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That's right. The title of today's post says in Japanese, Terminate With Extreme Prejudice. Why? Well, we were spending just a few minutes surfing the internet (only during our company-approved tea break, of course) and happened to see the following news item from Japan's Yomiuri Shimbun (here):

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U.S. firm asks court to void contract with Yamada

LOS ANGELES--A U.S. aviation fuel-related equipment manufacturer has filed a lawsuit at a U.S. district court in Cleveland against defense equipment trader Yamada Corp. and its U.S. subsidiary, claiming Yamada's involvement in bribery cases violated their contract, which therefore should be terminated, The Yomiuri Shimbun has learned.

Cleveland-based Argo-Tech Corp. also demanded compensation from Yamada and its subsidiary.

In response, Yamada filed a countersuit against Argo-Tech at a U.S. district court in California, claiming the termination of their contract would be illegal.

According to the claims by the two sides, former Yamada President Masashi Yamada, 84, participated in a 150 million dollars capital boost for Argo-Tech around 1990, when the U.S. company faced financial difficulty.

Argo-Tech in return concluded a 50-year exclusive agency agreement with Yamada on the sales of Argo-Tech's fuel pumps for aircraft and other products in 1994.

In the documents submitted to the Ohio court, Argo-Tech claimed that incidents including former Yamada executive Motonobu Miyazaki's bribing of former Administrative Vice Defense Minister Takemasa Moriya and Miyazaki's provision of 100 million yen to Naoki Akiyama, former executive director of the Japan-U.S. Center for Peace and Cultural Exchange, in connection with the company's winning contracts for the disposal of chemical weapons found in Fukuoka Prefecture violated their contract, in which they agreed they would adhere to the U.S. Foreign Corrupt Practices Act.

For its part, Yamada claimed in its documents submitted to the California court that the incidents mentioned by Argo-Tech had no relation to the company, so they should not cause the termination of their contract.

(May 28, 2008)

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Now we know nothing about the story except what's printed above. But assuming the Yomiuri Shimbun has its facts straight, we can say for sure that Cleveland-based Argo-Tech made a fundamental compliance error when it entered into the 50-year agency agreement with Yamada in 1994.

Long-suffering readers of this Honorable Blog will know that every agreement with an overseas partner or agent should give the principal the unfettered right to terminate if the agent breaches its obligations to comply strictly with the requirements of the Foreign Corrupt Practices Act. Otherwise, the principal might get caught between a ? and a ????. That's exactly what the Department of Justice warned against in Opinion Procedure Release 2001-01 (May 24, 2001) (here).

In that case, a U.S. company (called the ?Requestor?) proposed to enter into a joint venture with a French company. There were doubts about how the French company obtained some of its contracts. So the Requestor took various precautions to protect itself against an FCPA violation. Accordingly, if it learned its French partner had breached the compliance warranty, the Requestor could terminate the relationship if the breach had a ?material adverse effect? upon the business.

Not good enough, said the DOJ:

Should the Requestor's inability to extricate itself result in the Requestor taking, in the future, acts in furtherance of original acts of bribery by the French company, the Requestor may face liability under the FCPA. Thus, the Department specifically declines to endorse the "materially adverse effect" standard.

The lesson from Release 2001-01 is this: Accept no limits or conditions on the right to terminate a joint venture or agency when there is evidence of an FCPA violation.

We don't know the terms of the agreement between them, but if Argo-Tech had to file a lawsuit in federal court to get away from a bribe-paying Yamada, then Argo-Tech surely didn't have an unfettered right to terminate because of the breach of FCPA compliance obligations. And that's a serious mistake to have made, even way back in 1994. On the other hand, if Argo-Tech neglected to include a proper termination clause, going to court now to end the agreement (and at the same time establish that it had nothing to do with Yamada's alleged bribery) is its best course of action -- even though the litigation will be expensive, time-consuming, and on public display.

So that's today's post, along with a confession -- well, two confessions. We were surfing before and after our tea break today. In fact, it was only during our tea break that we stopped surfing. And our Japanese fluency isn't what you might call . . . fluent. So there's a chance the post's title doesn't quite say Terminate With Extreme Prejudice. Another plausible translation may be Thank You For The Wonderful Visit, Beloved Mother-In-Law.

View DOJ Opinion Procedure Release 2001-01 (May 24, 2001) here.

Full post as published by The FCPA Blog on May 28, 2008 (boomark / email).