Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) is a significant piece of legislation enacted by the United States Congress in 1977 aimed at combatting bribery and unethical practices by U.S. firms and individuals operating abroad. This landmark law serves to address the issue of corruption in international business transactions, enhancing the accountability and transparency of U.S. enterprises on a global scale.

Overview of the FCPA

The FCPA is primarily divided into two main provisions:

1. The Anti-Bribery Provisions
2. The Accounting Provisions

The Anti-Bribery Provisions

The anti-bribery provisions of the FCPA make it illegal for U.S. individuals and businesses, as well as certain foreign issuers of securities, to bribe foreign government officials to obtain or retain business. Specifically, the law prohibits:

• The offering, payment, promise to pay, or authorization of payment of any money, gift or anything of value.
• To any foreign official, foreign political party or candidate for foreign office.
• For the purpose of influencing any act or decision of the foreign official in their official capacity, inducing the foreign official to do or omit to do any act in violation of their lawful duty.
• To secure any improper advantage or to obtain or retain business.

Violations of the anti-bribery provisions can result in substantial fines for both individuals and corporations, and individuals can also face imprisonment.

The Accounting Provisions

The accounting provisions, also known as the “books and records” provisions, require issuers of securities in the United States to:

• Make and keep books, records, and accounts which accurately and fairly reflect the transactions and dispositions of assets.
• Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed and assets are managed properly.

These provisions ensure that corporations can’t conceal illegal payments by inadequate or misleading bookkeeping.

History and Development

The FCPA was enacted in response to the Watergate scandal and revelations of widespread corruption in U.S. corporations. Congressional investigations in the mid-1970s revealed that over 400 U.S. companies had made questionable or illegal payments to a wide range of foreign officials and politicians. This prompted a legislative response to clean up corporate practices and restore confidence both domestically and internationally.

Enforcement Agencies

The FCPA is enforced by two primary U.S. government agencies:

1. The Department of Justice (DOJ)
2. The Securities and Exchange Commission (SEC)

The DOJ oversees criminal enforcement, particularly concerning the anti-bribery provisions, while the SEC handles civil enforcement, primarily related to the accounting provisions.

Key Elements and Defenses Under the FCPA

Jurisdiction

The FCPA has broad jurisdictional reach, covering:

• U.S. Issuers: Companies with securities registered in the U.S. or those required to file periodic reports with the SEC.
• Domestic Concerns: U.S. citizens, nationals, residents, and businesses organized under U.S. laws.
• Foreign Entities and Individuals: Under certain conditions, the FCPA also applies to foreign entities and individuals involved in bribery schemes with a connection to the U.S.

Exceptions and Affirmative Defenses

Despite its stringent provisions, the FCPA includes certain exceptions and defenses:

1. Facilitating Payments: Payments made to expedite or secure the performance of routine governmental actions (e.g., permits, licenses) that are legally required but involve no exercise of discretion by the foreign officials.
2. Lawful Payments: Payments that are lawful under the written laws and regulations of the foreign official’s country.
3. Reasonable and Bona Fide Expenditures: Payments related to the promotion, demonstration, or explanation of products or services or the performance of a contract with a foreign government.

Impact and Global Reach

The FCPA has had a profound impact on how companies operate internationally, influencing both U.S. corporations and foreign entities. It is considered a model for anti-bribery legislation worldwide, inspiring similar laws in other countries, such as the United Kingdom’s Bribery Act of 2010.

Corporate Compliance Programs

To comply with the FCPA and avoid violations, companies often implement comprehensive compliance programs. These typically include:

• Code of Conduct: Clear guidelines and policies for employees regarding ethical behavior and compliance with the FCPA.
• Training and Awareness: Regular training sessions for employees and third parties to understand the provisions of the FCPA and the company’s compliance expectations.
• Due Diligence: Thorough vetting of foreign partners, agents, and intermediaries to ensure they comply with anti-bribery laws.
• Monitoring and Auditing: Continuous monitoring of transactions and auditing of financial records to detect and prevent potential violations.
• Reporting Mechanisms: Systems in place for employees and others to report suspected violations without fear of retaliation.

Recent Enforcement Actions

The past decade has seen significant enforcement actions under the FCPA, resulting in substantial fines and penalties. Major corporations, including high-profile names in various industries, have faced scrutiny and legal action for FCPA violations.

Examples include:

• Siemens AG: In 2008, Siemens AG paid over $1.6 billion to resolve charges of widespread bribery and corruption in multiple countries, the largest settlement in the history of the FCPA at that time.
• Walmart: In 2019, Walmart Inc. and its Brazilian subsidiary agreed to pay more than $282 million to settle charges of violating the anti-bribery provisions and failing to maintain adequate anti-corruption controls.

The increasing number of enforcement actions underscores the U.S. government’s commitment to combating global corruption and holding companies accountable for unethical practices.

Challenges and Criticisms

While the FCPA is a critical tool in the fight against international corruption, it is not without its challenges and criticisms. Common concerns include:

• Ambiguity in Provisions: Critics argue that certain terms and provisions of the FCPA, such as “foreign official” and “routine governmental action,” are vaguely defined, leading to uncertainties in compliance.
• Overreach: Some argue that the extraterritorial reach of the FCPA places an undue burden on U.S. companies and can create conflicts with the laws of other countries.
• Compliance Costs: Implementing robust compliance programs to meet FCPA requirements can be costly, particularly for small and medium-sized enterprises.
• Enforcement Disparities: There are concerns about the inconsistent application and enforcement of the FCPA, with some arguing that it is used more aggressively against certain industries or companies.

Conclusion

The Foreign Corrupt Practices Act remains a cornerstone of U.S. efforts to promote ethical business practices on a global scale. Despite challenges, it has significantly influenced corporate behavior and contributed to the development of a global framework for combating corruption. Companies operating internationally must diligently adhere to the FCPA’s provisions, implementing comprehensive compliance programs to mitigate risks and uphold the law’s intent. As globalization continues to expand, the importance of robust anti-bribery and anti-corruption measures is more critical than ever, ensuring a level playing field in the global marketplace.