Foreign Corrupt Practices Act

Foreign Corrupt Practices Act

The rationale for the Act

The Foreign Corrupt Practices Act (FCPA) is a U.S. law that prohibits companies from gaining business or any improper competitive advantage through bribes paid to foreign officials. Passed by Congress in 1977, the FCPA's enactment made the United States the first industrial nation to criminalize transnational bribery. Congress further amended the law in 1988 and 1998. The FCPA applies to companies organized under U.S. law, as well as foreign companies that issue securities within the United States. These organizations and their agents may be held liable under the FCPA for acts performed either within or outside U.S. borders. A 1998 amendment also extends the law's reach to include citizens of other countries who support or engage in foreign bribery while physically present within the United States.

Act Prohibition

The FCPA addresses bribery through two avenues. First, it proscribes companies from making payments to foreign officials that are intended to induce the recipient to misuse his or her official position to help the firm obtain, retain, or direct business or secure any improper advantage for example, by encouraging the recipient to take or omit some action or to use his or her influence to affect a foreign government's decision (Salbu, 2001). The law's definition of foreign official includes officials of foreign governments, officials of foreign political parties, candidates for foreign political office, and officials of public international organizations, such as the International Monetary Fund or the World Bank. The FCPA prohibits both direct payments to these individuals and payments made through intermediaries. The law is violated once a payment is offered, even if it is subsequently refused. Companies convicted under the FCPA's antibribery provision are subject to a criminal fine of up to $2 million. Willful violation of the law by individual officers, directors, employees, and other company agents can result in a maximum fine of $100,000 and up to five years' imprisonment. (Cragg & Woof, 2002))

The FCPA's antibribery provision is notable not just for what it prohibits but also for the kinds of payments it allows. It does not outlaw bribes aimed at private companies or individuals, so long as these payments are not channeled to the government. Furthermore, it permits so-called facilitating or grease payments. This is a sum paid to induce a government official to provide a service he or she is obliged to perform and to which the payer is entitled. Facilitating payments typically are differentiated from bribes on the basis of two features: (1) they usually involve small amounts of money, and (2) they are not intended to secure a competitive advantage. In many poorer nations, such payments function as “tips” that supplement inadequate wages. The original 1977 legislation exempted payments of this type directed at foreign government employees whose positions were “essentially ministerial or clerical.” The 1988 amendments modified this definition, permitting payments to public employees for “routine government action.” Examples of such activities provided within the statute include visa processing, mail delivery, the scheduling of inspections, and ...