FCPA Opinion by DOJ on Stock Buyout of Former CEO/Current Government Official

April 2, 2014 — The U.S. Foreign Corrupt Practices Act (FCPA) makes it a crime for companies to pursue business abroad by paying bribes to foreign government officials. Such kickbacks and payoffs only serve to create an unsteady marketplace and to prejudice honest competitors. To stop the practice, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created a whistleblower program that offers substantial rewards for informants with a conscience who notify the U.S. Securities and Exchange Commission (SEC) about FCPA violations.

Where Risk is Low that Stock Buyout Disguises Bribe Payment, DOJ Says No FCPA Violation

The U.S. Department of Justice (DOJ) has released an opinion concerning the FCPA implications when a multi-national company buys back stock held by a former company executive who is currently a government official. An unnamed company asked the DOJ in July 2013 for its opinion in a case where the CEO of a foreign subsidiary had been appointed as a foreign government official at an agency that had been a client of the company for many years. The former CEO asked the company to buy out his shares at a higher price than his original contract would have offered.
The Wall Street Journal described the DOJ’s reasons for deciding that the buyout did not violate the FCPA under the conditions outlined in that case:
  • The former CEO was a passive shareholder with no duties at the company.
  • The former CEO expressly recused himself from making any decisions concerning government contracts with the company. Further, those sorts of decisions were made in practice by others further down the management chain.
  • The company retained a respected global accounting firm to place a fair value on the former CEO’s shares. The problem was that under the original agreement, the shares would have been worthless because of the company’s losses in the financial crisis. The former CEO would have sued the company to receive what he thought was a fair price. The risk that any payment would be seen as a bribe, in violation of the FCPA, was minimized by using an independent accounting firm.
  • To prevent an ongoing conflict of interest, it was better that the company find a way to buy out the former CEO’s stock.

Whistleblowers Tip Off Government to Foreign Bribery Operations

Our qui tam lawyers have earned their success in representing whistleblowers willing to collaborate with the government. We understand that it isn’t always easy to take the first step in notifying the government about an employer’s foreign bribery operations. At Waters & Kraus, our whistleblower lawyers are dedicated to protecting informants’ rights. Contact us by email or phone our FCPA lawyers at 855.784.0268 to discuss how we can work together to fight illegal foreign bribery.

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