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Foreign Corrupt Practices Act
As the fallout from Watergate continued in the mid-1970s, an investigation by the U.S. Securities and Exchange Commission (“SEC”) into President Nixon’s campaign finances led to the revelation that more than 400 American companies – including 117 members of the Fortune 500 – routinely bribed foreign government officials in the course of doing business abroad. At the time, this practice was legal and common. This changed in 1977, when President Carter signed the Foreign Corrupt Practices Act (“FCPA”), which criminalized most payments from companies based or traded in the United States to anyone working directly or indirectly for a foreign government.
The FCPA is renowned for its breadth of coverage: The Act bars American companies and those working for them in any capacity from giving or offering to give foreign officials or political parties “anything of value” for the purpose of:
- “influencing any act or decision” made by a foreign official “in his official capacity”;
- “inducing” an official to commit an act or omission in violation of his lawful duty as an official;
- “securing an improper advantage” over competitors; or
- persuading the official to “use his influence” within a “foreign government or instrumentality” to impact a decision or act to allow the briber to obtain or retain business of any sort.
The FCPA defines “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization. For this reason, the Department of Justice (“DOJ”) and SEC, the two agencies charged with investigating and prosecuting FCPA violations, consider any and all managers, employees and agents of state-owned companies to be “foreign officials” covered by the FCPA; this applies even where the foreign government is only a minority owner of the company in question.
In addition to all U.S.-based companies and their agents, the requirements of the FCPA also apply to foreign companies that are publicly traded on U.S. stock exchanges. Additionally, the FCPA’s coverage of “anything of value” means just that: Qualifying bribes in any amount can trigger an FCPA prosecution.
There is one exception to the FCPA’s blanket ban on bribery of foreign officials: So-called “grease payments” are allowed in order to “expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.” This “facilitation exception” only exempts non-discretionary actions which the government official is already authorized and expected to perform under his job description – for example, a small payment to a clerk to expedite paperwork he would have completed at a later time even without the bribe. This exception reflects the reality that the use of grease payments is a deeply engrained practice in some foreign bureaucracies.
Lastly, in addition to banning most forms of foreign bribery, the FCPA also establishes accounting (“books and records”) and internal controls standards for covered companies. These provisions require covered companies to maintain “books, records, and accounts” that “accurately and fairly reflect the transactions and dispositions” of the company’s assets “in reasonable detail.” Covered companies must also “devise and maintain a system of internal accounting controls” to “provide reasonable assurances that”:
- the company carries out transactions consistent with company management’s orders;
- transactions are recorded in a manner allowing the company accurately track its assets and prepare financial statements that meet “generally accepted accounting principles”;
- only those with “management’s general or specific authorization” can access company assets; and
- the company compares its financial records against its actual assets “at reasonable intervals” and takes “appropriate action” if there’s a discrepancy.
In spite of the FCPA’s title, most prosecutions under the Act stem from the “books and records” and internal controls provisions of the statute due to the fact that these crimes are more easily proven than violations of the anti-bribery provisions. The typical scenario in which these violations occur is when the defendant company mislabels, misreports, or fails entirely to report funds that are in fact destined for delivery to foreign officials as improper payments.
The FCPA itself does not contain its own whistleblower provisions. Instead, persons who provide the SEC with “original information” showing apparent FCPA violations are eligible for monetary rewards and protection from retaliation under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the Dodd-Frank Act, FCPA whistleblowers are eligible to collect between 10 and 30 percent of the government’s recovery from the violating company should the government decide to prosecute the case and the total recovery of this and all related actions exceed $1 million. The Dodd-Frank Act also protects FCPA whistleblowers from retaliation for reporting FCPA violations.
- November 20, 2014