The Foreign Corrupt Practices Act: Law Explained

Companies seeking to expand globally likely agree that bribery and corruption undermine ethical business practices.

By understanding the key provisions and enforcement approaches of the Foreign Corrupt Practices Act (FCPA), companies can implement robust compliance programs to mitigate bribery risks when conducting international business.

This article will explain what the FCPA is, outline its main elements regarding anti-bribery and accounting procedures, discuss how it is enforced, and provide best practices for compliance.

Introduction to the Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act (FCPA) is a critically important U.S. law that prohibits bribery of foreign officials and requires companies to maintain accurate books and records. Understanding the FCPA is essential for organizations doing business internationally.

Overview of the Foreign Corrupt Practices Act

The FCPA has two main provisions - anti-bribery and accounting:

The anti-bribery provisions make it illegal for U.S. persons, businesses and certain foreign issuers of securities to pay bribes to foreign officials to obtain or retain business. This includes bribes paid directly or through third parties.
The accounting provisions require companies to keep accurate books and records and maintain adequate internal controls. This ensures transactions are properly authorized and recorded.

Violating the FCPA can lead to severe criminal and civil penalties for both companies and individuals.

Legislative History and the Evolution of Anti-Corruption Efforts

The FCPA was enacted in 1977 after U.S. Securities and Exchange Commission (SEC) investigations found over 400 U.S. companies made questionable or illegal payments to foreign officials, politicians, and political parties.

Since then, other countries have enacted similar anti-bribery legislation like the UK Bribery Act. There is increased global focus on tackling corruption through international agreements like the OECD Anti-Bribery Convention.

Scope and Applicability of the FCPA to Publicly Traded Companies

The FCPA applies broadly to:

U.S. citizens, nationals, residents, businesses, and employees of U.S. businesses
U.S. and foreign public companies listed on stock exchanges in the U.S.
Certain foreign firms and persons that take acts to further a corrupt payment within U.S. territory

Understanding the FCPA's jurisdiction and scope is important for any U.S. business or foreign company listed in the U.S. engaging in global commerce.

What is an example of the Foreign Corrupt Practices Act policy?

The Foreign Corrupt Practices Act (FCPA) allows certain "facilitating" or "grease" payments to foreign officials in order to expedite or secure routine, non-discretionary governmental actions.

For example, the FCPA permits payments made to expedite the processing of government papers such as visas or work orders. Other routine governmental actions that may warrant grease payments include mail pickup, cargo unloading, or utilities hookup.

However, the FCPA strictly prohibits bribery of foreign officials to obtain or retain business. Payments must be small, infrequent, and tightly controlled to qualify under the FCPA's facilitating payment exception. Improper payments that influence discretionary decisions or provide an unfair business advantage violate the FCPA.

Companies utilizing the facilitating payment exception must maintain detailed records, including receipts and written employee expense reports. Robust controls and transparency help mitigate FCPA compliance risks when making payments abroad.

In summary, the FCPA provides a narrow exception for minor payments that expedite non-discretionary routine governmental actions. However, bribes to obtain or retain business abroad remain strictly prohibited under the FCPA's anti-bribery provisions.

What are the 5 elements of the FCPA?

The Foreign Corrupt Practices Act (FCPA) outlines 5 key elements that must be present for an FCPA violation to occur:

Payment: There must be a payment, offer of payment, promise to pay, or authorization of payment of money, gifts, or anything of value.
Recipient: The payment must be made to a foreign government official, political party, party official, or candidate. Payments to other recipients may violate local laws but do not fall under the FCPA.
Purpose: The payment must be made for the purpose of influencing an official act or decision, inducing an official to violate lawful duty, securing an improper advantage, or inducing an official to use influence to affect government action.
Business Purpose Test: The payment must be made to assist in obtaining or retaining business. This is broadly interpreted to include payments securing any improper business advantage.
Knowledge: The payor must know that the payment violates the FCPA or be aware of a high probability of an FCPA violation. Willful blindness to the facts also constitutes knowledge.

In summary, to prove an FCPA violation, the government must establish these 5 key elements: payment, recipient status, corrupt purpose, business nexus, and knowledge. Understanding these components is crucial for companies to avoid running afoul of this important anti-bribery law.

What happens if you break the Foreign Corrupt Practices Act?

For individuals, FCPA violations can result in severe consequences, including:

Imprisonment of up to 5 years
Criminal fines of up to $100,000
Civil penalties of up to $10,000

For companies and other legal entities, violating the FCPA can also incur heavy penalties:

Criminal fines of up to $2 million
Civil penalties of up to $10,000

The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are the two main agencies responsible for enforcing FCPA violations. They pursue both criminal and civil charges.

Some of the factors that determine the penalties include:

The egregiousness of the conduct
Whether it involved high-level management
The company's pre-existing compliance programs and internal controls
Voluntary disclosure and cooperation with authorities

In some cases, DOJ and SEC may offer reduced penalties or deferred prosecution agreements for companies that self-report violations and cooperate fully with investigations. However, penalties can still be substantial even with cooperation.

The reputational damage from an FCPA violation can also be severe. Companies may lose major contracts and customers, face debarment from government contracts, and suffer falling share prices.

