U.S. Seeks a Level 'Paying' Field

The U.S. government's recent efforts to encourage foreign countries to take a stand against corruption in countries such as Russia has thrown the spotlight on one American law that affects companies doing business here -- the U.S. Foreign Corrupt Practices Act.

The U.S. Congress enacted this law in 1977, after American firms operating in Japan were found to have several government ministers on their payrolls.

For U.S. companies doing business in Russia, knowing what is and is not allowed under the act and subsequent amendments is vital, and Western law firms here have been kept busy gathering data to keep companies abreast of developments regarding the law.

Anti-bribery provisions in the act, which applies to U.S. firms and parent companies of foreign subsidiaries, make it unlawful "for a firm (as well as any officer, employee or agent of the firm) to offer, pay, promise to pay ... anything of value ... to any foreign official for the purpose of obtaining or retaining business."

Violation of the FCPA is punishable by fines of up to $2 million for a corporation, and a fine of up to $100,000 and imprisonment for up to five years for corporate officers, directors, employees or agents.

The act covers not only to U.S. citizens, but their foreign employees as well. "This applies to all Russian employees of a U.S. company," said one Western lawyer. "So Russians with a long tradition of gift-giving have to be really trained."

Once an allegation is brought forth by a private individual or state entity, the U.S. Justice Department acts as the prosecutor. The Justice Department was repeatedly contacted for this article, but at press time had not provided information on the number or nature of violations of the act by U.S. companies operating in Russia.

Moscow attorneys and U.S. Commerce Department officials noted that in this sensitive area, the government is unlikely to release information about ongoing cases.

Full compliance with, and application of, the Foreign Corrupt Practices Act by a U.S. entity remains somewhat confusing, legal experts say. The act is similar to the new Russian Criminal Code, which lawyers say does not adequately define the term "corruption."

Another difficulty with the act is the issue of intent. According to a report in the U.S.-based National Law Journal, the test is whether a payment was intended to induce the recipient to misuse his or her official position in order to direct business toward a paying company.

A 1988 amendment to the act allows U.S. firms to make payments to facilitate or expedite routine governmental action, such as obtaining permits and licenses, having phone lines, power and water installed and numerous other bureaucratic and administrative activities.

U.S. companies should still use considerable caution prior to using this potential exception, because it is often difficult to determine exactly what the amendment is meant to convey, notes the National Law Journal. In addition, the legal burden of proof is on the defendant, who must demonstrate that a payment was legal, rather than on the prosecution to prove that it was not.

"It remains a major disincentive for [U.S. companies] in the Russian export market," Eugene Lawson, president of the U.S.-Russia Business Council, said by telephone from Washington. "It means you can't play in the rough-and-tumble game here. If you pay your taxes and play by the rules, then it's a double whammy."

Lawson noted that the German government even provides tax write-offs for certain business transactions that require a form of bribery. Many U.S. companies have lost out, particularly in areas such as telecommunications, defense and natural resources, which involve government contracts, he said.

Lawyers representing U.S. firms in Moscow echoed Lawson's statements and said these cases almost never go to trial and that the mere allegation of a U.S. company's impropriety would destroy its reputation.

The United States has lobbied Western countries for an agreement that would prohibit bribery and other corrupt practice, but to date the efforts have been mostly unsuccessful.

The international Organization for Economic Cooperation and Development agreed last spring to make every member state eliminate tax deductibility of an overseas bribe and make foreign bribery illegal.