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FastFacts
Feature Presentation
January 11, 2012

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Today’s Topic
We’ll be taking a look at…

Complying With
Foreign Corrupt Practices Act
(FCPA) And
U.S. Anti-Boycott Laws
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Today’s Presenter
E. Bernard Justis, Esq.
Sunanda K. Holmes, Esq.
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Session Segments
Presentation
Bernard and Sunanda will provide an overview of the Foreign
Corrupt Practices Act and the U.S. Anti-Boycott Laws.
During Bernard and Sunanda’s presentation, your phone will be
muted.
Q&A
After the presentation, we’ll hold a Q&A session.
We’ll open up the phone lines, and you’ll be able to ask
questions.
Bernard and Sunanda will answer as many of your questions as
time allows.
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Complying With
Foreign Corrupt Practices Act (FCPA) And
U.S. Anti-Boycott Laws
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Agenda
This session will focus on the following topics:
The requirements of the Foreign Corrupt Practices Act and the
U.S. Anti-Boycott Laws.
How these laws apply to the university’s activities in foreign
countries.
How the university can remain compliant with these laws and
achieve its objectives overseas.
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FCPA Background
 Enacted in 1977 in response to corporate scandals.
 U.S. was the only country that criminalized bribery of foreign
government officials for 20 years.
 More attention to FCPA due to new laws passed such as PATRIOT
Act, Sarbanes-Oxley Act 2002 (SOX), and other anti-corruption
laws/conventions.
 Other countries have since passed similar anti-corruption and
bribery laws/conventions (e.g. OECD Anti-Bribery Convention, UK,
etc.).
 Recent substantial increase in FCPA enforcement proceedings.
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Foreign Corrupt Practices Act (FCPA)

Two Major Provisions:

 Anti-bribery Provisions - 15 U.S.C. §§ 78dd-1, et seq.

 Prohibits the direct or indirect bribery of or offer or promise to bribe (by
the payment of money or anything of value) a foreign official, foreign
political party, or any candidate for foreign political office, or any person
while knowing that all or a portion of such bribe will be paid, given,
promised or offered to pay any of the preceding, in order to direct,
obtain or retain business to, for or with any person.
 Applies to a company/organization as an entity itself along with its
shareholders, directors, agents, officers and employees.

 SEC Accounting Standards and Internal Audit Controls - Section

13, Securities Exchange Act of 1934
 Requires publicly-traded companies to design a system of internal
accounting controls that will adequately ensure all transactions subject
to the FCPA are properly executed and recorded.
 Publicly-traded companies covered by the FCPA are required to
establish and maintain books and records that accurately demonstrate
all transactions of the company.
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FCPA – Anti-Bribery Provisions

Prohibited Payments: It is unlawful to pay or give (or offer, promise or authorize
to pay or give) money or “anything of value” to a “foreign official,” a foreign political
party or official thereof, a candidate for foreign political office, or any person, while
knowing that all or a portion of such money or thing of value will be paid or offered
to pay any of the preceding, to influence official action or decisions or to secure any
improper business advantage in order to direct, obtain or retain business to, for or
with any person.

Five elements:
Who - Applies to any U.S. company, issuer, officer, director, employee or
agent of such company or issuer.
Payment - Cannot offer, pay or promise to give money or “anything of value.”
Corrupt Intent - The payer must have a corrupt intent and the payment must
be intended to induce misuse of an official position.
Recipient - To any “foreign official,” foreign political party or official thereof,
candidate for foreign political office, or any third party, if it is known that the
payment will be used to influence official action or secure improper advantage
in violation of the FCPA.
Business Purpose Test - To influence official action or to secure any
improper advantage in order to direct, obtain or retain business.
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Who Is Bound?
 “Domestic concerns” – US citizens, nationals and residents,
and corporations and other business entities having their
principal place of business in the United States or
organized under US laws.

 Other persons who act in furtherance of a corrupt payment

while in a territory of the United States (i.e., by use of U.S.
mail, faxes, wire transfers, etc.)

