Last Updated on: 19th October 2023, 07:36 pm

The Foreign Corrupt Practices Act: A Guide for Businesses

The Foreign Corrupt Practices Act (FCPA) is a important law that businesses operating internationally need to understand. Enacted in 1977, the FCPA prohibits bribery of foreign officials and requires companies to maintain accurate books and records.

This article provides an overview of the FCPA, it’s history, key provisions, defenses, penalties, and best practices for compliance. It aims to help businesses understand their responsibilities under the law.

History and Background of the FCPA

The FCPA was enacted in 1977 after a series of corruption scandals involving major U.S. corporations. Investigations by the SEC found that companies were bribing foreign officials to secure business in countries around the world.

Some examples of the corrupt practices uncovered include:^[1]

• Bribes to foreign officials to obtain favorable business treatment
• “Grease payments” to expedite routine government actions
• Payments to politicians to obtain business
• Lavish gifts, travel, entertainment for foreign officials

There was public outrage over these revelations. Congress responded by passing the FCPA to halt corporate bribery and restore public confidence.

The FCPA had two main goals:^[2]

1. Prohibit bribery of foreign officials
2. Require companies to maintain accurate books and records

The FCPA applies to all U.S. companies, citizens, and residents. It also applies to foreign companies listed on U.S. stock exchanges. The law has extraterritorial jurisdiction, meaning it applies to bribery that occurs entirely overseas.

Since its enactment, the FCPA has been amended twice – in 1988 and 1998. The amendments clarified some provisions, added some affirmative defenses, and expanded the scope.

Enforcement of the FCPA has increased dramatically in recent years. It is now a high priority for the Department of Justice (DOJ) and Securities and Exchange Commission (SEC).

Key Provisions of the FCPA

The FCPA contains both anti-bribery provisions and accounting provisions. Companies need to understand both aspects to ensure compliance.

Anti-Bribery Provisions

The anti-bribery provisions prohibit the following:^[3]

• Paying, offering, or promising to pay money or anything of value
• Directly or indirectly through third parties
• To a foreign official, foreign political party, party official, or candidate
• With corrupt intent to influence the official or obtain business

“Foreign official” is broadly defined to include officers or employees of a foreign government or public international organization. It also includes political parties and candidates.

Importantly, the FCPA prohibits both actual payments and offers or promises of payment. The bribe does not actually have to occur for it to be illegal.

The FCPA also prohibits “willful ignorance” – meaning companies can’t just turn a blind eye to bribery they know is likely happening. There is an expectation they will monitor third parties like agents, consultants, and distributors.

Accounting Provisions

In addition to the anti-bribery rules, the FCPA requires companies to:

• Maintain books, records, and accounts that accurately reflect transactions
• Maintain a system of internal accounting controls

This applies to all companies that file reports with the SEC, including foreign companies listed on U.S. stock exchanges.

The accounting provisions are meant to prevent companies from hiding bribes or other improper payments. It forces them to demonstrate sound financial controls.

Affirmative Defenses

The FCPA provides two affirmative defenses that can apply in certain circumstances:

• Reasonable and bona fide expenditures – covers reasonable travel and lodging expenses related to product demonstrations or contract performance.
• Lawful under written laws – applies where the payment was legal under the written laws of the foreign country.

However, these defenses are limited and narrow in scope. Companies should seek specific legal advice before relying on them.

Penalties for Violation

The penalties for violating the FCPA can be severe. Companies can face:

• Criminal fines up to $2 million per violation
• Civil fines up to $16,000 per violation
• Disgorgement of profits from improper payments
• Appointment of an independent compliance monitor

Individuals can be fined up to $250,000 per violation and sentenced to up to 5 years in prison. FCPA violations can also lead to suspension or debarment from government contracting.

In recent major cases, fines have routinely been in the tens or hundreds of millions of dollars. U.S. authorities take these violations very seriously.

Hallmarks of an Effective Compliance Program

Given the steep penalties for violating the FCPA, companies should implement compliance programs to prevent issues. Effective programs have several key features:

• Visible commitment from senior management – Tone at the top matters
• Clear, practical policies and procedures – Code of conduct, training, reporting channels
• Risk assessment – Understand exposure based on industry, countries, use of third parties
• Ongoing monitoring and auditing – Ensure controls are working and policies being followed
• Reporting and investigation process – Encourage and protect internal whistleblowers
• Discipline for violations – Apply standards consistently regardless of position
• Periodic evaluation and enhancement – Treat compliance as an ongoing process, not a one-time event

Companies should seek guidance from experienced FCPA counsel when designing and implementing their compliance programs.

Recent Trends and Developments

FCPA enforcement shows no signs of slowing down. Some recent trends include:

• Increased cooperation between SEC and DOJ
• More cases focused on individuals rather than just corporations
• Rise of enforcement actions against foreign companies
• Proactive use of corporate monitors to oversee compliance
• High penalties even for voluntary self-disclosure

There are also ongoing discussions around potential amendments to the FCPA. Areas being considered include:^[4]

• Adding a compliance defense for companies with robust programs
• Limiting successor liability for mergers and acquisitions
• Modifying the definition of “foreign official”
• Introducing non-prosecution agreements

However, major changes to the FCPA do not appear imminent. Companies should continue monitoring enforcement trends and potential reforms.

Conclusion

The FCPA is a complex law with serious penalties for violations. By understanding the key provisions, implementing compliance programs, and monitoring developments, global businesses can avoid significant legal and reputational risks.

With robust preparation, companies can conduct international business successfully while still adhering to the highest ethical standards.

References

1. A Resource Guide to the U.S. Foreign Corrupt Practices Act
2. Foreign Corrupt Practices Act
3. A Resource Guide to the U.S. Foreign Corrupt Practices Act
4. Will There Be Amendments to the FCPA in 2021?