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US Intensifies Crackdown on Corporate Foreign Bribes

Setting a key portion of its white collar enforcement agenda for a second term, the Obama administration on Wednesday announced a renewed focus on bribes paid by U.S. companies to foreign officials.

Peter Cade | Iconica | Getty Images

A new set of guidelines issued Wednesday by the Justice Department and the Securities and Exchange Commission comes in the face of complaints by business groups that the crackdown — which began in the Bush administration and accelerated under President Barack Obama — is hurting U.S. competitiveness.

The U.S. anti-bribery law, known as the Foreign Corrupt Practices Act, has been on the books since the Carter administration. But a series of high-profile investigations has given the law new prominence, as well as given fits to companies that do business in foreign countries. (Read More: A Resource Guide to the U.S. Foreign Corrupt Practices Act)

Earlier this year, Wal-Mart Stores acknowledged it was the target of a criminal probe over millions of dollars in payments to Mexican government officials to facilitate the retailer's rapid expansion there. The company has not been charged, but has spent millions of dollars to beef up its compliance since the payments came to light.

The new guidelines, which the Justice Department and the SEC call "an unprecedented undertaking," are aimed at addressing concerns in the business community that the law is too vague, too broad, and puts U.S. businesses at a competitive disadvantage.

But the administration shows no signs of backing down.

"When business is won or lost based on how much a company is willing to pay in bribes rather than on the quality of its products and services, law-abiding companies are placed at a competitive disadvantage — and consumers lose," Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami wrote in their introduction to the 120 pages of guidelines.

The publication, which the Justice Department has been promising for months and has been eagerly anticipated by the business community, does offer some clarity on questions that have been nagging U.S. businesses and the armies of attorneys they have hired to ensure they are following the law.

For example, the guidelines spell out just who authorities consider a "foreign official" under the law. Government employees and employees of government-owned companies are covered, but employees of companies in which the government has a minority stake generally are not.

And U.S. companies can pay "reasonable" travel and entertainment expenses for foreign officials without those costs being considered bribes, as long as the payments are not part of a broader scheme of corruption.

Some companies have claimed that what the U.S. government calls bribes are merely part of the cost of doing business in many countries. The law already carves out a narrow exception for what it calls "facilitating payments" for routine government acts. The new guidelines attempt to make a distinction between a "facilitating payment" and a bribe.

"(P)aying an official a small amount to have the power turned on at a factory might be a facilitating payment; paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not be a facilitating payment," the publication states.

The guidelines also spell out for the first time that a strong compliance program can in itself be a defense against prosecution, but they warn against what the publication calls a "check-the-box" approach that is not tailored to the company's specific circumstances.

Without naming names, the guidelines cite the example of Morgan Stanley, which avoided prosecution earlier this year after an investigation found one of its executives in China, Garth Peterson, had set up a real estate deal that enriched a government official in Shanghai.

Peterson pleaded guilty to violating Morgan Stanley's internal controls required under the Foreign Corrupt Practices Act, and was sentenced to nine months in prison. But officials decided not to prosecute Morgan Stanley, in part because of the firm's compliance program, which included mandatory training for employees like Peterson.

While business groups have been pushing for this kind of clarity since the crackdown began, many have called for changes in the law rather than just new guidelines from Washington.

In a 2010 paper entitled "Restoring Balance," the U.S. Chamber of Commerce's Institute for Legal Reform argues the FCPA is making U.S. companies less competitive than their foreign counterparts, and often "merely creates the illusion that the problem of bribery is being addressed."

The paper calls for changes in the law that would make a compliance program a defense against FCPA charges, limiting a company's liability for the actions of a business it acquired, defining a "foreign official" under the law, and specifying that violations must be "willful" in order to be prosecuted.

—By CNBC's Scott Cohn; Follow Him on Twitter @ScottCohnCNBC