By Sandeep Thomas Chandy & Tanya Goyal
In 2008, India’s Defense Research and Development Organization (DRDO) purchased three Embraer aircraft from the Brazilian aeronautical company Embraer S.A. for building indigenous Airborne Early-Warning and Control Systems (AEW&C) for the Indian Air Force. Last week, international media reported that this $208 million deal with DRDO and another deal with a company in Saudi Arabia are being investigated by the US Justice Department under the Foreign Corrupt Practices Act. The question that comes to one’s mind is why should the US Justice Department investigate corrupt practices of a Brazilian company in India and Saudi Arabia?
The Foreign Corrupt Practices Act, 1977
The Foreign Corrupt Practices Act, 1977 (FCPA) was enacted by the United States Congress to prevent US Companies from bribing foreign government officials. This statute grants a broad jurisdiction to the officials of U.S. Department of Justice (DoJ) and U.S. Securities and Exchange Commission (SEC) to enforce prohibitory regulation over corrupt payments to foreign officials by an issuer, domestic company or a foreign national or business.1 The statute defines an issuer to be a corporation who is required to file periodic reports with the Securities and Exchange Commission (SEC) or that has issued securities registered in the United States.2 As per the definition, even a foreign company that lists shares on US Stock Exchanges is covered.
The FCPA prevents issuers and foreign nationals from using US mails, wires or other instrumentalities of interstate commerce in furtherance of a corrupt payment to a foreign official.3 By using “in furtherance”, the drafters have kept the threshold low thereby requiring only to establish something more than mere conceiving of the idea of paying a bribe.4 Also the statute by defining “interstate commerce” to include foreign countries have expanded the jurisdiction to beyond the boundaries of the United States. Therefore, placing a telephone call or sending an email, text message or fax from, to or through United States or sending a wire transfer from or to a US bank or otherwise using the US banking system falls within the meaning of interstate commerce.5 As the per the
It is normal for any anti-corruption statute to cover domestic companies and nationals but the FCPA has an abnormally wide jurisdiction to call it a near universal jurisdiction. Entities rarely challenge the aggressive jurisdictional position, in lieu of the intense pressure to disqualify the FCPA charges, though the majority of the cases are settled outside the courtrooms.
Embraer – DRDO kickbacks
Embraer S.A. though is a Brazilian entity, unfortunately or fortunately listed its American Depository Receipts in the New York Stock Exchange. Due to this, Embraer S.A. is an “issuer” under the FCPA as it has listed its securities on an American stock exchange. As per reports, Embraer offered kickbacks and used middlemen to secure contracts in India (DRDO), Saudi Arabia and Dominican Republic. The FCPA also allows for prosecution if the books and accounts of the issuer is not maintained accurately. It is usual for companies to manipulate books and accounts so as to hide payments which are prohibited under the FCPA. The reports also state that Embraer is working on a settlement of these charges with the American authorities and has even set aside $200 million pay any eventual fines that may come about as a result of the process.6
Other Indian FCPA Cases
In United States v. Dmitry Firtash7, Rajya Sabha MP Mr. KVP Ramachandra Rao who was the former aide of Andhra Pradesh Chief Minister Late Mr. YS Rajashekhara Reddy allegedly conspired with five others to pay at least $18.5 million as bribes to Indian officials for securing licenses to mine minerals in Andhra Pradesh.8 As of April 2014 all the accused have been indicted and five out of six defendants have been charged with violating FCPA provisions.9
Louis Berger, a New Jersey registered company agreed to pay $17.1 million for settlement of charges under the FCPA. During the settlement process, Louis Berger agreed to have bribed official in Goa including then Chief Minister Mr. Digambar Kamat and Public Works Department Minister Mr. Churchil Alemao.10
It is quite appalling that premier Indian agencies like Central Bureau of Investigation (CBI), Central Vigilance Commission (CVC) and the Comptroller and Auditor General of India (C&AG) failed to unearth the corruption and mismanagement in these multimillion dollar contracts which happened on Indian soil while a foreign agency located on the other side of the world was able to.
1 Foreign Corrupt Practices Act, anti- bribery provisions, Available at: http://acfcs.org/wp-content/uploads/2012/05/FCPA-DoJ-Laypersons-Guide.pdf, Last visited on 11-09-2016 at 12:31
2 Anti-Bribery and Books & Records Provisions of The Foreign Corrupt Practices Act § 78m available at : https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/fcpa-english.pdf , Last visited on 11-09-2016 at 12:31
3 Supra – § 78dd-1
4 (OECD) Supplemental response to phase 1 questionnaire, Paragraph 1.1.3 –available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/supplement.pdf. Last visited on 11-09-2016 at 12:31
5Laporte Margot, et.al Should FCPA “Territorial” Jurisdiction Reach Extraterritorial Proportions?Vol. 42 No.1 available at : http://www.americanbar.org/publications/international_law_news/2013/winter/should_fcpa_territorial_jurisdiction_reach_extraterritorial_proportions.html, Last visited on 11-09-2016 at 12:31
6 Supra, note 1
7 Court Docket Number – 13-CR-515.
8 http://timesofindia.indiatimes.com/india/Long-arm-of-US-law-nails-Andhra-MP-KVP-Ramachandra-Rao-in-bribery-case/articleshow/33148345.cms
9 http://www.fcpablog.com/blog/2014/4/2/six-indicted-for-india-mining-bribe-plot.html
10 http://www.business-standard.com/article/current-affairs/a-corruption-probe-in-us-creates-ripples-in-goa-115080301485_1.html
This article is co-authored by Ms. Tanya Goyal.
Sandeep Thomas Chandy, Final Year, Jindal Global Law School
Tanya Goyal, Final Year, Jindal Global Law School