Can Israel prosecute our US company's Israeli subsidiary for a bribe paid to an official in another country?

Yes, and a compliance policy written for the US parent will not necessarily keep the Israeli subsidiary safe. Section 291A of the Penal Law 5737-1977, added in 2008, makes it an offence to give a bribe to a foreign public official, for an act connected with the official's position, in order to obtain, secure or advance business or a business advantage. The punishment is the one Section 291 sets for bribing an Israeli public servant: up to seven years' imprisonment, or a fine that can reach NIS 1,130,000 or four times the benefit sought. Section 15 of the Penal Law extends Israeli criminal jurisdiction to felonies committed abroad by Israeli citizens and residents, so the Israeli managers who approve a payment are within reach wherever the money changed hands. The one procedural brake is that no indictment under Section 291A may be filed without the written consent of the Attorney General.

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Detailed Answer

The offence is built on the giving side. It does not matter whether the official actually did anything in return, and Section 293 makes it irrelevant whether the bribe was handed over directly or through someone else, which is how agent and consultant arrangements get caught. The definition of a foreign public official is wide: an employee or office holder of a foreign state at any level of government, of a body that the foreign state controls, or of a public international organisation. What surprises American compliance teams is the absence of any exception for small facilitation payments. The Foreign Corrupt Practices Act has a narrow carve-out for routine governmental action. Israeli practitioners read Section 291A as having none, so a payment to speed up a customs release in a third country that the group policy tolerates can still be a felony for the Israeli company's staff. Liability reaches the company itself through Section 23 of the Penal Law, which attributes an offence to a corporation where it was committed by a person acting as its organ. The first corporate case shows the pattern. In December 2016 the Tel Aviv Magistrates' Court approved a plea agreement with an Israeli company that had paid an intermediary USD 500,000 to push a deal forward in Lesotho, much of it meant for the director general of that country's interior ministry. The company was fined about USD 1.2 million and ordered to run an anti-corruption compliance programme.

For a group run from the United States, the exposure is doubled rather than shared. The Department of Justice and the Securities and Exchange Commission can pursue the parent under the FCPA while the Israel Police and the State Attorney's Office look at the subsidiary and its employees under Section 291A, and settling with one does not close the file with the other. Delay is expensive. A felony can be prosecuted for ten years under Section 9 of the Criminal Procedure Law [Consolidated Version] 5742-1982, and each investigative step starts that period running again. An internal investigation launched from headquarters also has to respect Israeli ground rules: interviews with Israeli employees, searches of their devices and any handover of material to US authorities need to be planned under Israeli labour and privacy law before anyone boards a plane to Tel Aviv. Directors of the subsidiary who sit in New York or Chicago should assume that board minutes approving agent commissions or consultancy fees in high-risk markets will one day be read by an Israeli investigator. Our answer on the personal exposure of a non-resident director of an Israeli company covers the civil side of that risk.

In Practice: Section 291A of the Penal Law 5737-1977 carries the Section 291 penalty of up to 7 years' imprisonment or a fine of up to NIS 1,130,000 or four times the benefit, and the Attorney General must consent in writing before an indictment is filed. A felony can be prosecuted for 10 years under Section 9 of the Criminal Procedure Law, restarting with each investigative act. The first corporate conviction, a plea agreement approved by the Tel Aviv Magistrates' Court in December 2016, ended with a fine of about USD 1.2 million and a compulsory compliance programme.

When to Consult a Lawyer

• A US internal investigation or a DOJ or SEC inquiry has touched payments made by or through the Israeli subsidiary, because what the parent discloses in Washington can become evidence in an Israeli file and the order of disclosures matters.
• The subsidiary uses agents, distributors or consultants to win government business in third countries, where a commission structure that passes the group policy may not survive the lack of a facilitation-payment exception in Israeli law.
• An Israeli employee has been summoned or questioned by the Israel Police, since the company and the individual may need separate counsel from the first interview onward.

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Speak With an Israeli Attorney

An Israeli attorney can map the subsidiary's exposure under Section 291A alongside the FCPA position, run the Israeli side of an internal investigation and deal with the police and the State Attorney's Office if a file is opened.

Contact us for a confidential initial consultation.