DOJ Guidance on Consultant Engagement

The Department of Justice (DOJ) issued guidance on Sept. 1, 2010 illuminating its approach to American companies' common practice of hiring consultants with ties to foreign governments to help negotiate business deals with those governments. DOJ Opinion Procedure Rel. 10-03, Foreign Corrupt Practices Act Review (Sept. 1, 2010), http://www.justice.gov/criminalfraud/fcpa/opinion/.

“Domestic concerns” or “issuers” under the FCPA may request guidance from the DOJ in the form of an “opinion release” or “opinion procedure release” regarding possible enforcement action for specific conduct in which the company plans to engage. 28 C.F.R. pt. 80.4 (Foreign Corrupt Practices Act Opinion Procedure, Issuer or Domestic Concern). Opinion releases are public, but do not name the requesting company. Although specific to the requestor's facts ' which the DOJ assumes the requestor has presented accurately and completely ' opinion releases give useful insight into how the DOJ would approach similar fact patterns. The DOJ issued this opinion release about six months after it was requested, which is a fairly typical wait time.

The Issue

The request for guidance came from a U.S. company engaged in natural resources development. The company hired a consultant on a success-fee basis to assist in negotiations with a foreign government. The key fact was that the consultant, a U.S. entity owned by a U.S. citizen, also does lobbying and other work for the same foreign government, including the representation of ministries that will participate in discussions of the company's project. The consultant is a registered agent of a foreign government pursuant to the Foreign Agents Registration Act, 22 U.S.C. ' 611 et seq. The consultant's relationship with the foreign government raised the issue of whether the consultant and its personnel, even if they are U.S. citizens, would themselves be considered foreign officials under the FCPA. The FCPA provides that “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization” is deemed a “foreign official.” 15 U.S.C. ' 78dd-2(h)(2)(A) (emphasis added).

The Answer

The DOJ stated in its opinion release that it would take no enforcement action against the company solely on the basis of its payments to the consultant. Its reason was that the company had taken steps to defuse conflicts of interest and establish that the consultant and its personnel should not be considered government officials under the company's contract with the consultant. More specifically, the company and the consultant put into effect the following safeguards:

• The consultant's owner would cease working for the foreign government, although other employees of the consultant would continue to do such work;
• The consultant represented that none of its employees or other individuals affiliated with it are foreign officials or would become foreign officials during the contract term;
• Neither the consultant nor its owner has decision-making power on behalf of the government;
• Consultant personnel who work for the requesting company would be walled off from those who work for the government;
• For the duration of the consultancy, the consultant would not take any new work for the government or do any work for the government outside the scope of existing contracts disclosed to the requesting company; and
• The consultant would have no business relationship with the government in connection with the company's planned project and would not contact or take any material action with regard to government officials without the company's advance approval.

In addition, the consulting arrangement was disclosed to the foreign government's finance ministry, it was confirmed that the consultant and its employees are not considered government officials under local law, and the company obtained a local legal opinion that it is legal for the consultant to work for both the company and the government simultaneously.

The DOJ noted that its opinion is narrowly limited to the determination that the consultant and its personnel are not “foreign officials” for purposes of the company's payments to the consultant under the consulting contract. The DOJ also observed that the consulting relationship increases the risk of FCPA violations and that it could take enforcement action if a violation did occur; for example, if payments the company made to the consultant were passed on to officials of the foreign government.

The DOJ release referenced prior opinion releases to illustrate that business relationships with or payments to foreign officials are not per se violations of the FCPA absent “indicia of corrupt intent.” In this instance, the company benefited from transparency as to the arrangement and its efforts to avoid conflicts of interest or the violation of local or U.S. law.

Paul R. Berger is a partner at Debevoise & Plimpton LLP's Washington, DC, office. Noelle Duarte Grohmann is an associate in the firm's New York office.

The Department of Justice (DOJ) issued guidance on Sept. 1, 2010 illuminating its approach to American companies' common practice of hiring consultants with ties to foreign governments to help negotiate business deals with those governments. DOJ Opinion Procedure Rel. 10-03, Foreign Corrupt Practices Act Review (Sept. 1, 2010), http://www.justice.gov/criminalfraud/fcpa/opinion/.

“Domestic concerns” or “issuers” under the FCPA may request guidance from the DOJ in the form of an “opinion release” or “opinion procedure release” regarding possible enforcement action for specific conduct in which the company plans to engage. 28 C.F.R. pt. 80.4 (Foreign Corrupt Practices Act Opinion Procedure, Issuer or Domestic Concern). Opinion releases are public, but do not name the requesting company. Although specific to the requestor's facts ' which the DOJ assumes the requestor has presented accurately and completely ' opinion releases give useful insight into how the DOJ would approach similar fact patterns. The DOJ issued this opinion release about six months after it was requested, which is a fairly typical wait time.

The Issue

The request for guidance came from a U.S. company engaged in natural resources development. The company hired a consultant on a success-fee basis to assist in negotiations with a foreign government. The key fact was that the consultant, a U.S. entity owned by a U.S. citizen, also does lobbying and other work for the same foreign government, including the representation of ministries that will participate in discussions of the company's project. The consultant is a registered agent of a foreign government pursuant to the Foreign Agents Registration Act, 22 U.S.C. ' 611 et seq. The consultant's relationship with the foreign government raised the issue of whether the consultant and its personnel, even if they are U.S. citizens, would themselves be considered foreign officials under the FCPA. The FCPA provides that “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization” is deemed a “foreign official.” 15 U.S.C. ' 78dd-2(h)(2)(A) (emphasis added).

The Answer

The DOJ stated in its opinion release that it would take no enforcement action against the company solely on the basis of its payments to the consultant. Its reason was that the company had taken steps to defuse conflicts of interest and establish that the consultant and its personnel should not be considered government officials under the company's contract with the consultant. More specifically, the company and the consultant put into effect the following safeguards:

• The consultant's owner would cease working for the foreign government, although other employees of the consultant would continue to do such work;
• The consultant represented that none of its employees or other individuals affiliated with it are foreign officials or would become foreign officials during the contract term;
• Neither the consultant nor its owner has decision-making power on behalf of the government;
• Consultant personnel who work for the requesting company would be walled off from those who work for the government;
• For the duration of the consultancy, the consultant would not take any new work for the government or do any work for the government outside the scope of existing contracts disclosed to the requesting company; and
• The consultant would have no business relationship with the government in connection with the company's planned project and would not contact or take any material action with regard to government officials without the company's advance approval.

In addition, the consulting arrangement was disclosed to the foreign government's finance ministry, it was confirmed that the consultant and its employees are not considered government officials under local law, and the company obtained a local legal opinion that it is legal for the consultant to work for both the company and the government simultaneously.

The DOJ noted that its opinion is narrowly limited to the determination that the consultant and its personnel are not “foreign officials” for purposes of the company's payments to the consultant under the consulting contract. The DOJ also observed that the consulting relationship increases the risk of FCPA violations and that it could take enforcement action if a violation did occur; for example, if payments the company made to the consultant were passed on to officials of the foreign government.

The DOJ release referenced prior opinion releases to illustrate that business relationships with or payments to foreign officials are not per se violations of the FCPA absent “indicia of corrupt intent.” In this instance, the company benefited from transparency as to the arrangement and its efforts to avoid conflicts of interest or the violation of local or U.S. law.

Paul R. Berger is a partner at Debevoise & Plimpton LLP's Washington, DC, office. Noelle Duarte Grohmann is an associate in the firm's New York office.