Foreign Corrupt Practices Act
House Commerce on December 19, 1977 |
The Foreign Corrupt Practices Act of 1977 (FCPA) (
The FCPA is applicable worldwide and extends specifically to publicly traded companies and their personnel, including officers, directors, employees, shareholders, and agents. Following amendments made in 1998, the Act also applies to foreign firms and persons who, either directly or through intermediaries, help facilitate or carry out corrupt payments in U.S. territory.[2]
Pursuant to its anti-bribery purpose, the FCPA amends the Securities Exchange Act of 1934 to require all companies with securities listed in the U.S. to meet certain accounting provisions, such as ensuring accurate and transparent financial records and maintaining internal accounting controls.[3]
The FCPA is jointly enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), which apply criminal and civil penalties respectively.[4]
Since its passage, the FCPA has been subject to controversy and criticism,[5] namely whether its enforcement discourages U.S. companies from investing abroad.[6] The Act was subsequently amended in 1988 to raise the standard of proof for a finding of bribery.[4]
Provisions and scope
The core aim of the Foreign Corrupt Practices Act (FCPA) is to prohibit companies and their individual officers from influencing foreign officials with any personal payments or rewards.
In the case of foreign
The FCPA is subject to ongoing scholarly and congressional debate regarding its effects on international commerce. Scholars have found that its enforcement discourages U.S. firms from investing in foreign markets.[6] This coincides with the well established observation that companies engaging in mergers and acquisitions in emerging markets face a uniquely increased level of regulatory and corruption risk.[9]
Persons subject to the FCPA
- Issuers
- The term "issuer" is used to describe any U.S. or foreign corporation that has a class of securities registered, or that is required to file reports under the Securities and Exchange Act of 1934 (15 U.S.C. § 78dd-1)
- Domestic concerns
- Refers to any individual who is a citizen, national, or resident of the U.S. and any business entity organized under the laws of the U.S. or one of its states, or having its principal place of business in the U.S. (15 U.S.C. § 78dd-2)
- Any legal person
- Covers both enterprises and individuals (15 U.S.C. § 78dd-3)
History
In 1975 and 1976, American public life was shaken by dozens of scandals involving bribery of foreign officials by prominent American companies. These disclosures, driven by Securities and Exchange Commission (SEC) enforcement actions and high-profile public hearings by the Church Subcommittee on Multinational Corporations, made headlines for months causing serious problems for foreign leaders important to the United States. Some of the most sensational disclosures involved corrupt payments by
Investigations by the
In response to these high-profile revelations, Congress enacted the FCPA to bring a halt to the bribery of foreign officials and to restore public confidence in the integrity of the American business system. The Act was signed into law by President Jimmy Carter on December 19, 1977. The first criminal enforcement action under the Act was against Finbar Kenny.[13] Kenny had advanced Sir Albert Henry, Prime Minister of the Cook Islands, $337,000 from postage stamp revenue for Henry's re-election campaign.[14] In 1979, Kenny became the first American to plead guilty of violating the FCPA and was fined $50,000.[14]
The Act was first amended by the Omnibus Trade and Competitiveness Act of 1988, where Title V is known as the "Foreign Corrupt Practices Act Amendments of 1988". It introduced a "knowing" standard in order to find violations of the Act, encompassing "conscious disregard" and "willful blindness." Other amendments were for "bona fide", "reasonable" and lawful gifts under the laws of the foreign country.[15]
The second amendment was the International Anti-Bribery Act of 1998 which was designed to implement the OECD Anti-Bribery Convention, i.e., to include certain foreign persons and extend the scope beyond U.S. borders.
The FCPA dominated international anti-corruption enforcement from its introduction until c. 2010 when other countries began introducing broader and more robust legislation, notably the United Kingdom Bribery Act 2010.[16][17] The International Organization for Standardization introduced an international anti-bribery management system standard in 2016.[18] In recent years, cooperation in enforcement action between countries has increased.[19]
The FCPA's influence has been profound, changing how companies operate worldwide and how governments enforce against corruption. The Act not only led to heightened awareness and enforcement of anti-corruption measures in the United States but also encouraged other nations to adopt similar laws [20], fostering a more coordinated international approach to combating bribery and corruption.
