DOJ Issues Second FCPA Opinion Procedure Release of the Year

03 August 2010 Publication

On July 16, 2010, the Department of Justice ("DOJ") issued its second Foreign Corrupt Practices Act ("FCPA") Opinion Procedure Release of the year. Release 10-02 was submitted to DOJ on May 17, 2010, with supplemental information provided on June 16, 2010. The release advises a non-profit, U.S.-based microfinance institution ("MFI or the "Requestor") that it may grant funds to a local microfinance organization, which has current and former government officials on its board of directors, without violating the FCPA.

According to the Release, the Requestor has a wholly-owned subsidiary organized as a limited liability company in a Eurasian country. The Requestor is in the process of converting all its local operations, including the Eurasian subsidiary, to commercial entities licensed as financial institutions. The purpose of this conversion is to help the local entities attract capital and offer new services such as savings accounts, microinsurance and remittances. According to the Release, transformation to bank status would allow the Eurasian subsidiary to offer additional services that can assist its borrowers, such as savings accounts, and would facilitate its ability to attract capital that could support increased growth in its' loan portfolio.

The Eurasian subsidiary wants to make a $1.42 million grant to a local microfinance organization as part of this conversion.

The Requestor undertook a significant three-stage due diligence process to vet the potential grant recipients. As part of the due diligence surrounding this grant, the Requestor discovered that one of the board members of the local microfinance organization and its parent "is a sitting government official in the Eurasian country and that other board members are former government officials." It did not, however, identify any potential corruption, as the sitting government official serves in a capacity that is completely unrelated to the microfinance industry.

Additionally, the Requestor has stated the grant would be subject to the following controls: staggered payment of grant funds; ongoing monitoring and auditing; earmarking of funds and capacity-building; prohibition on compensating board members; and anti-corruption compliance provisions in the grant documents.

Based on these facts, DOJ indicated that it does not intend to take any enforcement action with respect to this proposal. The Opinion Release explains that, while the purpose of the proposed grant is to obtain or retain business, the Eurasian subsidiary's grant is a condition precedent to transforming to bank status. DOJ said that the issue is whether the proposed grant would amount to the corrupt giving of anything of value to a government official of the Eurasian country in return for obtaining business. DOJ reasoned that based on the due diligence and "with the benefit of the controls that will be put into place, it appears unlikely that the payment will result in the corrupt giving of anything of value to such officials."