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31 Franchise L.J. 140 (2011-2012)
Implications of the Foreign Corrupt Practices Act for International Franchising

handle is hein.journals/fchlj31 and id is 140 raw text is: Implications of the Foreign Corrupt Practices Act for nternatona Franchising VICTOR VITAL AND JESSICA L. PARKER-BATTLE lobalization and expan- sion have become mainstays that various U.S.-based franchises employ in their operations. It is there- fore important to be aware of the various risks and potential responsibilities that come with such expansion. Specifically, companies interested in or cur- rently involved in international franchising must be aware of Victo a potential liability and respon- sibility under the Foreign Cor- rupt Practices Act (FCPA). This article will address the FCPA in the context of international franchising, recent developments in this area, and suggested best practices to employ while operat- ing internationally. erview of h FCPA In 1977, the Securities and Lxchange Commission (SEC) Jessica L. Parker-Battle conducted a series of investiga- tions based on information that there was widespread corpo- rate corruption after the Watergate scandal.' After a nunber of these investigations showed some form of bribery or ques- tionable payments to foreign officials, Congress passed the f CPA. Generally, the FCPA prohibits payments made with a corrupt intent or inducements to foreign officials for the purpose of obtaining or keeping business. From its incep- tion, the FCPA has been a tool to decrease and ideally elimi- nate corruption between companies and individuals doing business in or with the United States and foreign officials in .matters of trade and conunerce. However, in recent years the Department of Justice (DOJ) and the SEC have increasingly used this tool in their proclaimed international fight against corruption, most notably against businesses that have not traditionally been thought of as being at risk for a FCPA vio- lation (e.g., foreign companies with minimal contacts with the United States). In 2009, DOJ officials stated, enforcement of the FCPA is second only to fighting terrorisn in terms of priority, and the number of cases opened were at least triple the number four years prior., Victor Vital is a shareholder at Greenberg Traurig LLP in Dallas. Jessica L. Parker-Battle is an attorney at Greenberg Traurig LLP and practices in Boston and Texas. Because the DOJ and SEC are unabashedly using the Act to indict and convict companies and individuals domestically and internationally in various industries, franchisors seeking to move into international markets must be aware of and edu- cate themselves about the FCPA and other antibribery laws. Primary Provisions Under the FCPA The DOJ is the chief FCPA enforcement agency, and it coordinates its efforts with the SEC. The Office of General Counsel of the Department of Commerce also answers gen- eral questions concerning the FCPA's basic requirements and restrictions from U.S. exporters. Under the FCPA, there are two primary components: the antibribery provisions4 and the accounting provisions,' which include requirements to (1) make and keep books, records, and accounts that accurately and fairly reflect the transactions of a company and (2) devise and maintain sufficient internal accounting controls. The DOJ primarily handles the enforcement of the antibribery provisions, while the SEC primarily handles the accounting and books and records provisions. Antibribery Provisions Under the FCPA, it is unlawful to bribe a foreign official (any officer or employee of a foreign government or any department, agency, or instrumentality thereof, . . . or any person acting in an official capacity for or on behalf of any such government, department, agency, or instrumentality6) to obtain or retain business.' The FCPA potentially applies to any individual, firm, company, officer, director, employee, agent of a company, or stockholder acting on behalf of a firm.' Individuals and firms can also be penalized if they order, authorize, influence, induce, or assist someone else to violate the antibribery provisions or if they conspire to violate those provisions.) The DOJ has interpreted its juris- diction over corrupt payments to foreign officials based on whether a violator is an issuer, a domestic concern, or a foreign national or business.' Who Falls Under the FCPA An issuer is a corporation that has issued securities or pro- poses to issue securities registered with the United States or is required to file reports with the SEC. A domestic con- cern is any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, asso- ciation, joint-stock company, business trust, unincorporated organization, or sole proprietorship that has its principal place of business in the United States, or that is organized under the laws of a state of the United States or a territory, possession, or commonwealth of the United States.2 Issuers and domestic concerns are held liable under the 140 Franchise Law journal N Winter 2012

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