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Foreign Corrupt Practices

What is the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act (FCPA) is a law that Congress initially passed in 1977. The purpose of the FCPA was to punish and eliminate the bribery designed to influence the acts and/or decisions of foreign officials. The policy behind the FCPA was to combat the negative impact of bribery on free and fair market competition.

The FCPA was amended in 1988 and then again ten years later. The latest amendment to the FCPA is known as the International Bribery Act of 1998, an act that implemented the anti-bribery provisions of a convention put forth by the Organization for Economic Cooperation and Development.

How did the International Bribery Act of 1998 expand the Foreign Corrupt Practices Act (FCPA)?

The International Bribery Act of 1998 expanded the FCPA in two important ways: (1) It tried to strike a fine balance between combating illicit business practices while facilitating the ability of American businesses to compete overseas; and (2) it expanded the list of those held accountable under the act to include foreign nationals and corporations.

What are the two major parts of the Foreign Corrupt Practices Act (FCPA)?

The two major parts of the FCPA are the anti-bribery provisions and the record-keeping and internal accounting control provisions. The FCPA also details how it is to be enforced as well as the penalties for violating its provisions.

The anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) refer to "issuers" and "domestic concerns" - who are issuers and domestic concerns under the FCPA?

Under the FCPA, an "issuer" is any company whose securities are issued in accordance with section 12 of the Exchange Act or any company that is required to make periodic reports in accordance with section 15 of the Exchange Act.

The FCPA defines a domestic concern as "any individual who is a citizen, national, or resident of the United States, and any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States." 15 U.S.C.A. § 78dd-2(h)(1)(A)-(B).

Just to sew up any loose ends, the FCPA also refers to "any persons" other than issuers and domestic concerns who do anything in furtherance of a corrupt payment.

If I'm just an employee, can I be held liable under the Foreign Corrupt Practices Act (FCPA)?

The anti-bribery provisions of the FCPA also apply to the officers, directors, employees, or agents of an issuer or domestic concern. Interestingly, even a stockholder who acts on behalf on an issuer or domestic concern falls under the provisions of the FCPA.

Does the company I work for have to be found guilty in order for me to incur criminal or civil liability under the Foreign Corrupt Practices Act (FCPA)?

The 1988 amendment to the FCPA removed the requirement that the issuer or domestic concern be found guilty before its employees or agents could be prosecuted.

What are the elements of bribery under the Foreign Corrupt Practices Act (FCPA)?

The FCPA makes it a crime to (1) make a payment of, offer or promise to pay, or authorize a payment of money or anything of value, directly or indirectly; (2) to any foreign official, politician, party official, candidate for office, or to an intermediary who knows that the payment will go to any of the aforementioned people; (3) with a corrupt motive; (4) for the purpose of influencing one of these person's official acts or decisions in violation of his or her lawful duty; (5) in order to assist in obtaining or retaining business.

What constitutes a payment under the Foreign Corrupt Practices Act (FCPA)?

As the Department of Justice points out succinctly in its brochure of the FCPA, "[t]he FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value." The FCPA does not define the term "anything of value," nor is there any legislative history or case law that defines exactly what this term means. The courts, however, are likely to interpret the phrase broadly and look at the subjective value the defendant placed on the payment.

How is a foreign official defined under the Foreign Corrupt Practices Act (FCPA)?

The Department of Justice (DOJ) brochure on the FCPA points out that a "foreign official means any officer or employee of a foreign government, a public international organization, or any department or agency thereof, or any person acting in an official capacity." The DOJ suggests using its FCPA Opinion Procedure in determining exactly who constitutes a foreign official. For example, a member of a royal family, a legislative body, or an official of a state-owned business enterprise would be considered a "foreign official" for the purposes of the act.

Exactly what is a "public international organization" for the purposes of the Foreign Corrupt Practices Act (FCPA)?

Under the FCPA, a public international organization is any organization designated such by Executive order in accordance with the International Organizations Immunities Act or any other organization that the President decides to designate as such.

The International Organizations Immunities Act (IOIA) grants designated international organizations the capacity to contract, acquire and dispose of personal property, and to institute legal proceedings. The IOIA also, as the name implies, provides designated organizations immunity from suit.

How does the Foreign Corrupt Practices Act (FCPA) define an "intermediary?"

The FCPA defines an intermediary as a third party who knows that all or part of a corrupt payment will either be offered or otherwise make it into the hands of any foreign official.

How is "knowing" defined under the Foreign Corrupt Practices Act (FCPA)?

The "knowing" or "knowingly" requirement of the FCPA is satisfied when the intermediary either knows that all or part of the payment is going directly or indirectly to a foreign official, or when the intermediary engages in either conscious disregard or deliberate ignorance.

What's the best way to avoid being held liable for corrupt third-party payments under the Foreign Corrupt Practices Act (FCPA)?

The Department of Justice recommends doing your due diligence by investigating potential foreign representatives and joint venture partners (1) to determine whether they are in fact qualified for the position; (2) whether they have personal or professional ties to the government; (3) to determine the number and reputation of their clientele; and (4) to figure out what their reputation is with the U.S. Embassy or consulate and with local business people and clients.

What else does the Department of Justice (DOJ) recommend to keep from running afoul of the Foreign Corrupt Practices Act (FCPA) because of possible corrupt third-party payments?

The DOJ recommends that you seek the advice of counsel and consider utilizing their FCPA Opinion Procedure for particular questions relating to third-party payments.

What is the "facilitating" or "grease payment" exception of the Foreign Corrupt Practices Act (FCPA)?

