Foreign Corrupt Practices Act (FCPA): Anti-bribery provisions, accounting provisions, compliance

The Foreign Corrupt Practices Act (FCPA) is a critical piece of legislation in the United States that addresses corruption and bribery in international business practices. Enacted in 1977, the FCPA aims to prevent American companies and individuals from engaging in corrupt practices abroad. This guide provides a comprehensive overview of the FCPA, focusing on its anti-bribery provisions, accounting provisions, and compliance requirements.

Introduction

The FCPA was enacted in response to revelations of widespread bribery of foreign officials by U.S. companies. The Act has two main components: anti-bribery provisions and accounting provisions. These provisions are enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).

Official Resources

• Department of Justice - Foreign Corrupt Practices Act
• SEC - Foreign Corrupt Practices Act
• FCPA Resource Guide - DOJ

Anti-Bribery Provisions

The anti-bribery provisions of the FCPA prohibit U.S. persons and businesses, as well as certain foreign issuers of securities, from bribing foreign officials to obtain or retain business.

Key Elements

Who is Covered?

The FCPA applies to:

1. Issuers: Companies whose securities are registered in the U.S. or that are required to file reports with the SEC.
2. Domestic Concerns: U.S. citizens, nationals, residents, and businesses.
3. Territorial Jurisdiction: Any act in furtherance of a corrupt payment that occurs within the U.S.

What is Prohibited?

The FCPA prohibits:

1. Payments: Offering, paying, promising to pay, or authorizing the payment of money or anything of value.
2. Recipients: Foreign officials, foreign political parties, party officials, or candidates for foreign political office.
3. Purpose: Influencing any act or decision of the recipient in their official capacity, inducing the recipient to do or omit any act in violation of their lawful duty, securing any improper advantage, or inducing the recipient to use their influence to affect a government decision.

Exceptions and Affirmative Defenses

Facilitating Payments

The FCPA allows for "facilitating or expediting payments" made to expedite or secure the performance of a routine governmental action.

Affirmative Defenses

1. Lawful Under Local Law: The payment was lawful under the written laws and regulations of the foreign country.
2. Reasonable and Bona Fide Expenditures: The payment was a reasonable and bona fide expenditure, such as travel and lodging expenses, directly related to the promotion, demonstration, or explanation of products or services, or the execution or performance of a contract with a foreign government or agency.

Penalties

Violations of the anti-bribery provisions can result in severe penalties, including:

1. Criminal Penalties: Corporations and other business entities can be fined up to $2 million per violation. Individuals, including officers, directors, stockholders, and employees, can be fined up to $250,000 per violation and face up to five years in prison.
2. Civil Penalties: The SEC can impose civil penalties, including fines and disgorgement of profits.

Accounting Provisions

The accounting provisions of the FCPA require issuers to maintain accurate books and records and to implement internal accounting controls.

Key Requirements

Books and Records

Issuers must:

1. Accurately Reflect Transactions: Ensure that their books, records, and accounts accurately reflect all transactions and dispositions of assets.
2. Reasonable Detail: Maintain records in reasonable detail to accurately and fairly reflect the transactions and dispositions of the issuer's assets.

Internal Controls

Issuers must:

1. Devise and Maintain: Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that:
2. Transactions are executed in accordance with management's general or specific authorization.
3. Transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles (GAAP) or any other criteria applicable to such statements.
4. Access to assets is permitted only in accordance with management's general or specific authorization.
5. The recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Penalties

Violations of the accounting provisions can result in both civil and criminal penalties. The SEC can impose civil penalties, including fines and disgorgement of profits. The DOJ can pursue criminal penalties, including fines and imprisonment.

Compliance

Compliance with the FCPA requires a proactive approach, including the implementation of robust compliance programs, regular training, and ongoing monitoring.

Compliance Programs

Effective compliance programs typically include the following elements:

1. Tone at the Top: Commitment from senior management to a culture of compliance.
2. Risk Assessment: Regular assessment of the company's corruption risks.
3. Policies and Procedures: Clear, written policies and procedures to prevent and detect FCPA violations.
4. Training and Communication: Regular training for employees and communication of compliance policies.
5. Third-Party Due Diligence: Due diligence on third parties, including agents, consultants, and joint venture partners.
6. Monitoring and Auditing: Ongoing monitoring and auditing of compliance with FCPA policies and procedures.
7. Reporting and Investigation: Mechanisms for reporting suspected violations and conducting internal investigations.
8. Disciplinary Measures: Appropriate disciplinary measures for violations of compliance policies.

Training and Education

Regular training and education are essential components of an effective FCPA compliance program. Training should be tailored to the specific risks faced by the company and should be provided to all employees, including senior management and the board of directors.

Third-Party Due Diligence

Third-party relationships pose significant corruption risks. Companies should conduct thorough due diligence on third parties, including agents, consultants, and joint venture partners. Due diligence should include:

1. Background Checks: Conducting background checks on third parties.
2. Contractual Protections: Including anti-corruption representations and warranties in contracts with third parties.
3. Ongoing Monitoring: Regularly monitoring third-party relationships for signs of corruption.

Monitoring and Auditing

Ongoing monitoring and auditing are critical to ensuring compliance with the FCPA. Companies should:

1. Regular Audits: Conduct regular audits of high-risk areas and transactions.
2. Data Analytics: Use data analytics to identify potential red flags.
3. Internal Controls: Continuously assess and improve internal controls.

Reporting and Investigation

Companies should have mechanisms in place for reporting suspected FCPA violations and conducting internal investigations. This includes:

1. Whistleblower Hotlines: Establishing confidential whistleblower hotlines.
2. Investigation Protocols: Developing protocols for conducting internal investigations.
3. Remediation: Taking appropriate remedial actions based on investigation findings.

Disciplinary Measures

Appropriate disciplinary measures are essential to maintaining a culture of compliance. Companies should:

1. Consistent Enforcement: Consistently enforce compliance policies.
2. Proportional Discipline: Ensure that disciplinary measures are proportional to the severity of the violation.
3. Documentation: Document all disciplinary actions taken.

Conclusion

The FCPA is a critical tool in the fight against international corruption. Compliance with the FCPA requires a proactive approach, including the implementation of robust compliance programs, regular training, and ongoing monitoring. By adhering to the FCPA's anti-bribery and accounting provisions, companies can mitigate the risks of corruption and contribute to a fair and transparent global business environment.

Additional Resources

• FCPA Resource Guide - DOJ
• SEC - Foreign Corrupt Practices Act
• Department of Justice - Foreign Corrupt Practices Act

This guide provides a comprehensive overview of the FCPA, focusing on its anti-bribery provisions, accounting provisions, and compliance requirements. By understanding and adhering to these requirements, companies can navigate the complexities of international business and contribute to a fair and transparent global marketplace.