The United States Department of Justice defines the Foreign Corrupt Practices Act of 1977 as a piece of federal legislation that was “enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.” Though this piece of federal legislation may seem on the surface to be fairly clear-cut, that is bribery and corruption are both serious offenses and are to be avoided at all costs, there remain some questions about what precisely constitutes bribery and corruption and what individuals and businesses must do to be found in compliance with FCPA laws. For questions about compliance, and what you should do if you find yourself the subject of a federal investigation, you would be best-served by seeking the services of a dedicated FCPA lawyer. A federal criminal defense attorney experienced with the Foreign Corrupt Practices Act and other anti-bribery legislation can carefully evaluate your alleged FCPA violation and can guide you through the often unnerving federal court process. To better understand what you may be up against please read on for a thorough breakdown of the history of the act and what it entails.
As previously stated, the FCPA was designed as a comprehensive piece of anti-bribery legislation aimed at preventing American businesses from making payments to government officials for the purpose of obtaining or retaining business and contracts in foreign countries. The federal act was signed into law after investigations revealed that more than 400 U.S. companies and their executives were regularly making illegal payments foreign government officials, with these unseemly but not technically illegal payments totaling more than $300 million. To most politicians and public policy experts, passing the FCPA seemed both the logical and ethical thing to do—ending the double standard of prohibiting bribery within the confines of the United States but tolerating corruption in the conducting of foreign business. However, in the decade that followed, American business leaders regularly complained that the FCPA put American businesses at a distinct disadvantage, since other countries not only allowed the bribery of foreign officials, but even sanctioned it, allowing businesses and individuals to deduct bribery payments from taxes—writing such payments off as “business expenses.”
At the end of the 1980s, having heard concerns about the payment of bribes in international business transactions by many of the United States major trading partners, Congress and the federal government took the task of leveling the international playing field in terms of bribery laws in order to protect America’s commercial competitiveness. Still, an international version of the FCPA was another decade away. But after nearly ten years of negotiations with the Organization of Economic Cooperation and Development (OECD), the United States and 33 other countries signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Changes to the FCPA, resulting from the cooperation of most U.S. trading partners, were ratified in 1998. Here is some more detailed information on famous FCPA cases.
What Does the FCPA Do?
The Foreign Corrupt Practices Act makes it illegal to bribe foreign government officials in order to obtain or retain business in that country. The FCPA applies not only to American citizens and corporations, but also to foreign businesses listed on the U.S. Stock Exchange and those conducting business from within the United States.
The FCPA prohibits businesses from making payment or promise of payment of anything of value to a foreign official, political party, party official, or candidate for foreign office with the purpose of influencing that person to use his or her position to assist the firm in obtaining or retaining business or to direct business to any other person.
The FCPA also prohibits third-party payments, including joint-venture partnerships, in which payment is made to a third party with the knowledge that some or all of that payment will be passed on to a foreign government official as a bribe. Therefore, the FCPA applies not only to bribery but also to money laundering.
The FCPA: Anti-Bribery Provisions
In general, the FCPA makes illegal any payment, offer to pay, promise to pay, or authorization of payments (whether money or “anything of value”) to a foreign official in order to influence the decision making of said official in his or her role as facilitator or enabler of new business or retained business.
The FCPA anti-bribery provisions apply to a variety of persons and entities, that is, issuers, domestic concerns, and territorial jurisdiction.
“Issuer” (15 U.S.C. section 78dd-1)
Issuers in this context are businesses and corporations. A business or corporation is considered an “issuer” under the statutes of the FCPA—and therefore be held liable for adherence to the specifics of the FCPA—if it has securities listed on the United States’ national securities exchange and is therefore required to file periodic financial reports with the Securities and Exchange Commission. Thus, an issuer as not a status reserved for American companies. Any foreign company which has securities traded on U.S. financial markets is also an issuer and therefore expected to abide by the laws of the FCPA. Additionally, officers, directors, employees, agents, or stockholders “acting on behalf of an issuer” can be prosecuted under the FCPA.
In summary, a company is an issuer, and therefore prohibited from violating the FCPA’s anti-bribery provisions, if it (1) is listed on a national securities exchange in the U.S. or (2) has stock traded in the over-the-counter market in the U.S., and has to file reports with the SEC.
“Domestic Concerns” (15 U.S.C. section 78dd-2)
Entities that don’t meet the definition for “issuer” may fall under the umbrella of “domestic concerns” and therefore still be accountable to the provisions of the FCPA. A “domestic concern” is any citizen, national, or resident of the U.S., or any corporation, partnership, association, business, sole propriety, or other unincorporated organization that is established and organized under American laws, or the laws of its any U.S. territory, possession, or commonwealth. Any entity that has its principal place of business within the U.S. can be considered a domestic concern.
“Territorial Jurisdiction” (15 U.S.C. section 78dd-3)
If you are not an issuer or domestic concern, the FCPA still may be applicable to you under the “territorial jurisdiction” provision. Added in 1998, this provision makes liable any foreign person or non-issuer entity that engages—on their own or through an agent—in any act that furthers a corrupt payment (or offer or promise of one) while in U.S. territory.
The FCPA: Accounting Provisions
In addition to outlawing bribery, the FCPA’s accounting provisions demand that issuers keep honest, accurate, and detailed records of all assets, accounts, and financial transactions. This is known as the “books and records” provision. The law also mandates that companies set up systems of oversight to ensure their assets are used appropriately—mechanisms to prevent fraud, and to catch incidents of corruption, bribery, and fraud. This is known as the “internal controls” provision.