When Congress put the FCPA together, it explicitly exempted from the anti-bribery prohibitions payments made to facilitate or expedite performance of a "routine governmental action."

Under the Foreign Corrupt Practices Act (FCPA), what exactly is does a "routine governmental action" mean in relation to the "facilitating" or "grease payment" exception?

The FCPA defines a "routine governmental action" as one that a foreign official ordinarily performs in (1) obtaining permits, licenses, or other official documents to enable you to do business in that country; (2) processing governmental papers such as visas and work orders; (3) providing police protection, mail services, or conducting inspections associated with contract performance; (4) providing phone and utility services, loading and unloading cargo, or protecting perishable from deterioration; or (5) anything of a similar nature.

Remember that a "routine governmental action" does not include a foreign official's decision to award new business or to continue business with a particular party.

What is an affirmative defense, and what are the affirmative defenses built into the Foreign Corrupt Practices Act (FCPA)?

First of all, an affirmative defense is something that limits a defendant's criminal and/or civil liability, even if the defendant admits to or the government proves the factual allegations. The FCPA has two built-in affirmative defenses: (1) assertion that the payment in question was lawful under the laws of the foreign country; and (2) assertion that "the payment, gift, offer, or promise of anything of value was a bona fide expenditure."

Under all circumstances, you should consider seeking the advice of counsel and/or utilizing the DOJ's FCPA Opinion Procedure when considering the legality of a payment.

What constitutes a bona fide expenditure under the Foreign Corrupt Practices Act (FCPA)?

The FCPA defines a bona fide expenditure as things like travel and lodging expenses incurred by or on behalf of a foreign official that was directly related to the promotion, demonstration, or explanation of products and services, or related to the performance of a contract with a foreign government or agency.

Who can take advantage of the affirmative defenses built into the Foreign Corrupt Practices Act (FCPA)?

Under the FCPA, both the lawful payment and the bona fide expenditure affirmative defenses are available to any party charged, be it an issuer, domestic concern, or other person.

Does the Foreign Corrupt Practices Act (FCPA) provide for the issuance of opinion letters?

The FCPA allows issuers and domestic concerns to obtain the Attorney General's opinion as to whether the party's prospective conduct conforms to FCPA's anti-bribery provisions.

To obtain an opinion letter, the request must relate to an actual transaction and the request must be prospective (i.e. before the requesting party initiates the transaction).

Do the accounting provisions of the Foreign Corrupt Practices Act (FCPA) apply only to dealings with foreign officials?

The record-keeping and internal accounting control provisions of the FCPA apply domestically as well as abroad.

Who is covered under the accounting provisions of the Foreign Corrupt Practices Act (FCPA)?

The accounting and record-keeping requirements of the FCPA apply only to issuers, those companies whose securities are issued in accordance with section 12 of the Exchange Act or any company that is required to make periodic reports in accordance with section 15 of the Exchange Act.

What do the accounting and record-keeping provisions of the Foreign Corrupt Practices Act (FCPA) require an issuer to do exactly?

The bookkeeping requirements of the FCPA require an issuer to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer."

The FCPA also requires an issuer to maintain a system of internal accounting controls.

What are the internal accounting requirements for an issuer under the Foreign Corrupt Practices Act (FCPA)?

The internal accounting requirements of the FCPA require an issuer to provide reasonable assurances that (1) transactions are executed in accordance with management's general or specific authorization; (2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets; (3) access to assets is permitted only in accordance with management's authorization; and (4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

What sorts of sanctions does the Foreign Corrupt Practices Act (FCPA) provide for?

The FCPA provides for both criminal and civil penalties. A person or firm may also be barred from doing business with the federal government. In addition, violation of the of the FCPA's anti-bribery provisions may also give rise to a private lawsuit under the Racketeer Influenced and Corrupt Organizations (RICO) Act.

What are the possible criminal penalties for violating the Foreign Corrupt Practices Act (FCPA)?

If a corporation or other business entity violates the anti-bribery provisions of the FCPA, it may be subject to a fine of up to $2,000,000. Officers, directors, stockholders, employees, and agents who violate the FCPA's anti-bribery provisions are subject to a fine of up to $100,000 and as much as five years in prison.

Under the Alternative Fines Act, the above-mentioned fines might actually be higher. In some instances, the actual fine could be twice the benefit the defendant sought to obtain by making the corrupt payment.

Keep in mind that an employer or principal cannot pay a fine levied against an individual.

What are the possible civil consequences for violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA)?

Either the Attorney General or the Securities and Exchange Commission (SEC) can bring a civil action against any firm or officer, director, employee, agent, or stockholder acting on behalf of a firm. The fine can be as much as $10,000.

In SEC enforcement actions, a court could impose an additional fine not greater than (1) the gross amount of the defendant's monetary gain resulting from the violation; or (2) a specified dollar limitation, based on the egregiousness of the violation, ranging from $5000 to $100,000 for a person and $50,000 to $500,000 for a company.

What other sorts of action may the government take for violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA)?

Any person or firm found in violation of the FCPA may be barred from doing business with the federal government. Bear in mind that simply being indicted may preclude you or your firm from doing business with the government.

Moreover, any person or firm found in violation of the FCPA may be prevented from receiving export licenses, and the Securities and Exchange Commission may suspend or bar persons from the securities business, in addition to imposing civil penalties.

The Commodity Futures Trading Commission and the Overseas Private Investment Corporation can also suspend or bar a firm from their agency programs for violations of the FCPA.

For a consultation with Lorandos Joshi, call 734-545-2919 or send the firm an e-mail.