Goodyear: The SEC's reminder of the perils of commercial bribery

Conventional wisdom has it that the US FCPA—unlike, say, the UK Bribery Act—doesn’t cover commercial bribery. See, eg, this, this, this, this, this, and this. Goodyear’s payment of over $16 million to the SEC to resolve allegations of bribery, including bribery of employees at private entities, see SEC Release & Order, should put that myth to rest.

True, the FCPA’s so-called “Anti-Bribery Provision” only prohibits bribery of “public officials”.15 U.S.C. § 78dd-1(a)(1). That’s cold comfort because governments often hold stakes in businesses, so telling a “public” enterprise from a “private” company can be tough. See Tim Coleman & Melissa Handover, Foreign Officials under the FCPA—A Foreign Concept?, China Law and Practice (May/June 2013); Freshfields Briefing: The US Foreign Corrupt Practices Act—guidance published by US government at 2–3 (Nov. 2012).

And as Goodyear learned, the FCPA isn’t limited to its Anti-Bribery Provision. The equally important “Books and Record Provision” requires US issuers to keep records that “accurately and fairly reflect the transactions and dispositions of the [company’s] assets”.15 U.S.C. § 78m(b)(2). That means a company may violate the FCPA by failing to record bribes to a foreign public official. It equally means that a company may violate the FCPA by failing to record bribes to an employee of a private company.

Nor is the FCPA the only arrow in a US prosecutor’s quiver. The Travel Act prohibits interstate or foreign travel to commit, among other things, “bribery . . . in violation of the laws of the State in which [it is] committed or of the United States”.18 U.S.C. § 1952(b)(i)(2) (known as the Travel Act). Where state law prohibits commercial bribery—as do the laws of California, Delaware, Illinois, Florida, and New York—foreign travel to bribe employees of a commercial entity can invite federal criminal charges. See, eg, Information, United States v. Control Components, Inc., No. 09-CR-162-JVS (C.D. Cal. July 22, 2009).

The DOJ’s and SEC’s position is clear:

“Companies and individuals should also remember that, whether an entity is an instrumentality of a foreign government or a private entity, commercial (i.e., private-to-private) bribery may still violate the FCPA’s accounting provisions, the Travel Act, anti-money laundering laws, and other federal or foreign laws. Any type of corrupt payment thus carries a risk of prosecution.”

The upshot is that in running compliance programs, conducting M&A due diligence, or investigating alleged misconduct, companies who neglect the risk of commercial bribery do so at their peril.