FCPA risk in Thailand – an M&A issue for “issuers”

The US Foreign Corrupt Practices Act (FCPA) is internationally well known for prohibiting bribery of foreign officials. The SEC’s most recent FCPA sanction relating to Thailand makes it clear that the SEC has an appetite for enforcing the FCPA against issuers of securities even if the bribery does not involve foreign officials.

FCPA anti-bribery provisions
Many companies with a US nexus will be familiar with the FCPA’s anti-bribery provisions in Title 15, United States Code (15 U.S.C.), which prevent bribery of foreign officials and political parties either directly or through intermediaries: 

• Issuers - § 78dd-1 applies to issuers with a class of securities registered pursuant to 15 U.S.C. §78l or which are required to file reports under 15 U.S.C. §78o(d), 
• Domestic concerns - § 78dd-2 applies to US domestic concerns other than issuers, and 
• Territorial jurisdiction - § 78dd-3 applies to any person other than an issuer or domestic concern while in the territory of the United States.

The first two high profile cases regarding FCPA violations in Thailand relied on the FCPA domestic concern and territorial jurisdiction anti-bribery provisions, however the most recent SEC action in 2024 relied on the accounting provisions of the FCPA in 15 U.S.C. § 78m(b)(2), which enabled the SEC to sanction bribes that were paid without any connection to foreign officials.
 
1. Film festival (2007)

A complaint filed in 2007 against two US nationals for bribery of a Thai government official in connection with an international film festival over the years 2002 to 2006 was based on the FCPA domestic concern anti-bribery provision, and resulted in a conviction in 2009 against both US nationals¹. 

It is not surprising that US nationals were sanctioned for breaches of the FCPA, however in 2009, the foreign official who received the bribe was also indicted for violating the FCPA.  The indictment was not based on the FCPA territorial jurisdiction anti-bribery provision, but on the grounds of conspiracy².  The indictment was dropped after the Thai courts sentenced the foreign official to imprisonment for violations of Thailand’s anti-bribery laws, however this highlights that foreign officials can be indicted as a result of FCPA breaches, even if they have never set foot in the United States.

2. Oil & gas (2016) 

Criminal information filed in 2016 against an English aerospace and energy company for bribery of foreign officials, including officials at a Thai state-owned oil and gas company over the years 2003 to 2013 was based on the FCPA domestic concern and territorial jurisdiction anti-bribery provisions and conspiracy³.

The English company admitted to having paid approximately USD 11,000,000 in bribes to Thai officials via intermediaries, and entered into a deferred prosecution agreement (DPA). The participation of a US subsidiary, US employees and the role of the English company in causing payments to be made from a US bank account was sufficient to expose the English parent company to violations of the FCPA, and it agreed to pay USD 169,917,710 under the DPA for violations occurring in several countries worldwide. 

The important message from this case for multinational corporations is that the SEC will not limit its enforcement action to US affiliates within a corporate group: it will use the territorial jurisdiction anti-bribery provision and conspiracy to pursue a non-US parent company where possible. The presence of a US company anywhere in the group structure of a multinational corporation can expose a non-US parent company to sanctions under the FCPA.

3. Agricultural equipment (2024) 

The most recent action of the SEC under the FCPA linked to Thailand was a settlement order announced in September 2024 which related to bribes paid over the period 2017 to 2020 to foreign officials in Thailand and also to a private corporation. The bribes were paid by a Thai company which became a subsidiary of a US agricultural machinery company after the US company acquired the Thai company’s German parent company in 2017.

The US company was an issuer, and the statement of facts in the order describe extensive breaches of the FCPA issuer anti-bribery provision: cash bribes in the form of envelopes with THB 20,000 “candy money”, entertainment in the form of visits to massage parlors, a gift of a set of golf clubs, extravagant sightseeing vacations to Switzerland staying at luxury hotels, intermediaries, and foreign officials at three different Thai government entities. These bribes violated the code of business conduct implemented by the German parent company, which prohibited giving “absolutely anything” to improperly influence a government official.

The Thai company also paid bribes to a private company in Thailand to secure equipment sales which did not benefit foreign officials, with the result that these “corporate” bribes did not come within the FCPA anti-bribery prohibitions. It is not clear whether the corporate bribes violated the code of business conduct implemented by the German parent company, but corporate bribery would not contravene Thai anti-bribery laws unless linked to a government tender (for example bid rigging or collusion with other bidders in the context of a bid for a government contract), which does not appear to have been the case here.

The SEC was able to apply FCPA sanctions to the corporate bribes using the FCPA accounting provisions at 15 U.S.C. § 78m(b)(2). 

• The FCPA “books and records” accounting provision requires issuers to make and keep books and records which in reasonable detail accurately and fairly reflect transactions and dispositions of assets.  
• The FCPA “internal controls” accounting provision requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with (and access to assets is permitted only in accordance with) management’s general or specific authorization and recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, and that recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

The FCPA accounting provisions are effective against bribery, even if not paid to foreign officials, as bribes are most always inaccurately entered as legitimate business expenses and falsely or inaccurately described in order to evade detection as a bribe. If the financial statements of a subsidiary are consolidated into the financial statement of an issuer, a failure by the subsidiary to keep books which in reasonable details accurately and fairly reflect transactions and dispositions of assets can expose the parent issuer to liability under the FCPA books and records accounting provision.

On the facts set out in the order, improper payments had been inaccurately recorded in the US company’s books and records as legitimate commissions and other business expenses, and its records lacked sufficient details and support to record payments to agents as legitimate commissions and business expenses, constituting a violation of the FCPA “books and records” accounting provision. On the facts, the US company had failed to integrate the Thai company into its existing control system, which contributed to its failure to devise and maintain a sufficient system of internal accounting controls with respect to employee expense reimbursements, third party payments, gifts, travel and entertainment, thereby constituting a violation of the FCPA internal controls accounting provision.

