Closing a loophole in US anti-corruption enforcement: Congress passes the Foreign Extortion Prevention Act

Over the past few years, the US government has signaled its intent to aggressively pursue individuals and entities engaged in bribery and other illicit financial activity both within and outside the country’s borders. The government recently took an important step to empower US law enforcement to pursue foreign individuals and entities who solicit bribes. On December 14, 2023, the Foreign Extortion Prevention Act (FEPA or the Act) was passed by both houses of the US Congress as a part of the 2024 National Defense Authorization Act, and is expected to be signed into law in short order.[1] The Act represents a sea-change in the scope of US anti-corruption enforcement and could have broad implications for officials of international organizations, foreign governments, and foreign state-owned companies, as well as the US corporations engaged in business with them.  

Background

Historically, the US has lagged behind a number of other large industrial countries, such as the UK, Switzerland, France, Germany, Poland and the Netherlands, in that its main enforcement mechanism (the Foreign Corrupt Practices Act, or FCPA) is a “supply-side” law, focused on the bribe-payer’s conduct through a carrot-and-stick approach – incentivizing self-reporting and cooperation by bribe-payers in exchange for deferred prosecution agreements and reduced fines, and punishing the bribe-payer’s conduct through multibillion-dollar fines and settlements.  The FCPA has thus been directed at the global companies and their agents or employees who make corrupt payments to foreign officials, while bribe-requesters – foreign officials who request and/or receive those corrupt payments – fell outside of its ambit. FEPA changes all of this by meaningfully expanding the means by which US regulators can reach the conduct of foreign official bribe-requesters. FEPA would make it unlawful for foreign officials to demand, seek, or accept bribes from US persons or companies (whether within or outside the US) or, importantly, from any person (US or otherwise) while in the US.

To be clear, the Department of Justice has already been charging foreign official bribe-requesters using non-FCPA mechanisms such as money laundering, mail and wire fraud, tax violations, and the Travel Act.  Spokespersons from the DOJ have often made explicit reference to the fact that the US is focused on addressing the demand-side of bribery as well.  or example, in releasing the Fraud Section’s Year in Review earlier this year, Glenn Leon, the current Chief of the Fraud Section at the DOJ, emphasized that, in 2022, the Department explicitly “focused its enforcement efforts on both the supply side and demand side of corrupt transactions.” Commentators have also observed that the DOJ’s FCPA unit has increasingly brought such non-FCPA charges and that, in recent years, approximately 44 percent of the matters charged by the unit are in fact non-FCPA charges.[2]

However, prosecutors face obstacles using these non-FCPA laws that a FEPA prosecution would sidestep.  For example, under FEPA, prosecutors would merely need to establish the requirements for an FCPA violation and would not need to also establish an intent to defraud (as is required under the mail and wire fraud statute) or that a financial transaction had been conducted (as would be required under a money laundering charge). What FEPA offers the DOJ is a more direct and simpler means to bring criminal charges against foreign officials for the sole crime of requesting and/or receiving bribes. 

This marked expansion of the anti-corruption enforcement landscape was previewed by the Biden Administration when, in June 2021, it elevated anti-corruption efforts for the first time to the level of a national security interest, before following up in December 2021 with a five-pillar strategy which included “hold[ing] corrupt actors accountable at home and abroad,  . . .  by [for example] working with Congress to criminalize the demand side of bribery by foreign public officials.” In the last few years, there has been a concerted interagency effort as well as congressional activity that has made it increasingly difficult for participants in illicit financial schemes to evade detection.  For example, Congress has passed a slew of anti-corruption and anti-money laundering bills such as the Corporate Transparency Act (which requires certain entities doing business in the US to disclose information regarding their beneficial owners starting in January 2024), the Countering Russian and Other Overseas Kleptocracy Act, the Foreign Corruption Accountability Act, the Justice for Victims of Kleptocracy Act, and the reauthorization of the Global Magnitsky Human Rights Accountability Act.  As of December 11, 2023, the US Department of Treasury has used financial sanctions to hold more than 130 individuals and entities engaged in corruption and related activities accountable. The DOJ has additionally secured over $500 million in penalties and disgorgements in five corporate FCPA resolutions. The Department has charged over ten individuals and has secured significant convictions.[3]

Application of FEPA to conduct of foreign bribe requestors and recipients

FEPA expands 18 U.S.C. § 201, the domestic anti-bribery and anti-gratuity statute, to make it not only unlawful for domestic federal officials to solicit or accept bribes, but for any foreign official to do so.  Specifically, it is unlawful under the Act to (1) solicit or accept (2) anything of value (3) from any person (as defined by the FCPA) while in the US, from any issuer (as defined by the Securities Exchange Act of 1934), or from a domestic concern (as defined by the FCPA), (4) in exchange for being influenced in the performance of any official act, being induced to do or omit to do any act in violation of official duty, or conferring any improper advantage, (5) by using the mails or any means or instrumentality of interstate commerce.

FEPA amends Section 201 to define foreign officials as (1) officials or employees of foreign governments or any department, agency, or instrumentality; (2) senior foreign political figures;[4] (3) officials or employees of a public international organization; and (4) persons acting in an official or unofficial capacity for or on behalf of a government, department, agency, or instrumentality, or a public international organization. Notably, FEPA expands the definition of a foreign official from that of the FCPA.  The definition includes individuals acting in both an official and an unofficial capacity for governmental agencies or entities and expressly includes family members of government officials.  Bribe-takers are also not able to avail themselves of the affirmative defenses found under the FCPA – for example, facilitation payments, payments comporting with local law or custom, or payments that represent reasonable and bona fide expenditures. This lack of affirmative defenses potentially subjects bribe requesters to a far more stringent standard of liability than bribe payers.

