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Liability of U.S. Companies for Alleged Bribery By Foreign Subsidiaries

BY Jacqueline C. Wolff
July 28, 2005

The Foreign Corrupt Practices Act (FCPA) provides two avenues by which a U.S. concern can be prosecuted for improper payments to foreign officials: the anti-bribery provisions, and the books-and-records and internal-control provisions. Somewhat unclear, however, is the kind of involvement in a foreign subsidiary a U.S. parent must have such that it might be exposed to criminal or civil enforcement. This article explores liability for misconduct of foreign subsidiaries and what preventive measures a parent can take.

Anti-Bribery Provisions

It is a violation for a domestic concern to corruptly offer any payment, gift or thing of value to any foreign official for the purpose of influencing any act or decision of the foreign official or securing any improper advantage or to any other person “while knowing” that some or all of the payment will be passed on to a foreign official for the improper purposes enumerated. 15 U.S.C. ' 78dd-2(a). The FCPA does not expressly address payments by a foreign subsidiary. The original Senate Report explains that the prohibition “would not cover payments by foreign nationals acting solely on behalf of foreign subsidiaries … where the issuer, reporting company or domestic concern had no knowledge of the payment.” S. Rep. No. 114 95th Cong., 1st Sess. (1977), at 11 (emphasis added). However, the Report warns that the parent may not look the other way in an effort to insulate itself from a subsidiary's misconduct. Parent liability ultimately depends on “all the facts and circumstances.”

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