International Client Alert - March 2004

U.S. COURT OF APPEALS HOLDS THAT BRIBES TO REDUCE FOREIGN TAX AND CUSTOMS OBLIGATIONS ARE PROHIBITED BY THE FCPA

The U.S. Court of Appeals for the Fifth Circuit has ruled that illicit payments made by a U.S. company to foreign customs officials to reduce the company’s tax and customs burdens may, under the right circumstances, violate the U.S. Foreign Corrupt Practices Act (the "FCPA"). The court’s reasoning in U.S. v. Kay has far-reaching implications, and will force many U.S. companies to rethink and scrutinize how their marketing staffs interact with foreign government officials.

In the Kay case, a U.S.-based rice grower and its foreign subsidiary were accused of paying bribes to Haitian officials to reduce the customs duties and sales taxes imposed upon the U.S. company’s imports into Haiti. In 2002, a federal district court held that as a matter of law, bribes to reduce foreign tax and customs obligations were not prohibited by the FCPA.