Enforcement
This article contains weasel words: vague phrasing that often accompanies biased or unverifiable information. (December 2020) |
The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are jointly responsible for enforcing the FCPA, since it amends both an SEC Act and the criminal code. SEC enforcement applies to companies regulated by the SEC while the DOJ enforces the Act against individuals and domestic companies' entities not regulated by the SEC. However, enforcement by one agency does not preclude enforcement by the other, and on numerous occasions the DOJ and SEC have initiated enforcement actions against the same company for violations of the FCPA.[21][22] In 2010 the SEC created a specialized unit for FCPA enforcement.[23] In 2012, the SEC and the DOJ issued their first joint guide to the FCPA,[24] the second edition of this guide was published in 2020.[25]
Requirements
The anti-bribery provisions of the FCPA make it unlawful for a U.S. person, and certain foreign issuers of
Because the Act concerns the intent of the bribery rather than the amount, there is no requirement of materiality. Offering anything of value as a bribe, whether cash or non-cash items, is prohibited. This can even include paying for travel for foreign government officials, when it considered "excessive."
The FCPA also requires companies whose securities are listed in the U.S. to meet its accounting provisions.[27] These accounting provisions operate in tandem with the anti-bribery provisions of the FCPA and require respective 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. An increasing number of corporations are taking additional steps to protect their reputation and reduce their exposure by employing the services of due diligence companies tasked with vetting third party intermediaries and identifying easily overlooked government officials embedded in otherwise privately held foreign firms.
Regarding payments to foreign officials, the act draws a distinction between bribery and facilitation or "
A U.S. company acquiring a foreign firm could face successor liability for FCPA violations committed by the foreign firm prior to being acquired.[29] Generally, acquiring companies may be liable as a successor for pre-existing FCPA violations committed by an acquired company where those violations were subject to the FCPA's jurisdiction when committed.[30] This position was further confirmed by the DOJ in a 2014 opinion stating that pre-acquisition conduct by a foreign target company without a jurisdictional nexus to the U.S. would not be subject to FCPA enforcement.[31]
Anti-bribery/anti-corruption (ABAC) solutions
Businesses increasingly focus on their core competencies, and as a result engage more third parties to provide critical business functions. Companies do not have direct control over their third-party providers, which expose them to regulatory and reputational risk of FCPA violations by those third parties.[32] Under the FCPA, businesses are accountable for activities involving both their internal and external relationships. Companies that operate internationally, or that engage third parties in countries with a high Corruption Perceptions Index, are especially at risk. Many companies have now adopted "anti-bribery/anti-corruption" (ABAC) solutions to combat this risk and help protect themselves from fines and reputational damage.
ABAC compliance solutions are a subset of
Application
Stronger DOJ and SEC enforcement has increased the prominence of the FCPA from 2010 onwards.[33] The SEC website shows a complete list of enforcement cases since 1978.[34] Notable select cases of the application of FCPA since 2008 are with ALCOA, Biomet, Bizjet, Hewlett Packard Company, KBR, Marubeni Corporation, News Corporation, Siemens, Smith & Nephew and Walmart de Mexico as follows:
In 2008,
In 2012, Japanese firm
In 2012
In March 2012,
In January 2014,
In March 2014, Marubeni Corporation agreed with the DOJ to pay a US$88 million fine after pleading guilty to taking part in a scheme to pay bribes to high-ranking Indonesian officials in order to secure a lucrative power project.[42]
In July 2014, Alstom pleaded guilty of violating the FCPA and reached a settlement with U.S. authorities to resolve the FCPA violation charges. The charges involved bribery and corruption in various countries, including Indonesia, Egypt, Saudi Arabia, and others As part of the settlement, Alstom agreed to pay a total of $772 million in fines.[43]
