US Foreign Extortion Prevention Act: Closing a loophole in US anti-corruption enforcement
In a sea change in the scope of US anti-corruption enforcement, late last year President Joe Biden signed into law the Foreign Extortion Prevention Act. [1] FEPA, which is part of the 2023 National Defense Authorization Act, could have broad implications not just for foreign-owned companies, but for officials of international organizations, foreign governments, foreign state-owned companies, and the US corporations that engage in business with them.
Background
Historically, the US has lagged behind some other large industrial countries 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. FEPA changes this approach by expanding the means by which US regulators can reach the conduct of foreign official bribe-requesters. Under FEPA, it is unlawful for foreign officials to demand, seek, or accept bribes from US persons or companies (whether within or outside the US) or 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. However, these non-FCPA charges create obstacles for prosecutors because they have additional proof requirements that are tangential to the underlying corruption misconduct. In contrast, FEPA offers the DOJ a more direct and simpler means to bring criminal charges against foreign officials for the sole crime of requesting and/or receiving bribes.
Applying 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 unlawful for domestic federal officials to solicit or accept bribes and 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 the definition of foreign officials and expands the definition of a foreign official beyond that of the FCPA. Foreign officials are now defined as (1) officials or employees of foreign governments or any department, agency, or instrumentality; (2) senior foreign political figures [2]; (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. The definition includes individuals acting in official and unofficial capacities for governmental agencies or entities and includes family members of government officials. Bribe-takers are also not able to avail themselves of the affirmative defenses found under the FCPA, potentially subjecting bribe requesters to a more stringent standard of liability than bribe payers.
Enforcement considerations for US companies, international organizations, and foreign governments
Additional pressure on US companies
FEPA raises fundamental questions about what role US companies will play in enforcement actions, the DOJ’s reporting obligations under the Act, 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, 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.
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
Because the Act focuses on reaching conduct of foreign officials, there will necessarily be increased regulatory attention on the nature and substance of contacts with these officials.
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. [3] 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. US companies may now point to FEPA as providing a similar risk for the bribe requester.
Challenges with enforceability
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 diplomatic relationships with the country in question.
Key takeaways
How will the DOJ use these newfound powers? While we await developments, multinational companies operating in the US, foreign state-owned companies, embassies and international organizations should consider the implications of FEPA on their operations.
In-house compliance teams are encouraged to take steps to evaluate 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 its practical implications.
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 FEPA’s broad definition of foreign officials. Ambassadors and embassy staff, 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 are among those whose activities could fall under the scope of the Act and potentially be exposed 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.
[1] H.R.2670, 118th Cong. § 5101 (2023).
[2] The term “senior foreign political figure” is defined to mean: (i) current or former (A) senior official in the executive, legislative, administrative, military, or judicial branches of a foreign government (whether elected or not); (B) senior official of a major foreign political party; or (C) senior executive of a foreign government-owned commercial enterprise; (ii) a corporation, business, or other entity that has been formed by, or for the benefit of, any such individual; (iii) an immediate family member of any such individual; and (iv) a person who is widely and publicly known (or is actually known by the relevant covered financial institution) to be a close associate of such individual. 31 C.F.R. § 1010.605.
[3] Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1, et seq.
