What Is the Foreign Corrupt Practices Act (FCPA)?
Let me explain the Foreign Corrupt Practices Act, or FCPA, directly to you. This U.S. law stops American companies and individuals from bribing foreign officials to push through business deals. It has two core parts: the anti-bribery rules and the requirements for books, records, and internal controls that deal with accounting.
You should know that the FCPA covers prohibited actions anywhere on the planet, and it applies to both publicly traded U.S. companies and private ones.
Key Takeaways
Here's what you need to grasp about the FCPA: it's a U.S. law that forbids companies and people from paying bribes to foreign officials for business gains. The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) handle its enforcement. When it passed in 1977, the FCPA made overseas markets fairer for American businesses.
Understanding the Foreign Corrupt Practices Act
The FCPA focuses on fighting corruption and bribery on a global scale. Up until the 1970s, paying foreign officials to speed up processes or win contracts was standard practice worldwide. In some places, companies even deducted bribes as regular expenses on their taxes. But just because it was common doesn't mean it was right or ethical.
I can tell you that when the act became law in 1977, U.S. businesses supported it strongly because they couldn't compete fairly where bribery was the norm. The FCPA's anti-bribery measures, combined with international agreements like the OECD treaty that required countries to ban financial crimes, have evened out the competition for American companies abroad.
Anti-Bribery Provisions
This part of the act bans bribing foreign officials and aims to curb corruption and power abuses everywhere. It sets rules for publicly traded companies, their directors, officers, shareholders, agents, and employees. That includes dealings through third parties like consultants or joint venture partners—using intermediaries to make a bribe won't protect the company or person from liability.
Books, Records, and Internal Control Provisions
This section lays out accounting transparency rules that work alongside the anti-bribery ones. If your company's securities are listed in the U.S., you must follow these provisions, which specify how to record assets to make hiding corrupt payments hard.
Companies under the act also need to set up and keep internal controls to show regulators that transactions are handled correctly.
Violating the Foreign Corrupt Practices Act
The SEC and DOJ share responsibility for enforcing the FCPA. The SEC even has a dedicated unit in its enforcement division for FCPA issues.
If you violate the act, expect serious consequences, including criminal and civil charges. Penalties can include fines up to twice the benefit from the bribery. Guilty companies might have to accept an independent auditor for ongoing compliance. Individuals can face up to five years in prison.
SEC Sample Rulings in the FCPA
You can find current FCPA violations and enforcement actions on the SEC website as press releases. They also provide a yearly summary list of violators.
For instance, in 2019, the SEC took action against several entities. Ericsson, the Stockholm-based telecom giant, paid over $1 billion to the SEC and DOJ to settle charges of a massive bribery scheme using fake consultants to pay off officials in various countries.
Additional 2019 SEC Rulings
- Microsoft agreed to pay more than $24 million for FCPA violations in Hungary, Thailand, Saudi Arabia, and Turkey, plus criminal charges related to Hungary.
- Tim Leissner, a former Goldman Sachs executive, settled with the SEC, including a permanent industry ban, for bribing officials to win contracts for the firm.
- Walmart was charged for failing to maintain an adequate anti-corruption program during its international expansion, agreeing to pay over $144 million to the SEC and $138 million to the DOJ, totaling more than $282 million.
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