Domestic Commercial Bribery

Like bid rigging and other anticompetitive conduct, commercial bribery poses an obvious risk to free markets. If you can bribe your customer's purchasing manager, you may succeed without having the lowest price or the best product.

Notwithstanding the impact on interstate commerce, there is no federal statute expressly criminalizing domestic commercial bribery in general. Congress has expressly prohibited the bribery of certain select categories of persons. See, e.g., 18 U.S.C. ' 215 (prohibiting payments to bank officers to influence the awarding of loans.); and 29 U.S.C. ' 186 (prohibiting payments to labor union officials.)

Commercial bribery is often prosecutable as a violation of the Travel Act, 18 U.S.C. ' 1952. Among other conduct, the Travel Act criminalizes activity that involves the following elements: 1) The use of a facility of foreign or interstate commerce (e.g., wire communications, travel, or overnight delivery); 2) with intent to promote, manage, establish, carry on, or distribute the proceeds of; 3) an activity that is a violation of state or federal extortion, bribery, or arson laws. In Perrin v. United States, 444 U.S. 37, 50 (1979), the Supreme Court held that Congress intended the term “bribery,” as used in the Travel Act, to prohibit the bribery of private employees in violation of state law.

Currently, at least 25 states prohibit commercial bribery in some form. Accordingly, bribing customers to obtain business is a federal crime if there is a nexus to an instrument of interstate commerce (e-mail, phone, fax, interstate travel, etc.) and to one of the states that prohibits commercial bribery. Since the Travel Act's enactment in 1961, federal prosecutors have used the Travel Act not only to prosecute public corruption and traditional racketeering, but sporadically to prosecute the bribery of employees in the private sector.

A Potential Groundswell

The trend is to expand anti-bribery initiatives to reach commercial bribery. For example, the UK's Bribery Act of 2010 criminalizes not only the bribery of public officials, but also domestic commercial bribery. The latter also risks enforcement under the antitrust laws.

The government is increasingly using the Travel Act as a backup charge in FCPA prosecutions, and it is likely that prosecutions of domestic commercial bribery through the Travel Act will also accelerate. See April 2012 Business Crimes Bulletin (Use of the Travel Act to ProsecuteForeign Commercial Bribery, Part Two), www.lawjournalnewsletters.com/issues/ljn_buscrimes/19_8/news/156465-1.html. With the government prosecuting foreign bribery whether the recipient of the bribe proves in the end to be a public official or a private employee, it is no stretch to expect that federal prosecutors and agents will increasingly question why the extraterritorial application of state commercial bribery statutes should receive a vastly different priority than applying those statutes to bribes paid domestically.

In addition to the risk of prosecution under state, federal, or foreign bribery laws, corporations must ask themselves how they will account in their financials records for bribes. Falsifying accounting to disguise bribes by itself constitutes a potential violation of the more serious accounting controls provisions of the FCPA if the corporation is publicly traded. Even for privately held companies, falsifying accounting to disguise rank bribery is a dangerous line to cross.

Heading Off Trouble

However you rate the odds of prosecution, prudent businesses will expand their anti-bribery initiatives to prohibit all bribery ' including domestic commercial bribery. The challenge is in drawing the line between legitimate customer entertainment and illegal bribery, as well as in designing a policy that is compliant with all states in which a company does business.

A simple dollar limit on the expenses of wooing a potential business partner may not ensure compliance. Most state commercial bribery laws do not specify a dollar amount below which a gratuity cannot violate the statute. Rather, the statutes typically contain broad language criminalizing the transfer of “any benefit.” While it is doubtful that any rational prosecutor would charge a company or its employees for buying a martini or a meal, such a gratuity could technically violate the laws of many states. Nevertheless, putting in place a dollar threshold ' such as the $250 limit found in California's commercial bribery statute ' offers some protection. Smaller routine expenditures are less likely to be perceived as corrupt payments to induce an employee or agent to breach their duties.

