Imagine this scenario: a representative from an American company is negotiating an international deal with a foreign government official when, unexpectedly, the official requests a personal payment in order to close the transaction; or, perhaps, the company's representative offers the government official something of value in order to curry favor or secure a certain outcome.
In either case, it is quite likely that this interaction will result in a violation of the U.S. Foreign Corrupt Practices Act (FCPA or Act)1, a law designed to prevent bribery and corruption in transactions with foreign governments. As more businesses engage globally, compliance with the FCPA is critical. In this 2-part blog series, we will examine the FCPA and its key provisions, and review best practices for helping to ensure compliance under the Act.
Part One: Key Provisions of FCPA
The FCPA prohibits publicly-traded and private companies, including their officers, directors, employees, agents, and stockholders, from offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value – essentially, making a bribe – to a foreign official in order to influence any act or decision of the foreign official acting in such capacity, or to secure any other improper advantage in order to obtain or retain business, with corrupt intent and knowledge of the unlawful conduct. The Act also prohibits foreign nationals or foreign entities from making corrupt payments to foreign officials while in the U.S.
Common examples of prohibited activity under the FCPA include: (1) offers of money, gifts, or entertainment, (2) paying for a governmental official's travel, and (3) offering benefits to an official's relative, such as entry into a U.S. college (considered an indirect payment). The FCPA extends to conduct by U.S. businesses located outside the U.S., as well as foreign companies and individuals who engage in corrupt practices while in the United States, even if the actual bribery occurs outside the U.S.2
To avoid the serious and wide-ranging repercussions of a FCPA violation, it is important thatbusinesses understand the Act's key provisions:
- Definition of Foreign Official
The FCPA's definition of foreign official3 is very broad, covering (1) any foreign official (including an employee of a foreign government), (2) any employee of a foreign political party or official thereof, (3) any candidate for foreign political office, and (4) employees of international organizations such as theUnited Nationsand World Bank. Employees of a state-owned institution such as physicians at a foreign government-owned hospital also fall under this definition. In some situations, it may not always be apparent whether employees of a foreign entity fall under the Act, especially in countries such as China and Russia, where many types of companies and other organizations that are typically privately-owned in the U.S. are owned by the government. - Prohibited Acts
The FCPA applies to payments, offers, or promises made for the purpose of: (1) influencing any act or decision of a foreign official in his/her official capacity, (2) inducing a foreign official to do or omit to do any act in violation of the lawful duty of such official, (3) securing any improper advantage, or (4) inducing a foreign official to use his/her influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality. - Payments to Third Parties
In addition to direct acts of bribery, the FCPA expressly prohibits corrupt payments made through third parties or intermediaries. Specifically, it covers payments made to any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to a foreign official. The fact that a third party pays a bribe does not eliminate the potential for criminal or civil FCPA liability. The Act imposes liability when a person is aware of a high probability of the existence of improper conduct by a third party, as well as when the responsible person purposely avoids actual knowledge. - Successor and Parent-Subsidiary
Liability
A U.S. company acquiring another may be responsible as a successor for pre-existing FCPA violations committed by the acquired company if such violations were subject to the FCPA's jurisdiction when committed. Likewise, a parent company may be liable for bribes paid by its subsidiary either (1) if the parent sufficiently participated in the activity (e.g., it directed the subsidiary's misconduct or participated in the bribery scheme), or (2) under traditional principles of agency liability. - FCPA Accounting Provisions
The FCPA mandates internal accounting controls and recordkeeping practices for publicly-traded companies. These accounting provisions require covered corporations to (1) make and keep books, records and accounts in reasonable detail that accurately and fairly reflect the transactions of the corporation, and (2) devise and maintain an adequate system of internal accounting controls. - Penalties and Enforcement
The FCPA is jointly enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Corporations and individuals are subject to both civil (fines) and criminal (including imprisonment for individuals) penalties if they are found to be in violation of the FCPA anti-bribery, accounting, or other provisions.
FCPA enforcement actions can come with stiff penalties. By way of example, in 2020, Goldman Sachs agreed to pay over $2.9 billion to the U.S. government to settle FCPA charges for bribing officials in Malaysia and the UAE, and several Goldman Sachs employees were sentenced to prison; and in 2018, Israeli-based Teva Pharmaceuticals pled guilty under the Act to bribery of officials in Russia, Ukraine, and Mexico and paid $519 million to the U.S. government.
In Part 2 of this series, we will explore several statutory defenses available under the FCPA, as well as best corporate practices for helping to ensure compliance with the Act. For questions about the FCPA or compliance issues arising under the law, please contact Mark Feingold atmfeingold@outsidegc.com.
Footnotes
1 Pub. L. 95-213, 91 Stat. 1494 (1977), 15 U.S.C. §§78dd-1, et seq.
2 See International Anti-Bribery and Fair Competition Act of 1998, Pub. L. 105-366, 112 Stat. 3302 (1998); 15 U.S.C. § 78dd-3(a); see also U.S. Dept. of Justice, Criminal Resource 104 A Resource Guide to the U.S. Foreign Corrupt Practices Act. Second Edition. Manual § 9-1018 (Nov. 2000); Anti-Bribery Convention at art. 4.1, supra note 20
3 15 U.S.C. § 78dd-1(f)(1)(A); 15 U.S.C. §§ 78dd-2(h)(2)(A), 78dd-3(f)(2)(A)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