 Potential liability for acts of non-US citizens (i.e.,

authorized, directed or controlled activities of a foreign
subsidiary)
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FCPA-Prohibited Payments
 Prohibited Payments: Cannot offer, pay or promise to give “anything of
value”, which may include, among other things:
 Cash
 Cash Equivalents
 Services
 Payment of Travel Expenses
 Entertainment Expenses
 Gifts
 Loans
 Charitable Contributions
 Promises of Future Employment
 College Scholarships
 Sports or Other Equipment
 Intangible Property (e.g., information)
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FCPA: What is Corrupt Intent?

The person making or authorizing the payment must have a
“corrupt intent”, and the payment must be intended to induce the
recipient to misuse his official position to direct business wrongfully
to the payer or to any other person.

A corrupt act need not succeed in order to violate the FCPA. The
mere offer or promise of corrupt payment may be sufficient.
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FCPA: Who is a “Foreign Official”?

The FCPA broadly defines “foreign official” as:
Any officer or employee of a foreign government, or any
department, agency, or instrumentality of such government;
Any officer or employee of a public international organization
(e.g. the UN);
Any person acting in an official capacity for or on behalf of any
such foreign government or department, agency, or
instrumentality, or for or on behalf on any public international
organization (i.e., may even include a member of the foreign
country’s royal family); and
Officers, employees and agents of government-owned or
controlled commercial entities.
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FCPA – Business Purpose Test

 Business Purpose Test/Prohibited Activities: Cannot pay or give, or
offer, promise or authorize to pay or give, money or “anything of value”
for the purpose of:

 influencing any act or decision of a foreign official, party or

candidate in his or its official capacity, or
 inducing such foreign official, party or candidate to do or omit to do
any act in violation of their lawful duty, or
 securing any improper advantage, or
 inducing any foreign official, candidate or party to use his/her or its
influence with a foreign government or instrumentality thereof to
affect or influence any act or decision of such government or
instrumentality, or
 any person, while knowing that all or a portion of money or a thing
of value will be paid or offered to any of the preceding, in order to
assist the company in obtaining or retaining business for or with, or
directing business to, any person (e.g., business may include,
among other things, obtaining contracts with the government or
any non-governmental party, diminution of duties or taxes,
obtaining registrations or licenses, etc.).
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FCPA: Definition of “Knowledge”

 It is illegal to pay ANYONE when knowing that all or part of the
payment will be passed to a “foreign official” or other prohibited
persons for purposes of directing, obtaining or retaining business.

 “Knowledge” is defined to include:

Actual knowledge
Awareness of a high probability of the existence of the
circumstance
Willful blindness (consciously disregarding facts)
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FCPA-Exceptions and Affirmative Defenses

 Exception
Facilitating payments (i.e., “grease” payments) in order to
secure routine governmental action

 Affirmative defenses
(1) Payment lawful under written foreign law – very rare
(2) “Reasonable and bona fide expenditure” directly related to the
promotion, demonstration or explanation of services, or the
execution or performance of a contract with a foreign
government or agency thereof
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FCPA - Exception
 “Facilitation Payments” for routine governmental actions, including:
Obtaining licenses or permits to do business
Processing government papers (visas, work orders)
Providing police protection, mail or cargo service
Providing telephone service, power or water supply
 Caveats
Must be ministerial – no discretionary authority
Cannot affect decision to award new business or to continue
existing business
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FCPA – Affirmative Defenses

 Payment lawful under foreign law
 There must be something in the written law or regulations of the
foreign country (this is very rare).
 Traditional or customary payments that are not legally enforced
do not qualify.

