherwise and to use them for any governmental purposes, subject to [disclosure restrictions.]” 28 C.F.R. 80.14, 80.15.

Even when a decision is rendered, it is often subject to a series of caveats. For example, the recent Opinion noted four different times that its conclusion is subject to the representations by the Requestor being accurate and complete.

In light of all of the above, it is no surprise that companies typically determine that a better alternative to seeking a DOJ opinion is to obtain guidance from legal counsel. While counsel cannot provide a client with the statutory “rebuttable presumption that conduct … is in compliance with the preceding provisions of [the FCPA]” (15 U.S.C. §78dd-2(f)), competent counsel often can accurately assess the legal risk within a timeframe of days or even hours, as opposed to months, and without inviting in the federal government. Thus, while the FCPA advisory opinion tool is attractive in concept, because of the practical hurdles most companies have avoided its use, and there is no indication that will be changing any time soon.

Reprinted with permission from the December 4, 2020, edition of the New York Law Journal. © 2020 ALM Media Properties, LLC. All rights reserved.