On June 3 of this year, the Biden Administration made plain its commitment to fighting corruption around the world, releasing a document identifying the fight against corruption “as an economic and national security priority” while committing to take the lead on international efforts to “bring transparency to the global financial system and close loopholes that undermine democracy.” The National Security Study Memorandum released by the President identifies key areas where the U.S. will focus in its efforts to counter corruption around the globe, including efforts to: (1) Modernize, Coordinate, and Resource Efforts to Better Fight Corruption; (2) Curb Illicit Finance; (3) Hold Corrupt Actors Accountable; (4) Build International Partnerships; and (5) Improve Foreign Assistance.
Following the White House release, the government moved swiftly to make good on the Biden Administration’s commitment to fight corruption, starting with a region key to the economic and national security of the United States: Latin America. On July 1, the State Department released a list of citizens in three Latin American countries – Guatemala, Honduras, and El Salvador (the “Northern Triangle”) – who have “knowingly engaged in acts that undermine democratic processes or institutions, engaged in significant corruption, or obstructed investigations into such acts of corruption” in those countries. This list, dubbed the “Engel List,” after one of its sponsors, is issued under Section 353 of the United States-Northern Triangle Enhanced Engagement Act, and makes individuals ineligible for visas and admission to the United States.
The “Engel List,” the Office of Foreign Assets Control’s Specially Designated and Blocked Person’s List, and the imposition of other sanctions are possible ramifications for individuals and companies found to be actively engaging in corrupt behavior in Latin America. But a key component of the Administration’s renewed focus on anti-corruption efforts is sure to be increased use of the Foreign Corrupt Practices Act (“FCPA” or the “Act”) as a tool to fight corruption and graft in the Northern Triangle. The FCPA makes it unlawful for a U.S. person or company to offer, pay, or promise to pay anything of value to a foreign government official, including but not limited to cash payments, for the purpose of obtaining or retaining business. Also covered by the FCPA is the authorization of payment of any gift, money, or promise of anything of value to any person, while knowing that all or a portion of that will be offered or passed on, indirectly or directly, to any foreign office for the purpose of assisting the U.S. person or company in obtaining or retaining business. The FCPA’s accounting provision also requires companies with securities listed on stock exchanges in the United States to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.
What makes increased enforcement of the FCPA a likely tool in the administration’s game plan in its corruption fight in the Northern Triangle is the expansive application of the prohibitions described above. While the Act obviously applies to companies with their principal places of business in the United States, it also applies to any company issuing stock registered on a United States stock exchange or – importantly – their agents or affiliated entities overseas.
In addition, the FCPA applies to individuals including officers, directors, employees, agents, or any stockholder acting on behalf of a company. The definition of “foreign official” under the FCPA is equally expansive, and can mean a person, political party, candidate for foreign political office, or even family members of these individuals in certain circumstances. In this way, individuals associated with U.S. companies, individuals acting on their own, and many others can and may be subjected to enforcement actions under the FCPA for their dealings with corrupt government actors in Latin America, not just those individuals identified on the Engel List.
Violations of the FCPA may result in up to five years of imprisonment and/or fines of up to $2,000,000 for corporations and other business entities, and up to $100,000 for individuals associated with such business entities. The penalties are far greater for violations of the FCPA accounting provisions: up to twenty years of imprisonment and $5 million fines for individuals, up to $25 million fines for corporations and other business entities. Not surprisingly, huge sums have been assessed against and ordered disgorged by companies found in violation of the Act.1 An FCPA enforcement action can be costly in the court of public opinion and in very real terms, as to both economic interests and liberty interests. The Act has the enforcement teeth to impose significant pain on companies running afoul of its proscriptions.
In light of the impending increased anti-corruption efforts by the government, companies operating in and doing business in Latin America must become ever more vigilant regarding compliance and monitoring.
- The identification of corruption as a national security concern and efforts to combat that corruption mean that the government’s enforcement eyes will become focused on companies and individuals doing business in the Northern Triangle.
- The FCPA, with its wide ranging applicability capable of facilitating enforcement actions not only against individuals and American companies but also against foreign subsidiaries and agents makes it a versatile tool in reigning in corruption in the Northern Triangle and beyond.
- On January 1, 2021, Congress passed the Corporate Transparency Act (CTA) as part of the overall 2021 National Defense Authorization Act and under the scope of the Anti-Money Laundering Act of 2020 (AMLA). The passage of the CTA represents a significant legislative effort to combat money laundering, terrorism financing, organized crime, and other financial crimes, which will complement the Administration’s efforts. The AMLA includes a database as a means to facilitate a voluntary public-private information-sharing partnership among law enforcement agencies, national security agencies, financial institutions, and the Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury for such purposes. The CTA also requires (1) the establishment of new federal beneficial ownership reporting requirements for certain U.S. domiciled or active entities, including foreign entities that operate in the U.S., and (2) FinCEN’s maintenance of a federal database for the beneficial ownership information collected.
- A robust and stringent compliance program is critical for companies doing business in Latin America moving forward. In fact, the heightened focus on corruption in the Northern Triangle has already arrived and yielded FCPA enforcement actions, as recently disclosed by the companies involved, with two of those investigations involving Northern Triangle countries Guatemala and Honduras.2
- Monitoring of activities of subsidiaries, agents, officers, and all parties involved will be key to successfully navigating the new world of aggressive anti-corruption efforts in Latin America.
While the administration has begun its anti-corruption efforts by targeting the Northern Triangle, it is not likely to stop there. Expect increased enforcement and anti-corruption efforts spreading around throughout the world. Companies should begin preparing now, and having a solid understanding of the FCPA is a good place to start.
1 For example, in recent years, Petrobras has been ordered to disgorge $933.5 million in 2018; Goldman Sachs $606.3 million in 2020 (in addition to the significant embarrassment and negative press surrounding its involvement in the 1MDB Scandal); Siemens $350 million in 2008; and, Alcoa $161 million in 2014. See Richard L. Cassin, Goldman Sachs lands second on the FCPA disgorgement top ten, FCPA Blog, Nov. 9, 2020.
2 See Harry Cassin, Eight companies disclose new FCPA investigations, FCPA Blog, Aug. 24, 2021.