The Foreign Corrupt Practices Act

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The Foreign Corrupt Practices Act (FCPA), also known as the Bribery Act, is a federal law that 1) prohibits any corporation with business holdings in the United States (also known as an “issuer”) from bribing a foreign official or committing other criminal acts in order to obtain or maintain business and 2) requires issuers to keep accurate records of transactions and the handling of assets, and maintain a system of internal accounting controls to monitor transactions and insure they are properly recorded. The law is jointly enforced by the U.S. Department of Justice and the Securities and Exchange Commission, as both agencies serve to protect consumers and investors and maintain a fair marketplace. Whistleblowers play an important  role in assisting with the enforcement of FCPA provisions.

Anti-Bribery Provisions

The FCPA prohibits offers and payments, promises to pay, the authorization of the payment of any money, or offer, gift, or promise to give, or the authorization of the giving of anything of value to any foreign officials, political parties, party officials, or candidates for political office in another country, for the purpose of influencing their acts and decisions in order to assist the issuer or business entity “in obtaining or retaining business for or with, or directing business to, any person.”

The Foreign Corrupt Practices Act also prohibits any citizen, resident, national, partnership, joint-stock company, unincorporated organization, business trust, or sole proprietorship that makes the United States its home base for business (also known as a “domestic concern”) from engaging any of these forms of corrupt conduct.

Intermediaries or third parties are not permitted to make corrupt payments on behalf of “issuers” or “domestic concerns” with the knowledge that the payment will go directly or indirectly to a foreign official since this is simply a cloaked attempt to bribe a foreign official. In addition, the FCPA prohibits foreign companies from making corrupt payments to a government official while in the United States.

Accounting Provisions

In order to accomplish its anti-bribery goal, the FCPA also requires companies with registered securities in the United States to keep accurate records of all company transactions and maintain an accurate accounting system. Issuers are required to make and keep books, records, and accounts that accurately “reflect the transactions and dispositions of the assets of the issuer.” Accounting transparency rules operate to prevent companies from concealing payments from required public disclosure.

Exceptions and “Affirmative Defenses”

The Foreign Corrupt Practices Act also contains several exceptions to its record keeping and bribery provisions.

Persons are criminally liable for violations of accounting standards only when they “knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account….” The key word here is knowingly. The intent of the law makers was that penalties be imposed for intentional efforts to deceive, not for insignificant or technical infractions or inadvertent conduct.

Facilitating or expediting payments that were made to expedite or secure the performance of a routine governmental action by a foreign official, political party or party official are not violations of the FCPA.

“Affirmative defenses”: It can be argued that no violation of the FCPA has occurred when the payment, gift, offer, or promise of anything of value that was made was “lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s or candidate’s country”, or the payments, gifts, offers and promises made were “reasonable and bona fide expenditures” and were directly related to a) the promotion, demonstration, or explanation of products or services or b) the execution or performance of a contract with a foreign government or agency. The act mentions travel and lodging expenses as one example.

Penalties for Violating the FCPA

Violations of Anti-Bribery Provisions

Criminal FinesCivil Penalties
Businessesup to $2 millionup to $10,000
Individualsup to $250,000; 5 years imprisonmentup to $10,000

Violations of Accounting Provisions

Criminal FinesCivil Penalties
Businessesup to $25 millionup to $500,000
Individualsup to $5 million; 20 years imprisonmentup to $100,000

Businesses that violate the anti-bribery provisions of the FCPA can be punished with criminal fines up to $2 million and civil penalties up to ten thousand dollars. Individuals who violate the law may receive criminal fines up to $250K and/or imprisonment up to 5 years, and civil penalties up to ten thousand dollars. Businesses that violate the accounting provisions of the FCPA can be fined up to $25 million and receive civil penalties up to a half a million. Individuals who violate accounting provisions may receive criminal fines up to $5 million and/or imprisonment up to 20 years, as well as civil penalties up to $100,000. Under the Alternative Fines Act, criminal fines may  be increased to twice the financial gain resulting from the anti-bribery or accounting violation.

The Role of the Whistleblower in FCPA Law

The Foreign Corrupt Practices Act law does not directly address the rewards and protections available to FCPA whistleblowers. However, under the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act [Link to Dodd-Frank page here], the Securities and Exchange Commission, which enforces FCPA law together with the Department of Justice, is required to pay eligible whistleblowers who provide the agency with “original information” (derived from the whistleblower’s independent knowledge or analysis and not known by the Commission from any other source) with between 10% and 30% of the monetary sanctions imposed by the SEC following the successful enforcement of a judicial or administrative action, provided those penalties exceed $1 million. Given the potential size of fines that can be imposed on FCPA violators, in large cases the awards could amount to millions of dollars.

