The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (“FCPA”) was enacted in 1977 with the goal of preventing U.S. companies from conducting unethical business practices in order to garner a competitive advantage. The FCPA prohibits citizens and business entities from giving or offering money, gifts, or anything of value to a foreign government official for the purpose of securing or obtaining business. The FCPA is comprised of two main clauses, which operate independently: the anti-bribery provisions and the accounting provisions.
Who Does the FCPA Apply To?
The FCPA applies to two wide-ranging categories of persons: those with formal ties to the United States, and those who act in furtherance of a violation while in the United States. Those with formal ties to the United States include issuers and domestic concerns. Issuers are defined as any company with securities registered in the United States or any company that is required to file reports with the SEC. Domestic concerns are defined as any individual that is a citizen, national, or resident of the United States. This broad category includes a variety of business entities, such as any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship, that operates its principal place of business in the United States or is organized under the laws of a US state. Application of the FCPA further extends to the employees, officers, directors, agents, and stockholders of these companies.
Who are Foreign Officials?
Foreign officials are defined as people working within the government or working within entities that are controlled by a foreign government. This broad definition ensures that the FCPA covers any person that is in a position to affect a foreign government’s business relations.
The anti-bribery provisions of the FCPA broadly prohibit paying, promising to pay, authorizing to pay, or offering a foreign official money or anything of value. These anti-bribery provisions are broad, and encompass non-monetary bribes such as lavish gifts, favorable loan or employment offers, superfluous contributions to third party organizations, and excessive travel expenses.
Under the FCPA, there is no minimum value for a payment to be considered a bribe. Instead, status as a bribe is based upon a willful intent and corrupt motive behind the payment rather than its value. A corrupt motive exists for these purposes when the payment is intended to influence the beneficiary to exploit their authority in order to advantage the payor. A violation is committed willfully when the payor is aware of the general wrongfulness of their actions or when there is a reckless disregard for circumstances that suggest a high probability of corrupt practices.
Additionally, the FCPA prohibits indirect bribes or payments through intermediaries. Indirect bribes are made to a person while knowing that a portion of the payment will be used by that person in order to bribe foreign officials. In this context, the payor does not have to know with absolute certainty that some or all of the payment will be used to bribe a foreign official. Under current law, willful blindness to the likelihood of bribery is enough to establish the “knowing” element.
In contrast with the anti-bribery provisions, the accounting provisions of the FCPA apply regardless of whether any bribery is involved. The accounting provisions require businesses to maintain records that are an accurate reflection of their transactions, and require businesses to maintain sufficient internal accounting controls. In doing so, these provisions work to prevent the use of accounting practices that are intended to conceal corrupt transactions. Additionally, since the accounting provisions of the FCPA lack a materiality requirement, a fraudulent transaction of any amount may support liability under the FCPA.
The FCPA is jointly enforced by the SEC, which brings civil actions for FCPA violations, and the Department of Justice, which prosecutes criminal FCPA violations. If found to be in violation of the FCPA, individuals and corporations alike are subject to both criminal and civil penalties. The FCPA also prohibits an individual’s employer from indemnifying any fines imposed by the government.
For each violation of the anti-bribery provisions, business entities face a fine of up to $2 million. Individuals face a fine of up to $100,000 and a maximum of five years’ imprisonment. For each violation of the accounting provisions, business entities face a fine of up to $25 million. Individuals face a fine of up to $5 million and a maximum of 20 years’ imprisonment.
Additionally, all FCPA-mandated criminal fines may be increased to equate to twice the amount gained by the offender or to twice the loss incurred by another individual. Further penalties may include supplementary criminal or civil actions under the Racketeer Influenced and Corrupt Organizations Act (RICO), suspension of export licenses, disgorgement, possible debarment from the securities industry and certain federal programs, or required oversight by an independent compliance monitor. Violations may also result in undesirable publicity, which may adversely impact a company’s reputation and ability to conduct business.
Routine Governmental Action Exception and Defenses.
There is an exception to the FCPA with respect to any “facilitating or expediting payment” that is used to further the performance of a routine governmental action, such as non-discretionary acts. However, the exception is not satisfied when a payment is made to a foreign official with discretion to continue business with the payor.
There are also two notably affirmative defenses available under the FCPA. A defendant may have an affirmative defense if they are able to show that the payment was lawful under the laws of the foreign official’s country or that the payment was related to a reasonable and bona fide expenditure. Such expenditures include payments made directly relating to the promotion or explanation of a product or service, as well as limited travel expenses.