Books and Records: This provision requires publicly traded companies to keep accurate records—records that indicate the nature of the transaction. Filing a bribery payment as some other expense with a more innocuous name (like “consulting fee”) would be an example of a violation of the books and records provision.
Other examples of books and records violations might include writing off a bribe as “travel expenses” or “petty cash.”
Internal Controls: This provision calls on publicly traded companies liable under the FCPA to install oversight structures within their company that help ensure funds are spent properly and that briber and other corrupt behaviors are not tolerated. The provision states that these controls should be “reasonable,” given a company’s vulnerability to hosting or facilitating improper behavior. In other words, a company that does a lot of foreign business and handles many large contracts from foreign governments would be expected to maintain more stringent internal controls than a company that mostly does domestic work.
Terms and Definitions Relevant to the FCPA
In order for a payment or transaction to be considered a violation of the FCPA, a number of specific factors have to be met. The following terms help explain what those factors are and how they relate to the FCPA’s anti-bribery provisions, but you can also visit our more comprehensive FCPA terms and definitions page for a more detailed description of these terms.
“Corruptly” – In order to show a violation of the FCPA, it must be proven that the payment, offer, or promise to pay was made “corruptly,” or clearly “intended to induce the recipient to misuse his official position.”
“Willfully” – Though not defined in the FCPA, courts have decided that in order for a specific individual to be criminally liable under the law, it must be determine that he or she acted “willfully,” or had explicit knowledge that his or her action(s) was a violation of federal law.
“Anything of value” – Because a bribery payment can be offered in a variety of ways and take the form of many things, the definition of a bribe is left rather broad in the language of the law. For the purpose of the FCPA, a bribe is any corrupt “offer, payment, promise to pay, or authorization of the giving of anything of value.” That can mean cash, gifts, travel, entertainment, or even charitable contributions.
“Foreign Official” – Of course, a bribe is not really a bribe if it’s a payment between two private enterprises; it must be a payment to a “foreign official” in order for it to be applicable to the FCPA. If an advertising firm takes an executive at a private company out for a night on the town and lavishes him or her with gifts, that’s not a violation of the FCPA, because that executive is not a “foreign official.” The FCPA defines a 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.”
Payments to Third Parties – The FCPA also covers payments made to “any person, while knowing that all of a portion of such money or thing of value will be offered, given, or promised, directly or indirectly” to a foreign official. This is meant to cover the situation when companies doing business in a foreign country, retain a local individual or company to help them conduct business.
Principles of Corporate Liability for Anti – Bribery Violations- General principles of corporate liability apply to the FCPA. Thus, a company is liable when its directors, officers, employees, or agents, acting within the scope of their employment, commit FCPA violations intended, at least in part, to benefit the company. The DOJ and the SEC look to principles of parent-subsidiary and successor liability in evaluating corporate liability.
Statute of Limitations – The general five-year limitations period set forth in 18 U.S.C. section 3282 applies to substantive criminal violations of this act.
What are the Penalties for FCPA Violation?
A violation of the Foreign Corrupt Practices Act can lead to civil and criminal penalties enforced by the Department of Justice (DOJ) (pdf) in conjunction with the Securities and Exchange Commission (SEC). Civil penalties include a fine of up to $10,000 plus an additional fine not to exceed the greater of the gross amount of pecuniary gain or a specified dollar limitation ranging from $5,000 to $500,000, depending on the egregiousness of the violation. Furthermore, a person or business found to be in violation of the Foreign Corrupt Practices Act may be barred from conducting business with the federal government.
Criminal penalties for FCPA violations include fines of up to $2 million for businesses and corporations. For individuals, including officers, directors, stockholders, and employees, the criminal penalties include fines of up to $100,000 and up to five years in prison.
Here is more information on FCPA enforcement.
Affirmative Defenses against Charges of FCPA Violation
A federal criminal attorney experienced with the Foreign Corrupt Practices Act and anti-bribery legislation can carefully evaluate a defendant’s alleged FCPA violation. The FCPA’s anti-bribery provisions contain two affirmative defenses: (1) that the payment was lawful under the written laws of the foreign country “the local law defense,” and (2) that the money was spent as part of demonstrating a product or performing a contractual obligation, (the “reasonable and bona fide business expenditure” defense. Because these are affirmative offenses, the defendant bears the burden of proving them.
FCPA’s bribery prohibition also contains a narrow exception for “facilitating or expediting payments made in furtherance of routine government action. This exception applies only when a payment is made to further “routine governmental action” that involves non-discretionary acts.
An experienced FCPA attorney can determine whether the payment in question was allowable under the FCPA exception for “facilitating payments,” or whether an affirmative defense may be used for payments which are legal under the written laws of the foreign government, or which are a reasonable and bona fide business expense.
The FCPA is different than other laws that you might be charged with violating because you might not have any experience with it or knowledge about it until you have been charged. As it is a relatively recent piece of legislation, few people will ever come into contact with it or be affected by it. If you are one of these people, it is crucially important that you retain a FCPA attorney who understands these laws and what they might mean for your defense. Contact us today.
For more information about federal criminal defense against charges of FCPA violation, contact FCPA attorney David Benowitz for a free case consultation.