Readers of business news know that a term du jour these days is “inversion.” In other words and at the risk of oversimplification , the process by which, largely for tax reasons, a U.S. company acquires a foreign company, obtains that foreign company’s “legal address,” yet maintains – in many cases – its operational base in the U.S.
I’ve been asked a few times recently what impact, if any, “inverting” will have on a company’s FCPA exposure. My answer has been very little, if any, impact.
Most of the companies that are “inverting” remain issuers under the FCPA. Moreover, even if an “inverted” company is not an issuer, because most of these companies are keeping an operational base in the U.S. – even if a legal address elsewhere – it is likely that the DOJ would consider such companies to be “domestic concerns” under the FCPA.
The FCPA defines “domestic concern,” in pertinent part, as follows.
“any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”
In other words, place of incorporation and “legal address” is one way for an entity to be a domestic concern under the FCPA, but so too is having a principal place of business in the U.S.
For instance, in the Weatherford action, the DOJ stated:
“Prior to March 2009, Weatherford was incorporated in Bermuda and headquartered in Houston, Texas … As of March 2009, Weatherford was incorporated and headquartered in Switzerland, although it maintained a significant presence in Houston, Texas.”
In short, while inversions may have tax implications, it is difficult to see any meaningful implication under the Foreign Corrupt Practices Act.
It Can Be Done
You know the narrative.
In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron. Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business. Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and business organizations can’t mount legal and factual defenses to criminal charges. Thus, the DOJ has crafted, and the business community has accepted, alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.
Never mind that the narrative is based on a false premise. (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).
Nevertheless, the narrative persists and is accepted by some as gospel truth.
I have been publicly wondering since 2010 (see here) what the “shelf life” of the Arthur Anderson effect would be and how long the Arthur Anderson myth would be believed.
If there are still believers, witness yet another instance (PG&E from earlier this year was an example as well – see here) that companies (even publicly-traded companies) can mount legal and factual defenses to what the company views as aggressive and overzealous DOJ enforcement theories.
As widely reported, last week FedEx Corporation, FedEx Express, Inc., and FedEx Corporate Services, Inc., were criminally indicted “with conspiracies to traffic in controlled substances and misbranded prescription drugs for its role in distributing controlled substances and prescription drugs for illegal Internet pharmacies.” (See here for the DOJ release).
In response, FedEx issued this statement which stated, in pertinent part, as follows.
“FedEx is innocent of the charges brought today by the Department of Justice. We will plead not guilty. We will defend against this attack on the integrity and good name of FedEx and its employees.”
FedEx stock is still trading, (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business. In fact, a FedEx truck just went down my residential street a few hours prior to writing this post.
While the FedEx example is outside the FCPA context, the message to corporate boards, audit committees, and other corporate leaders should be clear.
Yes, there are “carrots” and “sticks” which motivate risk-adverse business organizations to do things regardless of the law or facts in any particular matter. However, fighting back against what the company perceives to be aggressive and overzealous DOJ theories is an acceptable and viable option in many cases despite speculative doomsday scenarios to the contrary.
If more companies would do what FedEx is doing in the FCPA context. and thereby expose certain DOJ and SEC theories of enforcement, I am confident of one thing. This “new era” of FCPA enforcement would look different than it does today. In this regard, and as highlighted in my recent article, the business community is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer, a dean of the FCPA bar, recently observed:
“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”
Kudos to FedEx, its board, counsel and corporate leaders for having the courage of conviction and not rolling over and playing dead in the face of DOJ scrutiny. (Note, last year UPS resolved its alleged scrutiny for the same core conduct by agreeing to a non-prosecution agreement in which it paid $40 million).
In-House Counsel Opportunity at Avon
Avon Cosméticos, a subsidiary of Avon Products, Inc., based near Buenos Aires, Argentina, is looking for an attorney to join the Ethics & Compliance team. The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the South Markets Group (Argentina, Chile, Paraguay and Uruguay). The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls. A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy. As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives. A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies. Prospective candidates should apply via the Avon website: https://avon.zonajobs.com.ar/