FOREIGN CORRUPT PRACTICES ACT

Foreign Corrupt Practices Act

Foreign Corrupt Practices Act

Introduction

The Rationale for the 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 (Deming, 2006; Gillespie, 1987). 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 Does the Act Prohibit?

The FCPA prohibits payments by certain U.S. and foreign individuals and businesses to political parties, foreign officials or candidates for political office in order to manipulate a decision or action to obtain or retain business. FCPA criminally forbids U.S. entities and persons, foreign entities listed on a United States exchange, and foreign persons or entities acting in the U.S., directly or via intermediaries, from making payments to foreign officials to gain an unfair business advantage. Under the “control persons” notion, persons may be held liable for the acts of those they have the power to influence. U.S. companies may be deemed to have violated the law by simply having a foreign subsidiary, joint venture partner, manufacturer, sub-contractor, service provider, or other agent who commits bribes. 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.

Books and records: Internal controls provisions. FCPA also requires companies with listed securities (U.S. and foreign registrants) to: (1) make and keep records and books, which accurately and fairly imitate the transactions of the company and (2) devise and maintain an adequate system of internal accounting controls sufficient to permit preparation of financial statements which provide, among other assurances, reasonable assurance that transactions are executed in accordance with management's authorization and accurately recorded provisions more widely incorporated into law with the passage of the Sarbanes-Oxley Act of 2002.

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 ...