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Corrupt practices

AN anti-corruption accord recently reached among the 29 nations who make up the Organization

for Economic Cooperation and Development (OECD) takes some of its main principles

from the US Foreign Corrupt Practices Act of 1977. This Act prohibits US companies

(and individuals) from making payments to foreign officials under certain circumstances.

It has been seen by many to hamstring US companies in competing with their OECD counterparts

on government contracts and similar transactions.

With the advent of these measures, more companies and governments may have to play

by rules similar to those set out in the US Foreign Corrupt Practices Act. Many officials

in developing countries are accustomed to dealing with U.S. companies in this regard.

However, the OECD accord will widen the prohibition on bribery payments to 28 additional

countries - whose companies pour millions of investment dollars each year into the

developing world.

So what is the Foreign Corrupt Practices Act and what does it prohibit? Below we

give a general overview of the key elements of the Act.

1. Who may be prosecuted?

Usually the entity prosecuted under the Act will be a US Company or a company partly

owned by a US company. But agents and employees of companies may also be prosecuted.

The payment in question must have some connection to US commerce (i.e. a US business

interest referred to a payment in a telephone conversation.). The technical legal

terminology under US law is the "use of interstate commerce" to further

the corrupt payment. Acts wholly in a foreign country or between foreign countries,

with no US connection, do not fall under the Act.

2. Type of Payments.

The Act covers actual payments, as well as the offer or promise to pay. It covers

payment in cash or payment of anything of value, such as shares in a company, land,

jewelry, vacations, etc.

3. Intent Required.

The Act only prohibits payments if the person making the payment intends or desires

that the payment be used to induce or influence the government official to misuse

his official function.

4. Knowledge of Direct or Indirect Payment. The person making the payment

must know that all or part of the payment will be used to pay a government or party

official. The Act's definition of knowledge is broad. In addition to actual knowledge,

it also includes situations where the companies deliberately take actions to avoid

learning the truth about the payment.

5. Direct or Indirect Payment.

The Act prohibits direct payments, as well as those paid indirectly. The Act includes

situations where a company pays directly to the official, or where a company hires

an agent or middleman who pays some or all of the agent's fee to the official. If

an agent is used, the company will be considered to have knowledge of the bribe if

it is aware that it is "substantially certain" that the payment will be

used to bribe the recipient.

6. Payments to Officials.

The Act prohibits payments to government officials. Specifically, it prohibits payments

to any "officer or employee" of a foreign government, government agency,

department or "instrumentality". An instrumentality of a government would

seem to include any government controlled firms.

7. Payments to Party.

The Act also prohibits payments to political parties, party officials or candidates.

8. Obtain Business.

Only payments that are used to "obtain, retain, or direct" business from

the government are prohibited under the Act. For example, a company would violate

the Act only where the payment is made to obtain the award of a contract, or to keep

a project license or concession already issued by the government, or to direct government

business to the company in general.

However, payments made to obtain "routine" government action are not prohibited.

What is routine? As a general rule of thumb, routine payments are procedural in nature

- i.e., to get an electricity or phone line, visas, some business operating licenses,

etc. The Act and regulations contain more detailed guidelines on this issue.

The effect of the recent OECD accord is a number of years away. The formal convention

will not be signed until later this year. Legislation in each OECD company is scheduled

for the following year, but delays are expected. Moreover, the national legislation

may not have the same bite as the US Act.

(- This column is provided solely for information purposes by the Mekong Law Group,

and should not be relied on as legal advice. The Mekong Law Group is a group of attorneys

admitted to practice law in Cambodia. They are associated exclusively with Dirksen

Flipse Doran & Le, a firm of international lawyers and advisers.)

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