The Global Corruption Corner: A Primer to the Foreign Corrupt Practices Act

by Blank Rome LLP
Contact

Blank Rome LLP

Any company doing business abroad is subject to the long reach of the Foreign Corrupt Practices Act (“FCPA”). Small or privately-held companies, just like large or public companies, are subject to the criminal specter of the FCPA. The operative inquiry is whether the company is operating and/or transacting any type of business abroad with the government, government owned entities, or involving foreign officials—either directly, through joint ventures, or indirectly, through agents. A foreign official also includes employees of entities owned by the government.

Although the FCPA was first enacted in 1977, it was not widely enforced until the turn of this century; since then, the law has resulted in a steady flow of significant corporate settlements. Indeed, in the last approximately two decades, enforcement of the FCPA has increased exponentially, with the second-largest number of enforcement actions having been brought in 2016 (2008 had the greatest number). Before the FCPA, no country considered bribing a foreign official for business purposes to be illegal—it was simply considered a cost of doing business abroad. The United States was the first country to outlaw the practice and recently published a comprehensive resource guide to compliance with the act.

Presently, for companies that are engaged in international business, some of the countries that are considered high risk for FCPA exposure include Mexico, Panama, Russia, China, Ukraine, Brazil, Nigeria, and Lebanon.

The following is a primer about FCPA and its basic provisions.

What Is the Foreign Corrupt Practices Act?

The FCPA targets public corruption and fraud in the international marketplace. It does so in two main ways:

  1. The FCPA prohibits any U.S. person or entity (including privately-held companies), or any issuer of U.S. securities, from making any corrupt payment or offering anything of value to any foreign official for the purposes of obtaining or retaining business, or gaining any improper advantage. The statute covers U.S. companies, citizens, and permanent residents (and their agents) anywhere they act in the world. The act also specifically covers foreign individuals and entities so long as any aspect of the transaction touches U.S. soil. 
  2. The FCPA requires all companies whose securities are listed on U.S. stock exchanges to maintain accurate accounting records and implement an adequate system of internal controls. This provision of the FCPA is generally referred to as the “book and records” provision and can have a very broad interpretation. 

Very importantly, the FCPA ascribes liability to companies both for the actions of its own employees and for any third party acting on the company’s behalf, as well as individuals involved or authorizing such conduct. 

What is a “Thing of Value?”

A “thing of value” has had an evolving focus. While the initial FCPA violations involved cash and luxurious gifts, more recent cases have reflected an increasing sophistication of the term to include: cash equivalents (gift cards); excessive travel and entertainment; loans; political and charitable contributions or donations; and employment, internships, or scholarships. The “thing of value” may be for the benefit of the official directly but also includes anyone in their family.

What Are Penalties for Violations of the FCPA?

For companies, violations of the FCPA carry hefty financial penalties that amount to hundreds of millions of dollars. In addition to the financial penalties, negotiated settlements with the government typically require the disgorgement of any profits resulting from the unlawful conduct, an agreement to cooperate with government investigations for a period of multiple years, and the implementation of an enhanced compliance program. Companies can also be fined by multiple countries if the conduct violates the other country’s anti-corruption statute.

In recent years, the government has also sought to hold individuals accountable for FCPA violations. Accordingly, corporate resolutions of FCPA investigations are now often accompanied by prosecutions of individuals the government considers responsible for corporate wrongdoing.  

How Are FCPA Violations Discovered?

FCPA violations are discovered in numerous ways, both inside and outside the company.

Internally, potential FCPA violations can be discovered through the report of a whistleblower to company management or via a report from an internal compliance hotline. Routine business activities, such as the reimbursement of expenditures, can trigger investigations by a company’s compliance or legal department, as can less routine activities such as compliance audits and due diligence related to company acquisitions. The Securities and Exchange Commission (“SEC”) also has a very user friendly whistleblower website that is available to individuals across the globe.   

Externally, FCPA investigations can be triggered by whistleblower reports, court filings in lawsuits brought by private plaintiffs, enforcement actions brought by foreign governments, or even by anonymous tips.

Who Enforces the FCPA?

The FCPA is primarily enforced by the U.S. Department of Justice (“DOJ”) (anti-bribery provisions) and the SEC (books and records and internal controls provisions). The DOJ and SEC have increased their concerted efforts to coordinate their investigations with foreign prosecutorial agencies, an initiative that has been enhanced by the proliferation of anti-bribery laws in other countries. Accordingly, many FCPA investigations now expand into multi-lateral prosecutions and investigations.

What Should a Company Do When a Potential Violation Arises? 

If a company suspects that a potential FCPA violation has occurred or that it is being investigated by a government agency, it may, in coordination with its legal counsel, consider one or a combination of several steps. These steps may include, for example, the company conducting its own investigation to assess the scope of the alleged wrongdoing, considering a voluntarily disclosure of unlawful conduct to the government, cooperating with a government’s investigation into a specific industry or number of companies, improving its compliance program, and remediating the harm that has resulted from the alleged unlawful conduct.

How Can a Company Protect Itself?

While a given company’s FCPA exposure depends on various factors, including the industry in which the company operates, as well as the countries in which it does business, FCPA compliance programs typically include the following:

  • A clear set of policies and procedures regarding anti-corruption compliance;
  • A comprehensive training program to educate employees about anti-corruption laws (including the FCPA) applicable to the company’s operations and compliance of such laws; and
  • Processes for ensuring that appropriate due diligence is undertaken for new hires, including third-party agents, and for the acquisition of any new ventures, particularly with respect to foreign entities.

The Global Corruption Corner will appear as a regular column in this newsletter, and will focus on legal issues related to the FCPA and other anti-bribery laws.

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.

© Blank Rome LLP | Attorney Advertising

Written by:

Blank Rome LLP
Contact
more
less

Blank Rome LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.