Violators will be subject to a fine equivalent to the greater of $250,000 or three times the value of the bribe and a prison sentence of up to 15 years. 

The Act also requires the DOJ to publish an annual report detailing (i) the bribes demanded from US companies by foreign officials; (ii) diplomatic efforts made by the US government to help protect US companies against requests for bribes; and (iii) major actions the DOJ has taken to enforce the law, the effectiveness of that enforcement, and resources needed to continue enforcement.

Enforcement considerations for US companies, international organizations, and foreign governments

While the practical impact of the DOJ’s newly minted powers to pursue and prosecute bribe requesters remains to be seen, there are a number of considerations that key stakeholders should keep in mind.  

Additional pressure on US companies in a heightened regulatory environment

FEPA raises fundamental questions about what role US companies will play in enforcement actions brought by the DOJ against foreign officials, what role they may play in the DOJ’s reporting obligations, and the impact of any such involvement on US companies’ own exposure under the FCPA and their decisions around cooperation, self-disclosure and reporting.  

Given the DOJ’s recent emphasis on these issues, multinational companies subject to US jurisdiction may be expected to both disclose bribe requests to receive cooperation credit and potentially affirmatively report when they are approached for a bribe.  The DOJ could leverage threat of conviction under FEPA to compel foreign bribe requesters to provide information about the companies to which they paid bribes, in exchange for plea deals or cooperation credit.  

Since the government could obtain information from the foreign bribe requester, the decision of whether to self-disclose may also involve weighing the risk that a foreign government official may cooperate against the company.  

Increased scrutiny of interactions with state-owned enterprises and international organizations 

Given that the Act is focused on reaching conduct of foreign officials, there will necessarily be increased regulatory attention on the nature and substance of contacts with these officials.  Such a focus has already been a hallmark of FCPA jurisprudence, but FEPA’s entry will likely place an even greater emphasis on these interactions and pressure both US companies and the impacted foreign bodies to police them more stringently.  

Increased exposure for foreign government officials and employees of international organizations

Not only does FEPA expand the definition of what constitutes a foreign official for purposes of criminal liability, it subjects accused bribe requesters to a more exacting standard of liability than bribe-payers face under the FCPA due to the absence of affirmative defenses.

Increased leverage for companies seeking to resist corrupt payment requests 

Currently, there is no liability under the FCPA if an individual “is forced to make [a] payment on threat of injury or death . . .” and there is little guidance on whether other forms or levels of duress short of “threat of injury or death” may potentially provide some protection from an FCPA action.[5]  There is some potential that alerting US authorities to coercive acts on the part of the bribe requester (in light of the fact that such acts may form the basis of a later criminal prosecution) may provide companies with some leverage when seeking cooperation credit in a related FCPA proceeding.  

Importantly, FEPA provides companies with additional leverage when seeking to decline to make a corrupt payment. Historically, US companies have been able to use the necessity of compliance with the FCPA as a crutch and may now point to FEPA as providing a similar risk for the bribe requester.  In other words, as one commentator has noted, the phrase, “‘We can’t pay because we could be prosecuted under the FCPA,’ would obviously be much more powerful if coupled with the statement, ‘And you too.’”[6]

Challenges with enforceability of extraterritorial jurisdiction

Although the Act is designed to have extraterritorial reach, in practice it may be challenging to enforce it outside the US. The ability to pursue foreign bribe requesters may be limited and heavily dependent on the US’s diplomatic relationships with the country in question.  Bribe-requesters outside the US would be out of reach, barring extradition or travel to friendly countries and enforcement of Interpol red notices.  Notwithstanding, the fact of a FEPA indictment may provide the basis for other punitive measures such as sanctions under the Global Magnitsky Act.

Key takeaways 

While much remains to be seen as to how DOJ will be able to use their newfound powers to pursue and prosecute bribe-takers, US multinational companies should consider the implications of FEPA, including its long-arm reach, on their operations.  

In particular, in-house compliance teams are encouraged to take steps to evaluate their existing policies and procedures to determine whether enhancements should be made to align with FEPA’s requirements and future DOJ pronouncements on the scope of enforcement.  For instance, should additional measures be taken to ensure that the company’s policies reflect the expanded definition of foreign official and that there are clear records of any interactions with foreign officials to both monitor compliance and defend against false allegations that the company paid a bribe. Enhanced trainings should be provided for those who engage directly with foreign officials – or oversee third parties who engage with foreign officials on the company’s behalf – to ensure understanding of FEPA’s requirements and the practical implications for the company. 

Foreign state-owned enterprises, embassies, and international organizations, particularly those with a significant presence in the US, are encouraged to pay particular attention to the Act. Given the broad definition of foreign officials, the activities of ambassadors and staff members of embassies, the staff of UN organizations, World Bank Group entities, and other international bodies, legislators of foreign countries, judges, and immediate family members of these persons while in the US or abroad could fall under the scope of the Act and potentially expose these individuals to prosecution in the US. 

In short, to best position themselves to safeguard their organization, it is important for all those potentially impacted by this new legislation to understand how FEPA and its enforcement may affect their organization and to take concrete steps to strengthen and tailor their anti-bribery and anti-corruption controls accordingly.

To find out more about the FEPA and its impact on your organization, contact any one of the authors. 

 

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