In summary, the legal and financial consequences of violating the FCPA highlight why compliance is critical. Companies must implement robust anti-bribery programs, controls, and training to mitigate these risks.

What does the Foreign Corrupt Practices Act criminalize?

The Foreign Corrupt Practices Act (FCPA) criminalizes the bribery of foreign officials to obtain or retain business. Specifically, the FCPA makes it illegal for certain persons and entities to make payments or offers of payment to a foreign official to influence their decision-making in order to assist in obtaining or retaining business.

The FCPA prohibits:

Bribery of foreign officials
Offers, promises, and authorizations of bribery
Use of any means of interstate commerce in furtherance of bribery

Key elements criminalized under the FCPA include:

Corrupt intent - The payment must be intended to induce the foreign official to misuse their position to wrongfully direct business to the payor or their client.
Business purpose test - The bribery must be intended to assist in obtaining or retaining business. This includes things like winning a contract, influencing the procurement process, circumventing import restrictions, gaining access to non-public bid tender information, etc.
Payment - The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value.
Recipient - The prohibition extends only to payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office.
Willfulness - The person making or authorizing the payment must know that the conduct is unlawful.

Violating the FCPA can lead to substantial civil and criminal penalties for both companies and individuals.

Key Provisions of the FCPA

The Foreign Corrupt Practices Act (FCPA) is a critical piece of anti-corruption legislation in the United States. It contains provisions regarding anti-bribery, accounting transparency, and internal controls for companies.

Anti-Bribery Provisions and the Ban on Facilitating Payments

The FCPA prohibits the bribery of foreign officials to obtain or retain business. Specifically, it bans the payment or offer of payment of anything of value to a foreign official to influence them to misuse their position. There is an exception for "facilitating" or "grease" payments made to expedite routine governmental actions. However, organizations should carefully evaluate if such payments are permissible.

Accounting and Internal Controls Requirements

To increase transparency, the FCPA mandates that companies maintain accurate books, records, and robust internal controls. This ensures that all transactions are properly authorized and accounted for. Violations often relate to concealing bribes or lacking oversight of third parties making improper payments.

Penalties and Sanctions for FCPA Violations

The penalties for FCPA violations can be severe for both companies and individuals. Organizations can face civil and criminal fines up to $2 million per violation. Individuals may also face fines and imprisonment up to 5 years for willful violations. These substantial penalties underscore the importance of compliance.

Enforcement of the FCPA by the SEC and DOJ

The Securities and Exchange Commission (SEC) and Department of Justice (DOJ) play critical roles in enforcing the Foreign Corrupt Practices Act (FCPA) to prevent bribery of foreign officials and ensure ethical business practices.

Role of the Securities and Exchange Commission in FCPA Enforcement

The SEC enforces the FCPA's accounting provisions, which apply to publicly traded companies. These provisions require companies to:

Maintain accurate books and records
Implement adequate internal controls

The SEC often conducts investigations following voluntary disclosures or whistleblower reports of potential FCPA violations. If violations are found, the SEC can impose civil sanctions like fines, disgorgement of profits, and injunctions.

For example, in 2019, TechnipFMC plc paid $296 million in disgorgement and interest to the SEC to resolve FCPA charges involving bribery schemes in Brazil and Iraq.

Department of Justice's Jurisdiction and Corporate Enforcement Policy

The DOJ has jurisdiction to enforce the FCPA's anti-bribery provisions, which apply to all companies and individuals. The DOJ can pursue criminal charges and penalties like prison sentences and criminal fines.

To incentivize voluntary self-disclosure, the DOJ's Corporate Enforcement Policy offers more lenient outcomes for companies that voluntarily report potential misconduct. Over 75% of DOJ corporate FCPA resolutions since 2016 have involved voluntary disclosures.

Examples of Corporate and Individual Enforcement Actions

In one of the largest FCPA cases, Brazil-based construction company Odebrecht S.A. and its petrochemical unit Braskem S.A. paid a combined $3.5 billion in global penalties in 2016 to resolve charges of bribing government officials in Brazil and other countries.

In 2019, former Goldman Sachs executive Tim Leissner was ordered to forfeit $43.7 million and sentenced to 36 months in prison for his role in a scheme to bribe Malaysian officials to obtain lucrative business for Goldman Sachs.

These major cases illustrate how both corporations and individuals can face severe sanctions for violating the FCPA's anti-bribery provisions. Robust compliance programs and voluntary disclosures remain key to mitigating enforcement risk.

International Agreements and the Global Anti-Corruption Framework

This section explores how the Foreign Corrupt Practices Act (FCPA) fits within the broader context of international anti-corruption agreements and initiatives. Understanding this global framework provides crucial perspective on the motivations behind FCPA enforcement actions.

OECD Anti-Bribery Convention and Its Impact on FCPA Enforcement

The Organization for Economic Cooperation and Development's (OECD) Anti-Bribery Convention, which took effect in 1999, aims to establish legally binding standards to criminalize bribery of foreign public officials in international business transactions. This has significantly impacted FCPA enforcement.