The safeguard that most states do include in their laws is that the transfer of a benefit is only a crime if done without the consent of the receiver's employer or principal. Accordingly, a compliance policy should require confirmation that the gift or gratuity does not violate the recipient's own policies or is otherwise disclosed and accepted. While such a requirement may sound impractical or socially awkward, a simple e-mail stating that you would like to host the customer for some event but request confirmation that it would be allowed by his/her employer should suffice.

Most state laws further provide that a violation occurs only when the transfer of funds or other gifts is made with intent to influence conduct with relation to the employer's or principal's affairs. Other states, such as Iowa, require more stringent proof that the offer or transfer was made in consideration of an act or omission which the transferor has reason to know was “in conflict” with the employment relation or duties.

Some of these statutes further suggest that companies should allow expenditures only to enhance joint meetings (e.g., paying for a shared meal after a plant tour) and not to put something of value into an employee's pocket. By so limiting expenditures, the payer can show that the intent was to further a business relationship consistent with the interests of both employers, not to corruptly bribe an employee to violate his or her duties to an employer or principal. And, of course, no employee should ever condition any expenditure upon an act or omission that could be construed as in conflict with the recipient's employment or agency relationship.

Conclusion

While foreign bribery and corruption cases are currently getting most of the attention, this is no reason for domestic concerns to get too relaxed. Laws currently on the books already authorize prosecution for domestic activities similar to those targeted by the FCPA and like legislation. Legal advisers to U.S. companies should take action to protect their corporations and the employees from running afoul of the law.

Edmund Searby is a partner with Baker & Hostetler LLP in Cleveland, OH. He is a former federal prosecutor with the Department of Justice and the Office of Independent Counsel, and focuses his practice on corporate criminal matters and on complex civil litigation, including antitrust and securities cases. Providing assistance with this article was Andrew Doggett, a law student at the University of Pennsylvania.

It would be difficult to exaggerate the attention in recent years dedicated to enforcement and compliance with the Foreign Corrupt Practices Act (FCPA). In contrast, domestic commercial bribery receives comparatively limited attention. While multinational corporations generally offer intensive FCPA compliance and training programs, domestic commercial bribery is often relegated to a sentence or two in a general business ethics policy.

This gap can put corporations in peril, and their advisers should consider expanding their anti-bribery initiatives to place greater emphasis on domestic commercial bribery.

Using the Travel Act to Punish Domestic Business Crimes

Like bid rigging and other anticompetitive conduct, commercial bribery poses an obvious risk to free markets. If you can bribe your customer's purchasing manager, you may succeed without having the lowest price or the best product.

Notwithstanding the impact on interstate commerce, there is no federal statute expressly criminalizing domestic commercial bribery in general. Congress has expressly prohibited the bribery of certain select categories of persons. See, e.g., 18 U.S.C. ' 215 (prohibiting payments to bank officers to influence the awarding of loans.); and 29 U.S.C. ' 186 (prohibiting payments to labor union officials.)

Commercial bribery is often prosecutable as a violation of the Travel Act, 18 U.S.C. ' 1952. Among other conduct, the Travel Act criminalizes activity that involves the following elements: 1) The use of a facility of foreign or interstate commerce (e.g., wire communications, travel, or overnight delivery); 2) with intent to promote, manage, establish, carry on, or distribute the proceeds of; 3) an activity that is a violation of state or federal extortion, bribery, or arson laws. In Perrin v. United States, 444 U.S. 37, 50 (1979), the Supreme Court held that Congress intended the term “bribery,” as used in the Travel Act, to prohibit the bribery of private employees in violation of state law.

Currently, at least 25 states prohibit commercial bribery in some form. Accordingly, bribing customers to obtain business is a federal crime if there is a nexus to an instrument of interstate commerce (e-mail, phone, fax, interstate travel, etc.) and to one of the states that prohibits commercial bribery. Since the Travel Act's enactment in 1961, federal prosecutors have used the Travel Act not only to prosecute public corruption and traditional racketeering, but sporadically to prosecute the bribery of employees in the private sector.

