What is FCPA?
The Foreign Corrupt Practices Act (FCPA) of 1977 is part of the U.S. government’s anti-bribery statutory framework. Its anti-bribery laws make it unlawful for U.S. individuals and entities to bribe foreign government officials to obtain or retain business.
The Act applies to cash and cash equivalents, as well as other improper/corrupt payment arrangements like insurance benefits, promises of future employment, and non-monetary discounts or gifts. Moreover, even the smallest bribes are prohibited under FCPA.
Who Does FCPA Apply to?
The FCPA’s anti-bribery provisions apply to all U.S. persons, publicly-traded and privately-held U.S. companies, directors, employees, officers, stockholders, and agents.
Since its amendment in 1998, these provisions also apply to foreign firms and individuals who cause such bribes to take place within the U.S.
The anti-bribery provisions also apply to foreign issuers of securities if those securities are listed in the United States. These issuers must also comply with the FCPA’s accounting provisions.
To this end, they must maintain accurate books and records that fairly reflect the company’s business transactions. They must also maintain a system of internal accounting controls to reasonably assure that transactions happen in accordance with management authorization.
How is FCPA Enforced?
FCPA enforcement is the joint responsibility of the U.S. Department of Justice and the Securities and Exchange Commission (SEC).
The DOJ is in charge of enforcing the criminal and civil aspects of the FCPA’s anti-bribery provisions, as well as any willful violations of the Act’s accounting provisions.
The SEC is authorized to bring civil charges against violators of both kinds of provisions. By cooperating on violation cases, the DOJ and SEC can negotiate larger settlements.
FCPA violators may face significant sanctions. The SEC can bring civil actions against them. They may also be imprisoned.
They must always disgorge their ill-gotten gains, pay prejudgment interest, or incur substantial civil penalties. The DOJ or SEC may also appoint an independent consultant to oversee the company.
All these punitive measures can be financially draining and damage the entity’s reputation. For all these reasons, it’s critical to be compliant with all the provisions of the FCPA.
The Five Elements of FCPA
The FCPA’s five elements of bribery define what related acts are considered a crime:
- The payment, offer, authorization, or promise to pay money or anything of value, either directly or indirectly
- Bribing a foreign government official, politician, political party, or candidate for public office knowing that the bribe will be passed on to the government official
- Exchanges with a corrupt motive
- Influencing an official’s act or decision in violation of their lawful duty
- Unlawful exchanges intended to obtain new business or retain existing business
How to Be Compliant with FCPA
To achieve FCPA compliance, individuals and business entities should incorporate risk level, audit controls, and compliance monitoring into their business.
Ascertain Level of FCPA Risk
Many variables can affect an organization’s FCPA risk posture, including:
- The kind of foreign transactions it engages in
- The location of these transactions
- Any applicable federal regulations must comply with
- If the business liaises with any foreign government officials or related agencies
- Whether it can control the above entities and factors
It’s essential to identify these variables to create a risk profile. The business should also review foreign contracts where intermediaries are involved and conduct due diligence when engaging with new agencies.
Implement FCPA Compliance Policy and Audit Controls
A formal policy can help drive FCPA compliance objectives and ensure that these goals are met consistently. It must explicitly define “bribery” and the penalties for the bribery of foreign officials.
These penalties must apply to employees, officers, directors, agencies, or any other relevant entity, both within and outside the U.S.
The policy must also address what constitutes an “appropriate” gift or “legal” payment and under which circumstances they can be offered. Finally, it should be publicized across the organization so all employees are aware of its provisions and their responsibilities.
Internal audit controls and record-keeping are also crucial to ensure FCPA compliance. For example, a log of all foreign transactions should be maintained.
Any improper payments should be recorded as bribes. Separate ledger accounts should be maintained for gift expenses or payments made to third-party vendors.
Create a Compliance Team
To drive the compliance program, a compliance officer is vital. A multi-disciplinary compliance team should also be created to audit the FCPA policy, determine spending limits for employees, investigate FCPA violations (actual or suspected), and offer remediation solutions. This team could include members from:
- Upper Management
- Human Resources
- Legal
- Accounting
- Finance
Understand the Anti-corruption Laws in Other Countries
If the U.S. business has foreign offices or conducts business in foreign countries, and awareness of the local laws for anti-corruption/anti-bribery is essential.
If the organization is investigated by a foreign country, it could also trigger an investigation in the U.S. Knowledge of applicable laws in both the U.S. and the foreign country will ensure that the company remains prepared and is not caught unaware.
Key Takeaways
- The Foreign Corrupt Practices Act (FCPA) makes it unlawful for U.S. individuals and entities to bribe officials of a foreign government to obtain or retain business
- It includes both anti-bribery and accounting provisions
- Cash and non-cash bribes are both outlawed
- The provisions apply to all U.S. persons, publicly-traded and privately-held companies, and companies whose securities are listed in the U.S.
- The FCPA is jointly enforced by the United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)