As a signatory country, the United States strengthened its commitment to prosecuting foreign bribery. The Convention also inspired many non-OECD countries to implement their own anti-bribery legislation. This expansion of anti-corruption laws worldwide has led to increased cooperation between the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) with their foreign counterparts.

Such cooperation facilitates information sharing and joint investigations related to bribery occurring across multiple jurisdictions. As a result, FCPA enforcement actions increasingly involve coordination with foreign law enforcement and multinational corporations operating globally.

Comparison with the UK Bribery Act 2010 and Other International Laws

While the FCPA primarily focuses on bribing foreign officials, the UK Bribery Act 2010 more broadly tackles bribery between private commercial organizations. The Bribery Act also introduces a strict liability corporate offense for organizations that fail to prevent bribery.

Despite these differences, both laws share similar provisions regarding gifts, travel, entertainment, donations, and facilitating payments provided to foreign public officials. As such, companies subject to both laws must implement robust compliance procedures and controls.

Other countries such as Brazil, China, and India have also enacted anti-bribery legislation, contributing to a complex web of overlapping jurisdictions and standards that multinational companies must navigate.

Cooperation with International Law Enforcement in Joint Ventures and Proxies

Given the rise of cross-border business partnerships and investment vehicles, U.S. regulators frequently collaborate with foreign authorities regarding bribery occurring within joint ventures or through local agents and consultants (proxies) operating on a company's behalf abroad.

While joint venture partners and proxies offer access to foreign markets, their actions may also expose the company to FCPA liability. Hence regulatory cooperation enables broader investigation of bribery allegations related to such business relationships.

This cooperation also deters companies from using proxies or joint ventures to shield illegal conduct from scrutiny. Ultimately, this upholds the FCPA's goal of promoting ethical business practices globally.

Best Practices for FCPA Compliance and Risk Management

This section provides best practices for companies to comply with the Foreign Corrupt Practices Act (FCPA) and manage risks associated with international business and third-party relationships.

Developing a Robust FCPA Compliance Program

An effective FCPA compliance program includes:

Conducting periodic risk assessments to identify potential compliance weaknesses
Implementing anti-bribery and anti-corruption policies and procedures
Providing regular FCPA training to employees, especially those in high-risk roles
Performing ongoing monitoring and auditing to detect violations
Ensuring proper oversight and commitment from leadership

By taking a proactive approach, companies can reduce FCPA compliance risks and promote an ethical business culture.

Conducting Due Diligence and Third-Party Management

Thorough due diligence on third-party intermediaries is critical for FCPA compliance. Steps include:

Screening all third parties against sanctions and enforcement lists
Evaluating each third party's qualifications, reputation, and relationship to foreign officials
Inserting FCPA compliance provisions into all third-party contracts
Monitoring third-party relationships for any red flags or changes in risk profiles

Proper due diligence and monitoring enables companies to avoid liability for the actions of third parties under the FCPA.

Navigating Mergers and Acquisitions with FCPA Due Diligence

During mergers and acquisitions, companies should:

Conduct FCPA due diligence on acquisition targets pre-closing
Disclose any unresolved compliance issues discovered post-closing
Integrate the acquired entity into the company's compliance program
Remediate any outstanding FCPA compliance deficiencies

Undertaking these steps enables companies to avoid successor liability risks.

Utilizing Opinion Procedure Releases for FCPA Compliance Guidance

The Department of Justice occasionally publishes Opinion Procedure Releases to provide guidance to companies with specific FCPA compliance questions. Companies can analyze these releases for insight into the DOJ's enforcement approach when evaluating similar scenarios.

Conclusion: Reinforcing the Importance of FCPA Compliance and Ethical Practices

Recap of FCPA's Anti-Corruption and Transparency Mandates

The Foreign Corrupt Practices Act (FCPA) contains important provisions aimed at combating bribery and increasing transparency. Key aspects include:

Anti-bribery provisions prohibiting the payment of bribes to foreign officials to obtain or retain business
Accounting transparency provisions requiring companies to maintain accurate books and records
Applies to all U.S. companies and citizens, foreign companies listed on U.S. stock exchanges, and certain foreign persons acting in furtherance of a bribe

Adhering to these mandates is critical for organizations seeking to conduct ethical international business.

Reflecting on Trends in FCPA Enforcement and Corporate Responsibility

In recent years, both the Department of Justice and Securities and Exchange Commission have strictly enforced FCPA provisions against companies and individuals alike. This demonstrates a commitment to cracking down on bribery and a growing emphasis on corporate social responsibility.

Organizations must have robust compliance programs and due diligence procedures in place to mitigate bribery risks. Failing to prevent bribery can result in heavy fines, penalties, damaged reputation, and even jail time.

Final Thoughts on Building an Ethical International Business Environment

The FCPA represents an important step toward increased transparency and ethical practices in global markets. Companies should develop clear anti-bribery policies, provide regular employee training, perform due diligence on third-parties, and maintain accurate records.

By making ethical business conduct a priority, organizations can reduce legal and reputational risks while contributing to fair competition and economic development worldwide. Collective commitment to anti-corruption creates a better environment for everyone.