On February 24, 2015, the Goodyear Tire and Rubber Company "Goodyear" agreed to pay more than $16 million to settle FCPA charges that two of its African subsidiaries allegedly paid $3.2 million in bribes that generated $14,122,535 in illicit profits.[44] The SEC FCPA charges involved Goodyear subsidiaries in Kenya and Angola for allegedly paying bribes to government and private-sector workers in exchange for sales in each country.[45] According to the SEC because "Goodyear did not prevent or detect these improper payments because it failed to implement adequate FCPA compliance controls at its subsidiaries" and, for the Kenyan subsidiary, "because it failed to conduct adequate due diligence" prior to its acquisition. It was not alleged that Goodyear had any involvement with or knowledge of its subsidiaries' improper conduct.[46]
In February 2016, VEON Ltd. (formerly VimpelCom Ltd.) agreed to pay a total of $795 million to the DOJ and the SEC to resolve charges of FCPA violations, making it one of the largest FCPA settlements at the time. The charges involve allegations of paying bribes to government officials in Uzbekistan to secure business advantages and obtain operating licenses in the country's telecommunications sector.[47]
In September 2016, Sculptor Capital Management (formerly Och-Ziff Capital Management Group) agreed to pay a total of $213 million to the U.S. DOJ and the SEC to resolve charges of FCPA violations. The company went through a five-year investigation into violations of the FCPA for allegedly paying bribes to government officials in several African nations.[48]
In July 2017, Ng Lap Seng, a Macau-based Chinese billionaire real estate businessman, chairman of the Sun Kian Ip Group (新建业集团), and a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), was convicted after a five-week trial of two counts of violating the Foreign Corrupt Practices Act, one count of paying bribes and gratuities, one count of money laundering and two counts of conspiracy. In 2018 Ng Lap Seng was sentenced to 48 months in prison and three years of supervised release for his role in a scheme to bribe United Nations ambassadors to obtain support to build a conference center in Macau that would host, among other events, the annual United Nations Global South-South Development Expo (GSSD Expo) organised by the United Nations Office for South-South Cooperation (UNOSSC), then headed by Chinese national Yiping Zhou.
Charges
In 2009, former U.S. House Representative
In 2010 the DOJ and the SEC were investigating whether
In July 2011, the DOJ opened an inquiry into the
An April 2012 article in the
In March 2014, Austrian authorities arrested Dmytro Firtash, a Ukrainian businessman who heads the board of directors of Group DF, after a judge in Virginia issued a warrant for his arrest on bribery and other charges. Firtash was released on bail of €125 million, making it the largest in Austrian history. In April 2014, a U.S. grand jury in Chicago formally charged Firtash and five others with violations of the FCPA, including charges such as bribery and money laundering.[60]
In 2015, Joseph Sigelman, American businessman and former CEO of OfficeTiger, pleaded guilty to FCPA violations as part of a plea agreement with the DOJ. The charges involved allegations of paying bribes to government officials in Colombia to secure business advantages and obtain oil contracts. Sigelman was fined $100,000, concluding the proceedings.[61]
Other cases are with
Exception
As a general principle of the Foreign Corrupt Practices Act (FCPA), in the United States, firms and businesses in the US are prohibited from making any payments to foreign officials for routine governmental action.
In this regard, it becomes necessary to understand when an amount paid turns from a grease payment to a bribe, which is illegal under law. This is a grey area under the law which is still to be clarified. There are numerous factors that could play a role in demarcation between the two, which include: the amount of payment, the frequency of the payment, the status/level of the foreign official to whom the payment has been made, the outcome of the case regarding which the payment was made, etc.[64]
See also
- Bribery Act 2010 in the United Kingdom
- Corruption of Foreign Public Officials Act in Canada
- Foreign Extortion Prevention Act
- Financial Action Task Force on Money Laundering, another international agreement
- OECD Anti-Bribery Convention, an international agreement
- Politically exposed person, a term used in several jurisdictions
References
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To secure a contract for the first phase of project, ultimately valued at more than € 35 million, HP Russia executives and other employees structured the deal to create a secret slush fund totaling several million dollars, at least part of which was intended for bribes to Russian government officials.
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