Generally, the U.S. Foreign Corrupt Practices Act of 1977 ("FCPA" or the "Act") prohibits U.S. companies, their subsidiaries, as well as their officers, directors, employees, and agents from bribing "foreign officials" and also requires U.S. companies that issue debt or equity to maintain internal accounting controls and to keep books and records that accurately reflect all transactions.
Both the antibribery and the record-keeping and internal accounting controls provisions apply to worldwide operations. The FCPA is enforced jointly by the Securities & Exchange Commission (SEC) and the U.S. Department of Justice (DOJ).
I. ANTIBRIBERY PROVISIONS:
The FCPA "corrupt practices" or "anti-bribery" provisions forbid payments of money or anything else of value made corruptly to influence any act or decision (including a decision not to act) of a foreign government official, political party or political party official, or candidate for political office, in his official capacity or to induce the official to use his influence to affect a government act or decision so as to assist a company in obtaining or retaining business or directing business to any person or to secure any improper advantage. The FCPA antibribery provisions apply to "issuers," "domestic concerns," and "any person" who violates the FCPA while in the United States. The term "any person" includes foreign persons and corporations. Foreign persons are subject to the FCPA only when they perform an act in furtherance of a bribe while in the United States or its territories.
More specifically, the FCPA prohibits a company's use of an instrumentality of interstate commerce (e.g., telephone, mails, telex), corruptly in furtherance of a payment of or even an authorization, promise or offer to pay, anything of value to any foreign official or foreign political party, official or candidate, for purposes of: (i) influencing any action (or failure to act) in his or its official capacity; (ii) inducing him or it to do (or omit to do) any act in violation of his or its lawful duty; or (iii) inducing him or it to use influence to affect any action of the government involved, in order to assist the company in obtaining or retaining business for or with, or directing business to, any person.
Payments, authorizations, promises or offers to any other person are also prohibited if there is knowledge that any portion of the payment is to be passed along to a foreign official or foreign political party, official or candidate for a prohibited purpose under the Act. Knowledge is defined very broadly and is present when one knows an event is certain or likely to occur; even purposely failing to take note of an event or being willfully blind can constitute knowledge.
The Act defines "foreign official" to include any officer or employee of a non-U.S. government or any instrumentality of the government, or any person acting in an official capacity for or on behalf of the non-U.S. government or its instrumentality. The Department of Justice (DOJ) has concluded that officers and employees of foreign state-owned companies are also "foreign officials." Even if a company is not wholly owned by the state, it may be considered an "instrumentality" of a government if the government exercises substantial control over such company.
Permitted Payments: The Limited Exceptions and Affirmative Defenses: There are certain "safe harbors" to the FCPA's prohibition on giving a payment or a thing of value to foreign officials.
1) "Facilitating" Payments Exception (e.g., Grease Payments, Gifts or Tips):
Under very limited circumstances, the FCPA permits facilitating payments (or "grease payments") to foreign officials in order to expedite or secure the performance of a "routine governmental action." "Routine governmental action" means only those actions which are ordinarily and commonly performed by a foreign official. For example, obtaining permits, licenses or other official documents, expediting lawful customs clearances, obtaining the issuance of entry or exit visas, providing police protection, mail pick-up and delivery, providing phone service, and performing actions that are wholly unconnected to the award of new business or the continuation of prior business, could all be "routine governmental action." Routine governmental action does not mean a decision by a foreign official to award new business or to continue business with a particular party (e.g., to obtain a license or be granted a concession).
2) Promotional or Marketing Expenses Affirmative Defense (e.g., Entertainment)
The FCPA also permits certain payments to foreign officials made in connection with the promotion or demonstration of company products or services (e.g., demonstration or tour of a pharmaceutical plant) or in connection with the execution of a particular contract with a foreign government.
3) Payments Lawful Under Foreign Laws Affirmative Defense
Under certain other exceptional circumstances, a payment may be made to foreign officials when the payment is "lawful under the written laws of the foreign country." Such payments, however, are rarely, if ever, permitted under local law.
Frequently Recurring Special Situations:
1) Political Contributions
Unlike in the United States, where foreign nationals are prohibited from making political contributions to U.S. political parties and candidates, it may occasionally be appropriate for a U.S. company's overseas operations to make a political contribution on behalf of the company. "Contributions" not only include checks to political parties or candidates, but also payments for fundraising dinners and similar events. This would be an example of a payment which could violate the FCPA were it not for written local law.
2) Donations to Foreign Charities
Donations to bona fide charitable organizations may be made as long as the U.S. company ensures that the donation will not be used to circumvent the FCPA and that the contribution does not violate local laws, rules or regulations.
II. RECORD KEEPING AND ACCOUNTING PROVISIONS:
These provisions require (1) that books, records and accounts are kept in reasonable detail to accurately and fairly reflect transactions and dispositions of assets, and (2) that a system of internal accounting controls is devised (a) to provide reasonable assurances that transactions are executed in accordance with management's authorization; (b) to ensure that assets are recorded as necessary to permit preparation of financial statements and to maintain accountability for assets; (c) to limit access to assets to management's authorization; and (d) to make certain that recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. These provisions are currently read to apply to U.S. issuers and all of their majority-owned subsidiaries, both U.S. and non-U.S. In addition, the Act requires that a company make a good faith effort to ensure that any company (including joint ventures) in which the U.S. company or one of its subsidiaries holds fifty (50) percent or less of the voting power comply with the FCPA accounting provisions. Significantly, management may be held accountable by U.S. enforcement authorities for what it should reasonably have known. Management's lack of knowledge of a transaction which violates the Act may not be sufficient to avoid liability, particularly in the absence of adequate internal controls. Note that the accounting provisions apply only to issuers that have securities registered with the SEC pursuant to the Securities Exchange Act of 1934 (essentially, all publicly held companies in the U.S., and any foreign companies listed on the U.S. stock markets).
If the DOJ brings criminal charges against a company under the record-keeping and accounting provisions, any intentional misrecording of a payment is a violation, so the prosecutor does not have to prove that the payment was a bribe. In addition, failure to describe what actually occurred is also a potential violation. For example, recording a payment for legal commission on a project in the books as "equipment repair" could be a violation.
III. PENALTIES: Criminal penalties under the FCPA are severe.
The Securities and Exchange Commission (SEC) and the DOJ share enforcement responsibility for the FCPA. The DOJ is responsible for all criminal prosecutions under the statute and for civil enforcement against privately held companies. The SEC has civil jurisdiction over publicly held companies.
1) Criminal Penalties per Violation
Criminal penalties for violations of the FCPA's antibribery provisions can be quite severe. Corporations and other business entities are subject to a fine of up to $2,000,000 per violation. Officers, directors, stockholders, employees, and agents are subject to a fine of up to $250,000 per violation and imprisonment for up to five years. Under the Alternative Fines Act, the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment. Fines imposed on individuals may not be paid by their employer or principal.
2) Civil Penalties per Violation
The Attorney General or the SEC may bring a civil action for a fine of up to $10,000 per violation against any issuer as well as any officer, director, employee, or agent of a firm, or stockholder acting on behalf of the issuer, who violates the antibribery provisions.
3) Penalties per Violation of the Books & Records Provisions:
Any person who willfully violates the FCPA books and records provisions or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed in violation of those provisions shall upon conviction be fined not more than $5,000,000, or imprisoned not more than 20 years, or both, except that when the violation is made by an issuer rather than a natural person, a fine not exceeding $25,000,000 may be imposed. As before, the Alternative Fines Act applies, so that the monetary fine can be up to twice the benefit that the defendant sought to obtain through the violation.
Text of FCPA:
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