The FCPA and Prosecuting Foreign Bribery in Federal Court

The FCPA and Prosecuting Foreign Bribery in Federal Court

The Foreign Corrupt Practices Act (FCPA) is a critically important law for prosecuting bribery of foreign officials. Enacted in 1977, the FCPA was a response to revelations in the 1970s that many U.S. companies were engaged in widespread bribery of foreign officials to secure business contracts and expand operations abroad. This article provides an overview of key aspects of the FCPA and how it is enforced in federal courts to combat foreign bribery.

Background of the FCPA

Prior to passage of the FCPA, bribery of foreign officials by U.S. companies was seen as a common way of securing business abroad. However, revelations of extensive bribery – including stories of suitcases full of cash being delivered to officials – led to growing concerns in the mid-1970s. There was a sense that such corrupt practices were tarnishing America’s image and undermining foreign policy objectives [1].

In response, Congress unanimously passed the FCPA, which was signed into law by President Jimmy Carter in 1977. The FCPA made it illegal for U.S. persons and businesses to bribe foreign officials. It was intended to halt unethical and counterproductive business practices and promote public confidence in American businesses and government [6].

Key Provisions of the FCPA

The FCPA contains both anti-bribery provisions and accounting transparency requirements. The anti-bribery provisions make it illegal to bribe foreign officials to obtain or retain business. The accounting provisions require companies to maintain accurate books and records and have sufficient internal controls [1].

Anti-Bribery Provisions

The FCPA’s anti-bribery provisions prohibit U.S. persons, businesses, and agents acting on their behalf from corruptly offering or providing anything of value to a foreign official to influence them to misuse their position to help obtain or retain business [3]. It also prohibits a foreign person or business from taking such actions while in U.S. territory.

The FCPA applies broadly to bribery related to any business purpose – not just winning or renewing contracts. The bribe does not actually have to be successful in its purpose – merely offering it is prohibited. Facilitating or “grease” payments are exempted in limited circumstances, but most bribes are illegal [1].

Accounting Provisions

In addition to the anti-bribery provisions, the FCPA requires that issuers of U.S. securities maintain accurate books, records, and accounts that accurately reflect transactions and dispositions of assets. Issuers must also devise and maintain sufficient internal accounting controls aimed at preventing and detecting FCPA violations [3].

These accounting requirements apply to all business activities, not just bribery. Their aim is to increase transparency and reduce off-the-books accounting that could conceal corrupt payments [1].

Enforcement of the FCPA

The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) share enforcement authority for the FCPA. They pursue civil and criminal charges against both companies and individuals that violate the law.

DOJ FCPA Enforcement

The DOJ is responsible for all criminal enforcement of the FCPA and civil enforcement actions against non-issuers. It pursues cases against both companies and individuals through its Fraud Section [1].

For companies, the DOJ focuses on imposing monitors and compliance programs in addition to fines. For individuals, it pursues prison sentences. In egregious cases, the DOJ invokes anti-racketeering laws to prosecute FCPA violations [2].

SEC FCPA Enforcement

The SEC pursues civil enforcement against issuers – those required to file periodic reports under U.S. securities laws – and their officers, directors, employees, agents, or stockholders acting on their behalf. It focuses on injunctive relief and civil monetary penalties [3].

In 2010, the SEC established a specialized FCPA unit that has pursued an increasing number of enforcement actions in recent years. Settlements frequently require disgorgement of any profits from illegal bribes [3].

Prosecuting FCPA Violations in Court

Many FCPA enforcement actions result in settlements due to the practical difficulties of litigating these cases in court.

However, the DOJ and SEC do pursue criminal and civil prosecutions in egregious cases of foreign bribery.

Criminal Prosecutions by the DOJ

The DOJ pursues criminal charges against both companies and individuals for FCPA violations. For companies, criminal prosecution can lead to substantial fines and oversight through compliance monitors. Individuals face potential prison sentences.

In many cases, the DOJ offers deferred or non-prosecution agreements to companies that voluntarily disclose violations and cooperate with investigations. However, it does pursue criminal trials for egregious and willful FCPA offenses [1].

For example, in 2019 a former executive of Houston-based engineering firm KBR Inc. was sentenced to prison after being convicted at trial of scheming to bribe Nigerian government officials. The DOJ said it was the first successful FCPA prosecution of an individual in which the jury reached a verdict [2].

Anti-Racketeering Charges

In extreme cases, the DOJ has brought racketeering charges under the Racketeer Influenced and Corrupt Organizations (RICO) Act against FCPA violators. This allows for more severe penalties and forfeiture of ill-gotten gains from foreign bribery [3].

For example, in 2019 two former executives of a Florida-based logistics company were convicted of RICO conspiracy for their roles in a scheme to pay millions in bribes to Venezuelan officials [4].

SEC Civil Actions

The SEC pursues civil charges rather than criminal prosecutions. However, civil penalties can still be severe, including fines, disgorgement of profits, and bars from serving as corporate officers or directors.

The SEC often settles its FCPA cases through negotiated resolutions. But it will litigate civil charges for egregious violations. For example, in 2018 the former CEO of Braskem SA was charged with FCPA violations and agreed to pay one of the largest-ever penalties – $250,000 – to settle the SEC’s civil charges [5].

The SEC has said it will continue to pursue litigation in appropriate cases, focusing on violations with high public impact and deterrence value [6].

Conclusion

While many FCPA matters settle out of court, federal prosecutors remain willing to pursue high-profile criminal and civil litigation for egregious foreign bribery schemes. Aggressive enforcement actions deliver a strong message about the legal risks of overseas corruption.