Far Away But Not Out of Reach: Department of Justice Targets Foreign Subsidiaries of U.S. Corporations for Violations of the Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act ("FCPA") was enacted to stop the bribery of foreign officials and is enforced by the Department of Justice ("DOJ"). Both U.S. companies and foreign companies whose securities are listed in the U.S. are subject to the FCPA. However, due to "inherent jurisdictional, enforcement, and diplomatic difficulties,1" foreign subsidiaries of U.S. companies were intentionally excluded from the FCPA. As a result, foreign subsidiaries had little reason to be wary of the DOJ.
Foreign Subsidiaries as "Agents"
Although the FCPA does not cover foreign subsidiaries, it does cover "any...agent" of a U.S. company. Using this "loophole," the DOJ has been bringing actions against foreign subsidiaries as "agents" of their U.S. parent companies. For example, in 2005, the DOJ brought an enforcement action against DPC (Tianjin) Co. Ltd., the Chinese subsidiary of Diagnostic Products Corporation (DPC), a U.S. corporation. The DOJ claimed DPC Tianjin, acting as DPC's agent, violated the FCPA by paying over $1.5 million in corrupt commissions to officials in government-owned hospitals in China.
Ultimately, DPC settled and DPC Tianjin agreed to plead guilty and pay a Two Million Dollar ($2,000,000) criminal fine.
What Does This Mean for Other Foreign Subsidiaries?
The DOJ has essentially made foreign subsidiaries subject to the FCPA without asking Congress to amend the FCPA. So far, the DOJ has been successful in its efforts, because U.S. companies "will assent to a legally questionable charge against a foreign subsidiary rather than risking a trial, increased publicity, enhanced charges and penalties, or collateral consequences for the parent." Id.
Both parent companies and their foreign subsidiaries now need to be more vigilant about complying with the FCPA. If not, the DOJ will, likely, use its newfound strategy to bring enforcement claims against foreign subsidiaries. Companies interested in learning more about the FCPA and ensuring they are in compliance with the FCPA should seek the assistance of counsel.
1 Laurence A. Urgenson & Audrey L. Harris, Foreign Subsidiaries Being Prosecuted in the U.S. for Bribes Overseas, The Legal Intelligencer, Oct. 31, 2007, at 7.