A Potential Groundswell

The trend is to expand anti-bribery initiatives to reach commercial bribery. For example, the UK's Bribery Act of 2010 criminalizes not only the bribery of public officials, but also domestic commercial bribery. The latter also risks enforcement under the antitrust laws.

The government is increasingly using the Travel Act as a backup charge in FCPA prosecutions, and it is likely that prosecutions of domestic commercial bribery through the Travel Act will also accelerate. See April 2012 Business Crimes Bulletin (Use of the Travel Act to ProsecuteForeign Commercial Bribery, Part Two), www.lawjournalnewsletters.com/issues/ljn_buscrimes/19_8/news/156465-1.html. With the government prosecuting foreign bribery whether the recipient of the bribe proves in the end to be a public official or a private employee, it is no stretch to expect that federal prosecutors and agents will increasingly question why the extraterritorial application of state commercial bribery statutes should receive a vastly different priority than applying those statutes to bribes paid domestically.

In addition to the risk of prosecution under state, federal, or foreign bribery laws, corporations must ask themselves how they will account in their financials records for bribes. Falsifying accounting to disguise bribes by itself constitutes a potential violation of the more serious accounting controls provisions of the FCPA if the corporation is publicly traded. Even for privately held companies, falsifying accounting to disguise rank bribery is a dangerous line to cross.

Heading Off Trouble

However you rate the odds of prosecution, prudent businesses will expand their anti-bribery initiatives to prohibit all bribery ' including domestic commercial bribery. The challenge is in drawing the line between legitimate customer entertainment and illegal bribery, as well as in designing a policy that is compliant with all states in which a company does business.

A simple dollar limit on the expenses of wooing a potential business partner may not ensure compliance. Most state commercial bribery laws do not specify a dollar amount below which a gratuity cannot violate the statute. Rather, the statutes typically contain broad language criminalizing the transfer of “any benefit.” While it is doubtful that any rational prosecutor would charge a company or its employees for buying a martini or a meal, such a gratuity could technically violate the laws of many states. Nevertheless, putting in place a dollar threshold ' such as the $250 limit found in California's commercial bribery statute ' offers some protection. Smaller routine expenditures are less likely to be perceived as corrupt payments to induce an employee or agent to breach their duties.

The safeguard that most states do include in their laws is that the transfer of a benefit is only a crime if done without the consent of the receiver's employer or principal. Accordingly, a compliance policy should require confirmation that the gift or gratuity does not violate the recipient's own policies or is otherwise disclosed and accepted. While such a requirement may sound impractical or socially awkward, a simple e-mail stating that you would like to host the customer for some event but request confirmation that it would be allowed by his/her employer should suffice.

Most state laws further provide that a violation occurs only when the transfer of funds or other gifts is made with intent to influence conduct with relation to the employer's or principal's affairs. Other states, such as Iowa, require more stringent proof that the offer or transfer was made in consideration of an act or omission which the transferor has reason to know was “in conflict” with the employment relation or duties.

Some of these statutes further suggest that companies should allow expenditures only to enhance joint meetings (e.g., paying for a shared meal after a plant tour) and not to put something of value into an employee's pocket. By so limiting expenditures, the payer can show that the intent was to further a business relationship consistent with the interests of both employers, not to corruptly bribe an employee to violate his or her duties to an employer or principal. And, of course, no employee should ever condition any expenditure upon an act or omission that could be construed as in conflict with the recipient's employment or agency relationship.

Conclusion

While foreign bribery and corruption cases are currently getting most of the attention, this is no reason for domestic concerns to get too relaxed. Laws currently on the books already authorize prosecution for domestic activities similar to those targeted by the FCPA and like legislation. Legal advisers to U.S. companies should take action to protect their corporations and the employees from running afoul of the law.

Edmund Searby is a partner with Baker & Hostetler LLP in Cleveland, OH. He is a former federal prosecutor with the Department of Justice and the Office of Independent Counsel, and focuses his practice on corporate criminal matters and on complex civil litigation, including antitrust and securities cases. Providing assistance with this article was Andrew Doggett, a law student at the University of Pennsylvania.