Forensics Journal - Stevenson University 2015 | Page 39

FORENSICS JOURNAL

Conversely, there are stark differences between the agreement reached
with Ralph Lauren Corporation and that with Hewett Packard (HP).
HP was fined $108 million dollars verses $882,000 for RLC. This
illustrates the scope of penalties that the government can levy based
upon their investigation of the organization’s response to bribery and
corruption risk.

controlled entities referred to in the FCPA as “instrumentalities”
(U.S. Department of Justice A Resource Guide to FCPA).
On May 16, 2014, the 11th Circuit Court of Appeals upheld the
broad definition in US vs. Esquenazi (King, 2014). The 11th Circuit
Court is the first appellate court to rule on this issue thus its ruling
will have a broad impact on all future business transactions subject
to the FCPA. The FCPA section on foreign officials is one of the most
difficult areas to interpret and the subject of “instrumentality” remains
vague when applied to foreign officials. Historically, the government
has used this vagueness to their advantage by expanding the scope and
reach of the investigation.

Based upon the prosecutor’s comments, it appeared that the
government believed the RLC had an effective, robust, anti-bribery
program whereas HP apparently did not.
Under a Deferred Prosecution Agreement (DPA) the DOJ files a
court document charging the organization while simultaneously
requesting prosecution be deferred in order to allow the company to
demonstrate good conduct going forward. The DPA is an agreement
by the organization to: cooperate with the government, accept the
factual findings of the investigation, and admit culpability if so
warranted. Additionally, companies may be directed to participate in
compliance and remediation efforts, e.g., a court-appointed monitor.
If the company completes the term of the DPA the DOJ will dismiss
the charges without imposing fines and penalties.

In-depth analysis of the entity’s ownership, function and relationship
to the foreign state is required in order to ascertain if an entity is
an instrumentality of a foreign government. This analysis must
determine if key officers and directors of the entity are government
officials or have some relationship to the government in question.
The 11th Circuit Court of Appeals upheld the DOJ definition of
“instrumentality” as “an entity controlled by the government of a
foreign company that performs a function the controlling government
treats as its own” (U.S. DOJ A Resource Guide to FCPA).

Under the Non-Prosecution Agreement the DOJ maintains the
right to file charges against the organization at a later time should
the organization fail to comply. The NPA is not filed with the courts
but is maintained by both the DOJ and the company and is posted
on the DOJ website. Similar to the DPA, the organization agrees to
monetary penalties, ongoing cooperation, admission to relevant facts,
as well as compliance and remediation of policies, procedures and
controls. If the company complies with the agreement, the DOJ
will drop all charges.

Four questions are considered when determining if an entity equals
an instrumentality. These include: 1) Has the entity been designated
by the state? 2) Does the government have a majority interest? 3)
Is the government involved with appointing or terminating the
entity’s principals? 4) Is the government involved with managing
profits and losses?
The Esquenazi decision expands the number of foreign entities
within the FCPA’s domain. The Court has clearly indicated that
an entity with minor government ownership could be deemed
an instrumentality if the entity performs a government function.
This creates further compliance problems for US companies.

The key differences between the RLC and the HP cases was the
initial response to the discovery of improper payments. The RLC
response included “prompt self–reporting, full cooperation with
the government and the serious remedial steps taken,” including
termination of a customs broker and the winding down of their
operations in the country where the violations occurred. Additionally,
the RLC discovered the improper payments while in the process of
enhancing their anti-bribery and corruption controls. The SEC’s
FCPA Unit Chief indicated that it was “RLC’s self-policing and
self-reporting that were the reasons for the amicable resolution”
(U.S. DOJ Ralph Lauren Corporation, 2013).
DIFFICULTIES WITH FCPA COMPLIANCE

On April 16, 2013, Parker Drilling entered into a three year
Deferred Prosecution agreement with the DOJ, paid $11,760,000
in fines and agreed to implement an enhanced compliance program.
The settlement alleged that Parker Drilling “violated the bribery,
books and records, and internal control sections of the FCPA by
making $1.25 million in improper payments through a third party
intermediary that Parker knew would use the funds to entertain
Nigerian Customs officials in order to influence them to agree to
$3 million in reduced customs fines” (U.S. DOJ Parker Drilling).

The FCPA defines a Foreign Official as “any officer or employee of a
foreign government; or any department, agency, or instrumentality
thereof; or of a public international organization; or any person
in an official capacity for or on behalf of any such government or
department, agency or instrumentality.” Such an all-encompassing
definition poses a compliance challenge to US businesses. This
problem is exacerbated with regard to the state owned or state-

The use of third party intermediaries poses a challenge for US
organizations attempting to comply with the FCPA. First, it is
difficult to manage the actions of a third party operating in a foreign
country, engaged in different business practices and customs than
the United States. Second, there appears to be a misconception by
executives that a company is not liable for actions taken by a third
party conducting business on the US Company’s behalf. Avoidance
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