 Reasonable and bona fide business expenditure

 Incurred to promote or demonstrate a business or product; must
be directly related to a legitimate business purpose.
 Includes trip expenses, tours of company facilities, product
demonstrations and training.
 Must be reasonable and bona fide.
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FCPA – Materiality Irrelevant

 No materiality threshold for FCPA
 Any prohibited payment is wrongful
 FCPA non-compliance can have material negative impact on
operations and reputation

 Criminal and civil penalties may be substantial

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FCPA Penalties
Anti-Bribery Financial Reporting

Criminal
Individual Fines up to $250,000 Fines up to $5M

5 years imprisonment 20 years imprisonment

Corporate Fines up to $2M Fines up to $25M
or 2x pecuniary gain or 2x pecuniary gain
Civil
Individual $6,500-110,000
$11,000 per violation per violation
Corporate
$11,000 per violation $60,000-600,000
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Other FCPA Enforcement Options

 Criminal fraud charges
 Censure
 Civil injunctive action
 Administrative cease and desist proceedings
 Disgorgement of ill-gotten gains
 Pre-judgment interest
 Loss of certain U.S. export privileges
 Cancelation of contracts by foreign governments
 Debarment by foreign governments
 Other remedial measures
 Debarment by the U.S. government
 Implementation of FCPA compliance program
 Independent monitor
 Continuing reporting obligation
 Deferred prosecution agreements
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FCPA – Red Flags
 Companies with significant overseas
operations
 Operations in countries with high
risk for bribery (i.e. Southeast Asia,
Middle East)
 Operations in high risk industries
(i.e. defense, aircraft, oil,
engineering, construction)
 Joint ventures with foreign
government entities
 Foreign consulting/agency
relationships
 Large payments to foreign agents
relative to local prevailing rates for
services provided
 Agent refuses to provide FCPA
compliance representations
 Unusual bonuses paid to
foreign operational managers
 Unusual payment
arrangements to vendors
 Commissions inconsistent with
the going rate
 “Public red flags” such as
political contributions, payoffs,
bribes, kickbacks or excessive
rebates
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FCPA Myths
The FCPA doesn’t apply to conduct that takes place entirely outside
of the United States without U.S. parent company involvement.
False

The FCPA applies only when doing business with foreign government
customers.
False

The FCPA applies only when money is given to a foreign official

False

The FCPA doesn’t apply when foreign officials travel to the United
States if the predominate purpose of the travel is business-related
False
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Public-Owned Enterprises
In countries where a majority of businesses may be partially state-
owned, any U.S. company or individual conducting activities with
those businesses should be aware that they may be in essence
dealing with foreign officials.
This should alert any employee or agent of a U.S. company
about the dangers of potential FCPA violations for seemingly
legal and ethical business transactions.
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Reporting Possible FCPA Violations

 Contact the Office of Hopkins Internal Audits, the Office of Vice
President and General Counsel, or the Office of International
Business Compliance.
 Call the university hotline at 877-932-6675 (1-877-WE-COMPLY).
You may remain anonymous.
 Overseas callers should identify the appropriate country code by
checking this website:
http://www.business.att.com/bt/access.jsp?c=a
 If the country you are calling from does not support international
access codes, call the operator and request a collect call to the
U.S. number 704-916-1251. All the expenses related to the call
will be paid for by JHU.
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U.S. Anti-Boycott Laws

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Foreign Embargoes and U.S. Anti-boycott Laws

 Many countries restrict trade relations with other countries as part of

their foreign policy.
 Bans on imports, exports.

 May be enforced through contract clauses, import license

procedures, country-of-origin certificates.
 Some of these restrictions are consistent with U.S. policy and
some are not.
 Defining “boycott”

Boycott involves the entering into an agreement as a condition of

doing business in a country. The agreement requires a person to
refrain from doing business in (or hiring employees from) another
country or with other persons that do business in (or hire employees
from) the other country.
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U.S. Anti-Boycott Laws

 Anti-Boycott Laws – counteract participation of U.S. citizens in other country’s economic
boycotts and embargoes
 Ribicoff Amendment to the 1976 Tax Reform Act (TRA)
 1977 Amendment to the Export Administration Act (EAA)

 Main Purpose – prohibit U.S. companies from participating in the Arab League boycott
of Israel or countries that are friendly to the U.S.
The primary boycott prohibits citizens of an Arab League member from buying from, selling to, or
entering into a business contract with either the Israeli government or an Israeli citizen.
The secondary boycott extends the primary boycott to any entity world-wide that does business
with Israel. A blacklist of global firms that engage in business with Israel is maintained by the
Central Boycott Office, and disseminated to Arab League members.
The tertiary boycott prohibits an Arab League member and its nationals from doing business with a
company that in turn deals with companies that have been blacklisted by the Arab League.

