Policy Procedure

Policy Procedure

Overview of Foreign Corrupt Practices Act

The FCPA was passed in the wake of revelations in the 1970's about widespread corrupt payments by U.S. companies to obtain international business. According to the House Report accompanying the FCPA, bribery of foreign officials was morally suspect, economically counter-productive and caused foreign policy problems for the U.S. The FCPA was designed to create disincentives for companies to use bribes as a means to compete for international business and reaffirm America's commitment to the integrity of free markets. The FCPA amended the Securities and Exchange Act of 1934 to create two broad prohibitions (Puckett, 2008).

First, the FCPA creates civil and criminal penalties for certain businesses and individuals who give something of value to a official of foreign government in order to improperly retain or obtain business (the anti-bribery provisions); and second, the FCPA requires certain issuers of U.S. securities to keep detailed accounting records and preserve a system of internal controls designed for detection and prevention of corrupt payments to foreign officials (the accounting provisions).

What Are the Penalties for Violating the Act?

Criminal fines for violation of the anti-bribery provisions are up to $2 million per violation, per company, and up to $250,000 per individual, plus a five-year prison sentence, per violation. A “willful” (as opposed to "knowing") criminal violation of the books and records/internal controls provisions carries a fine of up to $25 million for a company and $5 million for an individual (plus up to 20 years in prison). At its discretion, under the Alternative Fines Act (AFA), Department of Justice (DOJ) may seek double the gross benefit of the bribe. In other words, if a $50,000 bribe resulted in a $25 million contract, the fine using the AFA may be $50 million. Additional potential consequences include suspension and disbarment from federal procurement contracting, suspension or being barred from the securities industry, loss of export licenses, SEC civil fines and disgorgement, appointment of an independent compliance monitor after the settlement (typically two to three years) at the company's expense, and private civil actions (e.g., brought by competitors) under the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO).

Who Implement The Act?

The United States' Department of Justice is responsible for enforcing FCPA. DOJ need only prove "willful blindness" - to some, a broader definition of negligence - to hold a company or individual liable (Thomas, 2010). Further, fines may be assessed even if the corrupt payment does not achieve its intended business advantage, or if a company acquires an entity subsequently found to have violated a provision of FCPA but failed to conduct proper due diligence and take steps necessary to prevent further occurrences.

As a demonstration of the reach of FCPA to acquired businesses, in 2010 DOJ filed suit against a subsidiary of Alliance One Tobacco, a U.S. issuer, alleging senior officers of a company it acquired in 2005 made corrupt payments of approximately $6 million to Kyrgyzstan government officials during the years 1996 through 2004 (Norton, 2006). The suit further alleged the company ...