How Does FCPA Apply For Foreign Companies

International business corruption is a common issue that most businesses face – especially when operating from other countries.

The Foreign Corruption Act (FCPA) was formulated to hold businesses in the United States accountable for aiding corruption and eradicating it.

The enforcement of the FCPA act has over the years increased. This made all American companies working or collaborating with third-party companies abroad to start exercising extreme caution.

This is because of the increased oversight from the federal government agencies seeking to prosecute any company found violating the provisions of the act.

However, having an experienced lawyer can assist your company to create a full compliance program (FCPA) comprising of corporate policy, risks assessment, internal procedures, a checklist for due diligence in new relationships, disciplinary standards, and mechanisms to report any violations.

A lawyer will also be on standby to represent your company in case federal government investigators come knocking at your door.

When was the Foreign Corrupt Practice Act established?

The Foreign Corrupt Practice Act was enacted in 1977 with the intension of tackling corruption of U.S. companies operating in other countries.

Provisions of the FCPA Act

There are two main provisions found in the Foreign Corrupt Practice Act. According to the act, it is unlawful to bribe foreign officials for the purposes of retaining or obtaining business.

Under the provisions of accounting, all U.S. companies operating abroad are supposed to keep a good record of how they obtain and use money.

Besides, they are also required to have an internal control system to ensure that all transactions are carried out according to the organization’s policy and standards.

Scope of the FCPA Act

The FCPA is applicable to employees, officers, directors, agents, and stockholders of any company registered in the United States.

FCPA also applies to all foreign companies that trade on the New York Stock Exchange. This implies that any agent working for such companies outside the United States can be charged using the Act.

In addition, the Foreign Corrupt Practice Act has often been applied to foreign companies – as long as the corruption took place in U.S. soil. The corrupt act could be as insignificant as sending an email using servers located in the United States.

Enforcement of the FCPA Act

It would be naïve to think that some acts of corruption cannot be detected while operating in certain countries.

The Enforcement of the FCPA act can be thorough and ruthless. In fact, the U.S. Security Exchange Commission (SEC) has a dedicated division to primarily enforce the FCPA act.

Violating the provisions of the FCPA act can result in very harsh penalties and fines for companies.

Criminal charges can also be launched against officers, directors, business owners, employees, agents, and stockholders found guilty of violating the anti-bribery provisions of the FCPA act.

The charges can lead to hefty fines as well as many years in jail for employees found to have directly involved in corrupt activities.

The enforcement of FCPA appears to get harsher and common every day. The best thing is for every company operating abroad to comply with the provisions of the act.

How to comply with the FCPA Act

The only way to avoid FCPA penalties is to ensure that your company complies with the accounting and Anti-bribery provisions.

Below are four elements every company must consider when it comes to complying with the FCPA act:

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FCPA compliance policy

You should create an FCPA compliance policy and ensure that all contractors and employees have signed before any engagement. The compliance policy should send a clear message to all employees that acts of corruption won’t be tolerated and can result in harsh penalties.

FCPA risk assessment

Legal Scenario: What Would You Do?

Scenario

Your European-headquartered company recently listed shares on the New York Stock Exchange and now one of your regional managers in Southeast Asia has been making suspicious payments to local government officials to secure construction permits. You discovered internal emails suggesting these payments were authorized by a mid-level executive at your overseas headquarters.

Can the DOJ really prosecute our foreign-based company under the FCPA even though the bribery decisions were made entirely outside the United States?

Attorney's Answer

Yes — under the FCPA's jurisdiction provisions, any foreign company that lists securities on a U.S. exchange or files reports with the SEC qualifies as an 'issuer' subject to both the anti-bribery and accounting provisions of 15 U.S.C. §§ 78dd-1 and 78m. The DOJ and SEC have consistently taken the position that even if corrupt payments are directed from abroad, the use of U.S. interstate commerce — including U.S. bank accounts, email servers, or dollar-denominated transactions — creates sufficient jurisdictional hooks for prosecution. Your company could face severe penalties including disgorgement of profits, civil fines up to $25 million, and criminal fines calculated at twice the benefit sought through the corrupt payments. An experienced FCPA defense attorney can evaluate whether voluntary self-disclosure to the DOJ under their revised Corporate Enforcement Policy might significantly reduce your company's exposure.

This is general information only. Contact us for advice specific to your situation.

To be on the safe side, it is recommended that you carry out an annual risk assessment of the company to find out if there is anything missing in terms of FCPA compliance. This can involve checking with third parties to determine if anything has changed in terms of compliance.

Contract and due diligence

One of the important parts about FCPA compliance is the ability to conduct a proper due diligence process when dealing with third parties abroad. You should be aware of the risks you are getting into by contracting foreign nationals.

FCPA training

Last but not least, ensure that you train your employees, board members, management, and any person distributing your products about the FCPA rules and regulations.