 Arab League members that boycott goods/services from Israel:

 Kuwait
 Lebanon
 Libya
 Qatar
 Saudi Arabia
 Syria
 United Arab Emirates
 Republic of Yemen
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Export Administration Act – Anti-Boycott Laws

 Who is Covered by the Laws?
 Applies to “U.S. persons” engaged in interstate or foreign commerce
 individuals, corporations and unincorporated associations residing in the U.S.
 permanent domestic affiliates of foreign concerns in the U.S.
 U.S. citizens living abroad

 What Does the Law Prohibit?

 Agreements to refuse or actual refusal to do business with or in Israel or with
blacklisted companies.
 Agreements to discriminate or actual discrimination against other persons based
on race, religion, sex, national origin or nationality.
 Agreements to furnish or actual furnishing of information about business
relationships with or in Israel or with blacklisted companies.
 Agreements to furnish or actual furnishing of information about the race,
religion, sex, or national origin of another person.
 Implementing letters of credit containing prohibited boycott terms or conditions.

 Tax Reform Act does not prohibit conduct but denies tax benefits for certain
types of boycott-related agreements.
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“Intent” to Boycott
No intent to comply with or respond to a boycott request –
reportable.
Unsolicited invitations to bid containing boycott-related requests are
not reportable if no response to the solicitation will be submitted.
Requests received from a boycotting country where the U.S.
company has business is reportable, even if no intent to comply
with the boycotting requests.
Activities undertaken with "intent" to further a boycott request
constitute a anti-boycott violation and is reportable.
Must have "knowingly agreed to take certain specified actions with
intent to comply with, further, or support an unsanctioned foreign
boycott.” No intent to boycott, may mean no violations.
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Reporting Requirements

 Export Administration Regulations (EAR) requires mandatory reporting

of boycott requests:
Form BIS-621P (quarterly report of Request for Restrictive Trade
Practice or Boycott - Single Transaction to Bureau of Industry and
Security’s (BIS) Office of Anti-boycott Compliance)
Form BIS-6051P (quarterly report of Request for Restrictive Trade
Practice or Boycott - Multiple Transactions to BIS)

 Tax Reform Act (TRA) requires taxpayers to report "operations" in,

with, or related to a boycotting country or its nationals and requests
received to participate in or cooperate with an international boycott.

 Department of Treasury publishes a quarterly list of "boycotting

countries."
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Exceptions to EAR Reporting Requirements

Examples of Exceptions to Reporting Requirements:

Requests for affirmative certifications regarding country of origin,

name of suppliers, manufacturers or suppliers of services, or
destinations of export;
Requests to comply with another country's laws, unless the
request specifies the country's boycott laws;
Requests to supply information about an individual for
immigration, passport, visa, or employment purposes; or
Requests to ship goods via a particular route or to refrain from
shipping goods on a carrier flying a flag of a certain country.

See 15 C.F.R. § 760.5(a)(5)

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EAA Anti-Boycott Penalties

 Civil (Administrative) Penalty
Denial or suspension of export privileges
Fines of up to $11,000 per violation and/or
Exclusion from practice

 Criminal Penalty
Up to $50,000 or 5 times the value of exports involved,
whichever is greater and/or
5 years imprisonment
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IRS Form 5713: Boycott Report

 Purpose of IRS 5713 is to report:
operations in or related to boycotting countries;
receipt of boycott requests; and/or
boycott agreements made.
 Applies to:
“U.S. persons” with operations in or related to a boycotting
country, with the government, company or a national of a
boycotting country.
U.S. branches of foreign corporations
 When: form is due at the filing of the tax returns
 Penalties: willful failure to file may result in a $25,000 fine,
imprisonment up to 1 year, or both.
 May be denied foreign tax credit among other tax benefits.
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Defining “Operations”
 “Operations” means all forms of business or commercial activities
and transactions (or parts of transactions), whether or not
productive of income, including, but not limited to: selling;
purchasing; leasing; licensing; banking, financing, and similar
activities; extracting; processing; manufacturing; producing;
constructing; transporting; performing activities related to the
activities above (for example, contract negotiating, advertising, site
selecting, etc.); and performing services, whether or not related to
the activities above.