The Dodd-Frank Act also added protections for whistleblowers.  The law prohibits employers from discharging, suspending, threatening, harassing, directly or indirectly, or discriminating against a whistleblower in any manner as a result of lawful whistleblower acts in providing information to the SEC or assisting an SEC investigation related to their information. The 2002 Sarbanes-Oxley Act also contains provisions that prohibit employers from retaliating against whistleblowers. Under this act, an employee who is the target of retaliation may file a complaint with the Department of Labor and is eligible for reinstatement, back pay and other compensation.

The SEC has created rules that govern the administration of its whistleblower program. Two are particularly important for whistleblowers.

Whistleblowers are encouraged to make internal reports to their companies and are eligible for awards even if they first provide their original information to the company itself and the company then informs the SEC of the violations. Under this provision, the whistleblower is credited with all the information provided by the company to the SEC, even information generated by the company’s internal investigation. This can sometimes expand the scope of the case and increase the amount of the whistleblower’s award. Whistleblowers have 120 days to report information to the SEC after first reporting internally and  are treated as if they had reported to the SEC at the earlier reporting date.

Whistleblowers may report violations to the SEC anonymously but to do so they must have an attorney represent them in connection with their submission.  Potential whistleblowers should contact an attorney experienced in this complex area of law before taking action to ensure that their rights are protected and that they receive any reward to which they are entitled.

History of the Foreign Corrupt Practices Act

In the mid 1970’s investigations by the United States Securities and Exchange Commission (SEC) revealed that more than 400 American companies admitted making over $300 million in corrupt payments and bribes to foreign officials in government and politics. A 1977 report prepared for the U.S. House of Representatives Committee on Interstate and Foreign Commerce revealed that those companies included many of the largest in the U.S., with at least 117 ranking among Fortune magazine’s top 500 U.S. corporations.

According to the report, high foreign officials were bribed to secure favorable action by foreign governments and “facilitating payments” were made to ensure that government functionaries completed certain ministerial or clerical duties. Among the adverse consequences of such payments were anticompetitive effects on domestic companies, lawsuits, the seizure of valuable assets overseas, and “severe foreign policy problems for the United States.” In Italy, alleged payments by Lockheed, Exxon, Mobil Oil and other corporations to officials of the Italian government jeopardized U.S. foreign policy in that nation and the entire NATO alliance.

In 1977, Congress passed the Foreign Corrupt Practices Act (FPCA) in an effort to stop these corrupt practices and restore the integrity of American businesses at home and abroad. The Act was signed into law by President Jimmy Carter on December 19, 1977. The law addressed two principal areas of concern – the bribing of foreign officials to achieve or maintain business, and the need for transparent accounting systems.

The FCPA was amended in 1988 in response to several criticisms of the original bill. The amendments were signed into law as Title V of the Omnibus Trade and Competitiveness Act of 1988. One goal of the changes was to insure that only deliberate “knowing” falsification of records or evasions of internal accounting controls– not unintentional or unwitting conduct – would be punished. Other amendments addressed the fact that in some nations it was customary and lawful for a government official to accept a fee or payments from one doing business with the government. The 1988 amendments made such facilitating payments permissible if the purpose “is to expedite or to secure the performance of a routine governmental action.” Exceptions to the anti-bribery provisions were also created for payments or expenditures that were made to promote products and services.

It was widely viewed that the FCPA put U.S. companies at a disadvantage when competing with foreign companies in nations that did not have similar anti-bribery laws. This was addressed in 1997 when member countries of the Organization for Economic Cooperation and Development (OECD) signed the “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.” OECD members agreed to make it a criminal offense for any person to bribe a foreign official to “obtain or retain business or other improper advantage in the conduct of international business.”

The following year, the FCPA was amended to conform to the OECD Convention. An anti-bribery provision regarding foreign companies was added to the FCPA law, which made it illegal for foreign companies or persons to pay such bribes while conducting business in the United States. The amendments also broadened the law’s jurisdiction to include FCPA violations that take place outside the United States and expanded the definition of prohibited acts to include those made to secure “any improper advantage.”