Court case underscores FCPA compliance risks

Last week a federal appeals court ruled that turning a blind eye to bribery-tainted transactions is no excuse for failing to meet the goals of the US Foreign Corrupt Practices Act (FCPA).

In the case, Frederic Bourke Jr was determined to have participated in a bribery scheme even though he had no direct knowledge of any backhanding taking place. Instead it was Bourke’s business partner, Viktor Kozeny, who allegedly paid hundreds of millions in a bribery scheme connected to the privatization of Azerbaijan state-owned oil company SOCAR. 

The court ruled Bourke’s actions demonstrated a “conscious avoidance” of the alleged bribes, a level of participation sufficient to warrant a conviction under the FCPA. Bourke was allegedly aware of Kozeny’s reputation as the “Pirate of Prague”, and purposefully avoided certain board positions in order to avoid becoming aware of any potential bribes being paid. 

“Indeed, the very nature of conscious avoidance makes it unlikely that the record will contain directly incriminating statements,” the court papers said. “Just as it is rare to find direct record evidence of an employer stating, ‘I am not going to give you a raise because you are a woman,’ it is highly unlikely a defendant will provide direct record evidence of conscious avoidance by saying, ‘Stop! I think you are about to discuss a crime and I want to be able to deny I know anything about it!”. 

Katten Muchin Rosenman attorney Whitney Ellerman remarked in an interview that “to the extent that there has been any doubt on this issue, the Court made it clear that deliberate disregard of evidence of bribery cannot be raised as a defence to a FCPA violation”. 

Ellerman went on to say that as such, private equity fund managers should investigate any “red flags” indicating potential corruption and undergo the necessary due diligence requirements as part of their FCPA compliance efforts.