 Reporting is required for boycott requests or boycott agreements

against Israel as well as other countries friendly to the U.S.

 Reporting is made on IRS 5713 on an annual basis to the Internal

Revenue Service.
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Examples of Boycott Requests

Prohibited Language on Purchase Orders:
In the case of overseas suppliers, this order is placed
subject to the suppliers being not on the Israel boycott list
published by the central Arab League.
Goods of Israeli origin not acceptable.
Prohibited Boycott Conditions in Contracts:
The Seller shall not supply goods or materials which have
been manufactured or processed in Israel nor shall the
services of any Israeli employees be used in handling or
transporting the goods or materials.
The Contractor shall comply in all respects with the
requirements of the laws of Saudi Arabia relating to the
boycott of Israel. Goods manufactured by companies
blacklisted by the Arab Boycott of Israel Office may not be
imported into Saudi Arabia and must not be supplied against
this Contract. For information concerning the Boycott List, the
Contractor can approach the nearest Arab Consulate.
Prohibited Boycott Condition in Instructions to Bidders
on a Contract:
No produced commodity shall be eligible for ... financing if
such commodity contains any component or components
which were imported into the producing country from Israel
and countries not eligible to trade with ... the People’s
Republic of Bangladesh. The equipment and materials must
not be of Israeli origin. The supplier/bidder who are not black
listed by Arab boycott of Israel will be allowed to participate
in this bid.
Prohibited Condition in a Trademark Application:
Requirement for the registration of pharmaceutical
companies:
Certification letter regarding the boycott of Israel (i.e., do not
comprise any parts, raw materials, labor or capital of Israeli
origin).
Prohibited Boycott Condition in Tenders:
The quotation should not include any material manufactured
or exported by Boycotted companies as per the Kingdom of
Saudi Arabia regulations.“
The bidder/supplier who are not subject to the Boycott
regulations of the League of Arab States or of the Kingdom of
Saudi Arabia will only be considered.
Prohibited Boycott Language Against Countries Other
Than Israel:
The Service Provider will not hire employees of Indian origin
to fulfill the tasks outlined in this Memorandum of
Understanding.
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Conclusion
This session covered
The requirements of the Foreign Corrupt Practices Act and U.S.
Anti-Boycott Laws
How these laws apply to the university’s activities in foreign
countries
How the university can remain compliant with these laws and
achieve its objectives overseas
Slide 41

Resources:

Bureau of Industry and Security – Division of US Dept. of Commerce:

http://www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm

BIS Specific Examples:

http://www.bis.doc.gov/antiboycottcompliance/oacantiboycottrequestexamples.html

OFAC – Office of Foreign Assets Control: http://www.treasury.gov/about/organizational-

structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx

JHU Office of International Business Compliance – Anti-boycott Laws:

http://finance.jhu.edu/depts/ibc/anti_boycott_laws.html

DOJ – FCPA Website: http://www.justice.gov/criminal/fraud/fcpa/

DOJ Layperson’s Guide to FCPA: http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-

guide.pdf

JHU Office of International Business Compliance – FCPA: http://finance.jhu.edu/depts/ibc/fcpa.html

Slide 42

Contact Information
Questions/Comments

Bernard Justis - ejustis1@jhu.edu

(410) 516-8128

Sunanda Holmes - sunandaholmes@jhu.edu

(443) 997-5325
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Q&A
We’re going to open the phone lines now!
There will be a slight pause, and then a recorded voice will provide
instructions on how to ask questions over this conference call line.
We’ll be answering questions in the order that we receive them.
We’ll also be answering the questions that were emailed to us
during the presentation.
If there’s a question that we can’t answer, we’ll do some research
after this session, and then email the answer to all participants.
Slide 44

Thank You!
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Please email us at: fastfacts@jhu.edu
Slide 45

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