The Foreign Corrupt Practices Act Explained
The Foreign Corrupt Practices Act (FCPA) is a United States law that was enacted in 1977. It is primarily aimed at preventing the bribery of foreign officials by American businesses and individuals. The FCPA also contains provisions regarding accounting transparency under the Securities Exchange Act of 1934.
Background and Purpose
The FCPA was introduced in response to revelations of widespread bribery of foreign officials by U.S. companies during the 1970s. The law was designed to restore public confidence in the integrity of the American business system and to promote fair competition in international markets.
Main Provisions of the FCPA
What did the Foreign Corrupt Practices Act do?
The FCPA makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. The law applies to U.S. citizens, residents, and companies, as well as certain foreign issuers of securities and their agents, directors, officers, and employees.
In addition to anti-bribery provisions, the FCPA requires companies whose securities are listed in the United States to meet its accounting provisions. These provisions require corporations to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.
What are the two essential requirements of the Foreign Corrupt Practices Act?
The FCPA has two main components: the anti-bribery provisions and the accounting provisions. The anti-bribery provisions prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to a foreign official to influence the official in his or her official capacity.
The accounting provisions require issuers to make and keep accurate books and records and to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed and assets are accessed and accounted for only in accordance with management’s authorization.
Enforcement and Penalties
The FCPA is enforced by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Violations of the FCPA can result in significant criminal and civil penalties, including fines and imprisonment for individuals, and substantial fines for corporations.
Examples and Notable Cases
What are some examples of Foreign Corrupt Practices Act violations?
Several high-profile companies have been investigated and penalized under the FCPA. For example, Siemens AG paid over $800 million in fines to resolve charges of systematic bribery of government officials around the world. Similarly, Walmart faced investigations for alleged bribery in Mexico and other countries. These cases often involve complex schemes to funnel money or gifts to foreign officials in exchange for business advantages.
Compliance and Best Practices
To comply with the FCPA, companies often implement comprehensive compliance programs, conduct regular training for employees, and establish robust internal controls. Due diligence on third-party partners and agents is also a critical component of FCPA compliance.
Key Elements of the FCPA
What are the 5 elements of FCPA?
The FCPA’s anti-bribery provisions generally require the following elements: (1) a covered person or entity, (2) a corrupt intent, (3) payment, offer, promise, or authorization of payment or anything of value, (4) to a foreign official, (5) for the purpose of influencing the official to obtain or retain business. Each element must be present for a violation to occur.