In an M&A context, the important message from this case is that simply having a group-wide policy on anti-bribery will not insulate an issuer against inaccurate or undetailed recording of illegitimate expenses by its subsidiaries following an acquisition of those subsidiaries. This is particularly acute in Thailand where employees are accustomed to having codes of conduct available in the Thai language, and may not understand the nuances of English-language codes of conduct, especially if worded in legalese.

Issuers must maintain a system of accounting controls to provide reasonable assurances that transactions are executed and recorded in accordance with anti-bribery policy, and in a way that permits the production of financial statements that comply with applicable accounting principles. This will involve localizing global control policies for subsidiaries in each jurisdiction to take into account local language, business custom and legal requirements.

It follows that post-merger integration is a critical tool for minimizing FCPA exposure if the acquiror is an issuer, and an important function of due diligence and drafting M&A transaction agreements will be to identify the personnel that need to be integrated into the issuer’s control system, and internal policies and other employee-related rules at the local company level that need to be amended or adopted as conditions precedent or conditions subsequent to closing the acquisition.

Not limited to US-company issuers

The application of the FCPA accounting provisions is not limited to US corporations – they also extend to non-US companies with a class of securities registered pursuant to 15 U.S.C. §78l or which are required to file reports under 15 U.S.C. §78o(d). 

This means hundreds of non-US issuers without any US employees or US bank accounts and without a presence in the US can still be sanctioned under the FCPA issuer anti-bribery provision and the FCPA accounting provisions. 

Credit for voluntary self-disclosure

Early detection, mitigation and reporting of FCPA misconduct can reduce the quantum of sanctions imposed under the FCPA.

Acquirors who discover FCPA misconduct during due diligence or post-merger integration can reduce the likelihood of enforcement action and reduce the amount of sanctions of 50% through voluntary self-disclosure of the violations to the SEC. Companies lacking effective internal whistleblowing policies risk having whistleblowers report directly to the media or local regulatory authorities, and if the SEC commences investigations before the company self-discloses to the SEC, the company could lose eligibility for credit for voluntary self-disclosure.

The rapid implementation of an effective internal whistleblowing system at subsidiary companies following an acquisition is a crucial step in reducing the risk of FCPA sanctions being enforced, and the quantum of sanctions if they are enforced.

Simply emailing a global English-language policy is unlikely to be effective. Similarly, preventing anonymous reporting is likely to dissuade employees from whistleblowing for fear of reprisals in the form of criminal defamation, which continues to be used to prevent concerns with the affairs of Thai companies from being vocalized. The presence of any roadblocks to an internal whistleblowing system increases the risk of whistleblowers going external, and preventing the company from initiating remedies internally and obtaining credit for voluntary self-disclosure.

Motivated to disclose FCPA breaches -whistleblowers are financially incentivized

The SEC obtains information on FCPA violations from a number of sources. The Federal Bureau of Investigation provided information in the film festival case, and bribery conduct in the Oil and Gas case was published in the media following an inquiry initiated by the UK Serious Fraud Office.  

The SEC also uses information from whistleblowers, and in 2024 received 557 tips from whistleblowers relating to FCPA violations⁴. Under the Dodd Frank Act, whistleblowers are eligible for awards of 10% to 30% of financial sanctions collected by the SEC if the ordered sanctions exceed USD 1 million. In 2024 the SEC paid awards in 28 actions, the largest being USD 98,000,000 paid to one whistleblower⁵, underscoring how lucrative the financial incentives payable to whistleblowers can be.

Significantly, whistleblowers do not need to be US citizens or insiders to be eligible for awards: they can be employees, former employees, investors or potential investors, competitors, or market observers. In 2024, 62% of the whistleblowers who received awards were insiders and 38% were outsiders⁶.

More than 56% of the whistleblowing tips provided to the SEC in 2024 came from two individuals⁷. The previous year, those two individuals provided less than 39% of the tips received by the SEC, suggesting that “whistleblowing activism” may be emerging as a career option for some.

The crucial point is that the financial incentives provided to whistleblowers make it less likely that people with knowledge of FCPA violations will keep those violations secret. It would be naïve to expect employment contract confidentiality provisions to preserve the confidentiality of FCPA misconduct.  Employees in accounting and procurement departments are unlikely to enjoy a working environment in which they are urged by their seniors to process questionable transactions lacking traditionally required supporting detail. They, like many other people who wish for a global economy free from corruption, are likely to have no hesitation in notifying the SEC of FCPA misconduct.

¹United States v. Gerald Green, Et Al. Court Docket No. 08-CR-059-GW (C.D. Ca. Jan 16, 2008) https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2011/02/16/12-07-07green-complaint.pdf

²United States v. Juthamas Siriwan, Et Al. Court Docket No. 09-CR-081 (C.D. Ca. Filed Jan 28, 2009) https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2011/02/16/01-28-09siriwan-indictment.pdf

³United States v. Rolls Royce PLC, Docket. No. 16-CR-247 (S.D. Ohio. Filed Dec 20, 2016) https://www.justice.gov/opa/press-release/file/927221/dl?inline

⁴SEC Office of the Whistleblower Annual Report to Congress for Fiscal Year 2024,( November 15, 2024), at page at page 12. https://www.sec.gov/files/fy24-annual-whistleblower-report.pdf

⁵Supra at page 3.

⁶Supra at page 5.

⁷Supra at page 11.

Authors