November 18, 2008

THE FINANCIAL CRISIS MAY TRIGGER INCREASED FCPA SCRUTINY

In response to the current global financial crisis, large corporations and businesses, particularly financial services organizations, are seeking new investment opportunities. Some have invested heavily in sovereign wealth funds (SWF), state-owned investment vehicles pooled from a foreign nation’s economic reserves. Yet in undertaking these new business initiatives, many may have unknowingly exposed themselves to possible FCPA scrutiny.

In the case of SWF investment, businesses must be mindful that the definition of “foreign officials” under the FCPA has expanded beyond the traditional classification of foreign dignitaries or elected officials. It may include any business, as well as its representatives, that is managed by the investment arm of a foreign country or receives funding from a foreign country’s investment fund, if the foreign government exercises certain levels of control.

Accordingly, a company may unwittingly be doing business with those to whom it is forbidden to give gifts or make certain payments and may not have the necessary internal controls in place to address the heightened scrutiny required by the FCPA in connection with such transactions. Businesses actively seeking SWF investment, or those businesses that transact with clients who have received SWF investment, may find themselves caught up in FCPA liability. Similarly, under principles of successor liability, businesses that have engaged in mergers and acquisitions may inadvertently inherit the FCPA liabilities of the target company.

This potential exposure comes at a time when both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have made it a top priority to investigate and enforce FCPA violations.

For our readers, we have prepared a brief overview of these issues. Please read it here.