Manatt Partners Explain FCPA Issues for Community Banks
"FCPA Asset Seizures Put Community Bank Collateral in Peril"
Bank Safety & Soundness Advisor
August 27, 2012 - Bank Safety & Soundness Advisor turned to Manatt's Harold P. Reichwald, co-chair of the firm's Financial Services & Banking Practice, and Jacqueline C. Wolff, chair of the firm's Corporate Investigations & White Collar Defense Practice, for insight into why community banks should pay attention to the Foreign Corrupt Practices Act (FCPA).
Bank Safety & Soundness Advisor reports that community bank customers seeking to expand their businesses overseas may violate FCPA provisions, thereby putting the assets and collateral behind their loans at risk. Even if banks have no knowledge of FCPA violations committed by customers, the accounts and assets held as security for business loans to those customers can be seized by the federal government.
Reichwald told the publication that the banks can be subject to FCPA violations, but a much bigger risk to banks by far is when bank customers run afoul of the law. Whether community bankers realize it or not, some of their customers are expanding their businesses overseas and some of those companies may be committing FCPA violations. The law may not be on bankers' radars, but FCPA cases and related forfeitures are beginning to impact community banks.
"We have seen several of these types of cases arise in the last year or so," Reichwald said. "What we realize is that customers of community banks, in an attempt to enlarge their customer base, are expanding their efforts to sell goods outside the U.S. Often, the U.S. company will use a non-U.S. sales agent to drum up business and that increases the risk of running afoul of the FCPA."
FCPA seizures are far from common, but they're happening frequently enough that bankers should be aware of the risk, Reichwald said. "It comes up," he said. "This isn't a statute that bankers think about, but unless they're attuned to it and the risk behind it, they can find themselves financing customers who get themselves in trouble. They might say, 'Oh, that's the customer's problem, not ours.' But it does become the bank's problem if the bank has been less than diligent in policing the customer's activities, or worse, colluding with the customer."
If a bank is holding assets as security for a business loan, the federal government will acknowledge that the bank has a superior lien position with regard to the asset; however, the government can keep the asset if it can show that the bank had some knowledge of the actions.
"The government does not have to prove anything regarding the bank to seize the monies in the account under its forfeiture powers, provided it has sufficient evidence regarding the illicit source of the monies in the account," Wolff explained. "The bank can argue against the forfeiture by establishing that it is a bona fide purchaser for value; that is, it had no knowledge or reason to know of the illicit nature of the monies. It can also argue that it is an innocent owner; that is, it obtained its security interest in the account prior to the commission of the crime and had no knowledge or reason to know of the criminal conduct."