In the Crossfire Why Private Equity Firms, Investment Funds & Their Managers Should Beware of the Foreign Corrupt Practices Act


Lance Armstrong and the world of competitive cycling has come under great scrutiny in recent days with the domination of the U.S. Postal team now undermined by the systematic doping that appears to have helped spur the team to victory year after year. Cheating, or getting an unfair edge over the competition, is antithetical to the American public’s view of sports, where an equal playing field is considered the ethical baseline. The Foreign Corrupt Practices Act (FCPA), which prohibits commercial bribery of foreign government officials, is the U.S. Anti-Doping Association’s equivalent for U.S. firms engaged in overseas investment activity. Designed to eliminate corruption in the global marketplace, the FCPA has become a priority enforcement tool for the U.S. government to ensure a level commercial field by punishing the rule-breakers.

It is long past time for private equity firms and investment funds to learn the rules. In physics, it is said that to every action there is always an equal and opposite reaction. This maxim applies with equal force to the private investment industry’s increasing expansion into emerging markets in underdeveloped economies. While this extraterritorial activity has exposed hedge funds and private equity firms to a host of lucrative investment opportunities, it has also exposed the firms and their senior managers to potential criminal liability under the FCPA.

Originally published in the Wall Street Lawyer - May 2013 Volume 17 Issue 5.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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