FCPA Violations: Foreign Corrupt Practices Act Defense

The Foreign Corrupt Practices Act is an American statute with global reach. The fact that the conduct occurred abroad does not limit the Department of Justice’s interest in prosecuting it.

The Foreign Corrupt Practices Act, enacted in 1977 and significantly amended in 1988 and 1998, prohibits the payment of bribes to foreign government officials for the purpose of obtaining or retaining business. It imposes accounting and record-keeping requirements on issuers of securities registered in the United States. And it applies to a scope of persons and entities that extends well beyond American companies, reaching foreign companies whose securities trade on American exchanges and, in some circumstances, foreign nationals who take any act in furtherance of a corrupt scheme within the territory of the United States.

The Anti-Bribery Provisions

The FCPA’s anti-bribery provisions prohibit any domestic concern, issuer, or person acting while in the territory of the United States from corruptly paying, promising, or authorizing the payment of anything of value to a foreign official, a foreign political party, or a candidate for foreign political office, for the purpose of obtaining or retaining business or directing business to any person.

The definition of foreign official is broader than many companies involved in international business appreciate. It includes officers and employees of government-owned or government-controlled entities, a category that encompasses executives and employees of state-owned enterprises in countries where significant industries remain under government control. A payment to a purchasing manager at a state-owned telecommunications company in a country where the government owns the telecommunications infrastructure may constitute a payment to a foreign official for FCPA purposes, even where the recipient’s role appears commercial rather than governmental.

The Books and Records Provisions

The FCPA’s accounting provisions apply to issuers of securities registered under the Securities Exchange Act and require that those issuers maintain books and records that accurately and fairly reflect their transactions, and devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management’s authorization. The books and records provisions are civil in their primary application but carry criminal penalties for willful violations.

The accounting provisions are significant in FCPA enforcement because they permit the SEC to take enforcement action against companies whose books and records inadequately reflect payments that may constitute bribes, even where the government cannot establish the corrupt intent required for the anti-bribery charge. A company that recorded improper payments as consulting fees or marketing expenses, without adequate documentation of the services rendered, has potentially violated the books and records provisions regardless of whether the payments themselves were corrupt.

Individual Liability and Corporate Resolutions

FCPA enforcement has historically concentrated on corporate resolutions: deferred prosecution agreements, non-prosecution agreements, and guilty pleas by corporations that admitted liability and paid substantial fines. The Department of Justice’s focus in recent years has shifted toward individual accountability, with prosecutors explicitly identifying the investigation of culpable individuals as a priority concurrent with or preceding any corporate resolution.

An individual executive who authorized or participated in the payment of a bribe to a foreign official, who directed the creation of false books and records to conceal the payment, or who failed in a supervisory capacity to prevent the conduct may face personal criminal liability alongside any corporate resolution. The corporate deferred prosecution agreement does not provide immunity to individuals. The individuals who participated in the conduct must be separately assessed and, where the government concludes the evidence warrants, separately charged.

The FCPA investigation that begins with a corporate self-disclosure does not end with the corporate settlement. The government’s expectation, stated explicitly in its FCPA guidance, is that the self-disclosure will include information about the individuals responsible for the conduct. Executives who participate in the corporate investigation believing that cooperation at the entity level protects them personally are operating under an assumption the government has not made.

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The Affirmative Defenses

The FCPA provides two affirmative defenses. The first permits payments that are lawful under the written laws and regulations of the foreign official’s country. The second permits payments made to demonstrate or explain a company’s products or services, or to execute a contract with a foreign government or agency thereof. These defenses are narrow in their application, because bribery is rarely lawful under any country’s written laws, and the promotional expenses defense applies only to reasonable and bona fide expenditures directly related to the promotion of products or services.

The facilitation payment exception, which permits small payments to low-level government officials to expedite routine governmental actions such as processing permits and providing mail delivery, has been narrowed in practice as enforcement agencies have taken an expansive view of what constitutes a routine governmental action. Companies that have relied on the facilitation payment exception for practices that generate substantial payments over time, or that involve officials with significant discretionary authority, may find that the exception does not apply as broadly as they assumed.

FCPA matters require counsel with specific experience in the statute’s enforcement and the Department of Justice and SEC’s current interpretive approach. The general principles of federal criminal defense are applicable, but the specialized compliance, international business, and diplomatic dimensions of FCPA matters require additional expertise that general federal criminal practitioners may not possess.