The Foreign Corrupt Practices Act (FCPA), 15 U.S.C. §§ 78dd-1, et seq was signed into law in 1977 by President Jimmy Carter. The FCPA generally prohibits payments to foreign government officials in order to obtain or retain business. The FCPA, in other words, prohibits U.S. persons and business entities from bribing foreign officials to increase profits or further business objectives.
The FCPA consists of two main components:
- anti-bribery provisions; and
- accounting provisions.
The anti-bribery provisions prohibit corrupt payments to foreign officials. Under these provisions, U.S. residents and citizens are prohibited from bribing (with money or anything of value) any foreign official to gain favors, influencing business transactions, or providing services in violation of the foreign official’s lawful duties.
The accounting provisions are enforced by the U.S. Security and Exchange Commission (SEC) and require that issuers engage in accurate record-keeping and maintain internal accounting controls.
The FCPA identifies several categories of parties to whom it applies:
- Domestic Concerns – All U.S. persons and businesses other than issuers described below. This includes all officers, directors, stockholders, and any third party that conducts business on behalf of (or with) a U.S. person or company, such as an agent, consultant, distributor, or partner.[1] Domestic concerns may be prosecuted for conduct inside and outside of the United States under the FCPA.
- Issuers – Any company that is required to file periodic reports with the SEC, or that is listed on a U.S. stock exchange. Again, this includes their officers, directors, employees, stockholders, agents, etc.[2] The U.S. government keeps a large list of issuers that can be referenced if you are not sure if you or your company qualify. Issuers may be prosecuted for conduct inside and outside the United States under the FCPA.
- Those to Whom the FCPA Applies Due to Territorial Jurisdiction – Essentially, any person other than an issuer or domestic concern that transacts business either directly or through an agent in a territory of the United States.[3] These foreign persons may be prosecuted for conduct inside the United States under the FCPA.
What Constitutes a Violation of the FCPA?
Under the anti-bribery provisions, any payment or gift by a domestic concern, issuer, or other person within U.S. territorial jurisdiction that meets the following three criteria constitutes a violation of FCPA regulations:
- Made “corruptly” (i.e., the payment or gift must clearly be intended to induce the recipient to misuse his or her official position);
- Made “willfully” (i.e., voluntarily and purposefully with the knowledge that the act is against the law); and
- Involves the giving or offering of something of value, such as cash, travel expenses, expensive gifts, or advantageous favors, to a foreign government official to to obtain or retain business.[4]
The FCPA’s accounting provisions also require an issuer to fulfill two additional duties:
- to keep books and records in reasonably detail that accurately and fairly reflect the issuer’s transactions and disposition of assets; and
- devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that the issuer’s management maintains authority and control over the issuer’s assets.[5]
Examples of FCPA Violations
Recent examples of FCPA violations include:
- A scheme to pay tens of millions of dollars to bribe high-level foreign government officials;
- A lucrative consulting position offered to a foreign government official at a state-owned company;
- Repeated failure to implement adequate accounting controls for a subsidiary in a foreign country; and
- An improper payment made to a foreign health care official to encourage them to recommend a certain company’s products.
Penalties for FCPA Violations
The DOJ and SEC use a variety of tools and collaborate with other federal agencies and law enforcement partners to investigate and prosecute FCPA violations. A violation can result in significant civil and criminal penalties, including fines and imprisonment.
Civil penalties under the anti-bribery provisions (as of January 15, 2021) include a fine of up to $21,663 per violation for both business entities and individuals.[6] Civil penalties under the accounting provision (as of January 15, 2021) include a fine of $9,753 to $195,047 per violation for individuals, and $97,523 to $975,230 per violation for business entities.[7] These fines will be levied by the SEC and will depend on the egregiousness of the violation.
Criminal penalties under the anti-bribery provisions include up to $2 million per violation for business entities, and a fine of up to $250,000 and up to 5 years in jail for individuals.[8] Criminal penalties under the accounting provision include up to $25 million per violation for business entities and a fine of up to $5 million and up to 20 years in jail for individuals.[9]
In addition, all criminal fines may be increased to twice the gross pecuniary gain obtained by the defendant or loss suffered by any other person as a result of the violation.[10] Furthermore, both the DOJ and SEC may seek to enjoin violations of the FCPA.[11] Violators may also be barred from doing business with the U.S. government, either temporarily or permanently.[12]
Freeman Law’s White-Collar Defense Attorneys
For individuals and businesses that engage in international trade, compliance with the Foreign Corrupt Practices Act is important. Recent government enforcement efforts have resulted in of millions of U.S. dollars in penalties and fines as a result of FCPA violations.
[1] 15 U.S.C. § 78dd-2(a), (h)(1).
[2] 15 U.S.C. § 78dd-1(a).
[3] 15 U.S.C. § 78dd-3(a).
[4] 15 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a).
[5] 15 U.S.C. § 78m(b)(2).
[6] 15 U.S.C. §§ 78dd-2(g)(1)(B), 78dd-3(e)(1)(B), 78ff(c)(1)(B); see also 17 C.F.R. § 201.1004 (adjustments for inflation).
[7] 15 U.S.C. § 78u(d)(3); see also 17 C.F.R. § 201.1004 (adjustments for inflation).
[8] 15 U.S.C. §§ 78dd-2(g), 78dd-3(e); 18 U.S.C. 3571(b)(3).
[9] 15 U.S.C. § 78ff(a).
[10] 18 U.S.C. § 3571(d).
[11] 15 U.S.C. §§ 78dd-2(d)(1), 78dd-3(d)(1).
[12] 48 C.F.R. §§ 9.406-2, 9.407-2.
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