US Securities and Exchange Commission and Department of Justice Clarify 'Best Practices' for FCPA Compliance

Originally published January 11, 2011

Keywords: SEC, Foreign Corrupt Practices Act, DOJ, RAE Systems Inc., compliance, anti-corruption, bribery,

A recent Securities and Exchange Commission (SEC) and Department of Justice (DOJ) settlement provides companies with guidelines to follow in order to limit exposure under the Foreign Corrupt Practices Act (FCPA). On December 10, 2010, the SEC and DOJ announced a settlement in their FCPA enforcement action against RAE Systems, Inc. In its action against RAE, the SEC alleged that the company, through its Chinese joint venture entities, made payments of approximately $400,000 to Chinese officials, which allegedly resulted in RAE-affiliated entities winning contracts worth approximately $3 million in revenues. The SEC further alleged that RAE lacked sufficient internal controls and failed to act on red flags raised by the conduct of its Chinese joint venture partners. As part of the settlement, RAE agreed to disgorge the $1,147,800 of profits collected and pay prejudgment interest.

Perhaps more importantly, RAE also agreed to undertake certain measures aimed at ensuring future compliance with the FCPA. These provisions largely mirror those agreed to by Panalpina and other defendants in a November 2010 settlement of a major FCPA case brought by the DOJ and provide companies with a guideline of the current "best practices" used by the DOJ and SEC in assessing FCPA compliance. These guidelines are a valuable tool available to companies seeking to assess the strength of their existing compliance provisions and to limit their risk of FCPA exposure. Among other things, the guidelines require that companies:

Develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA and other anti-corruption laws. This policy should be memorialized in a written compliance code. Ensure that senior management provides strong, explicit and visible support and commitment to the compliance policy. Develop standards designed to reduce the prospect of violations of the anti-corruption laws. These standards should apply to all directors, officers, employees and, "where necessary and appropriate, outside parties" acting on behalf of the company. These outside parties could include agents, intermediaries, consultants, representatives, distributors, teaming partners, consortia and joint venture partners. The standards and procedures should include policies relating to: gifts; hospitality...

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