Foreign Corrupt Practices Act

Foreign Corrupt Practices Act
Great Seal of the United States
Other short titles
  • Domestic and Foreign Investment Improved Disclosure Act
  • Securities Exchange Act of 1934 Amendment
  • Unlawful Corporate Payments Act
Long title An Act to amend the Securities Exchange Act of 1934 to make it unlawful for an issuer of securities registered pursuant to section 12 of such Act or an issuer required to file reports pursuant to section 15(d) of such Act to make certain payments to foreign officials and other foreign persons, to require such issuers to maintain accurate records, and for other purposes.
Acronyms (colloquial) FCPA
Nicknames Foreign Corrupt Practices Act of 1977
Enacted by the 95th United States Congress
Effective December 19, 1977
Citations
Public law 95-213
Statutes at Large 91 Stat. 1494
Codification
Titles amended 15 U.S.C.: Commerce and Trade
U.S.C. sections amended 15 U.S.C. ch. 2b § 78a et seq.
Legislative history
  • Introduced in the Senate as S. 305 by William Proxmire (D-WI) on January 18, 1977
  • Committee consideration by Senate Banking, House Commerce
  • Passed the Senate on May 5, 1977 (passed)
  • Passed the House on November 1, 1977 (passed, in lieu of H.R. 3815)
  • Reported by the joint conference committee on December 6, 1977; agreed to by the Senate on December 6, 1977 (agreed) and by the House on December 7, 1977 (349-0)
  • Signed into law by President Jimmy Carter on December 19, 1977

The Foreign Corrupt Practices Act of 1977 (FCPA) (15 U.S.C. § 78dd-1, et seq.) is a United States federal law known primarily for two of its main provisions, one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials.[1] The act was amended in 1988 and in 1998. As of 2012 there were continued congressional concerns.[2]

Provisions and scope

The idea of Foreign Corrupt Practices Act (FCPA) is to make it illegal for companies and their supervisors to influence foreign officials with any personal payments or rewards.[3] The FCPA applies to any person who has a certain degree of connection to the United States and engages in foreign corrupt practices. The Act also applies to any act by U.S. businesses, foreign corporations trading securities in the U.S., American nationals, citizens, and residents acting in furtherance of a foreign corrupt practice whether or not they are physically present in the U.S. This is considered the nationality principle of the act. Any individuals that are involved in those activities may face prison time.[3] This act was passed to make it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.[4][3] In the case of foreign natural and legal persons, the Act covers their deeds if they are in the U.S. at the time of the corrupt conduct. This is considered the protective principle of the act.[3] Further, the Act governs not only payments to foreign officials, candidates, and parties, but any other recipient if part of the bribe is ultimately attributable to a foreign official, candidate, or party. These payments are not restricted to monetary forms and may include anything of value.[5] This is considered the territoriality principle of the act.[3]

An ongoing debate asks about the law's effects. Scholars have found that the FCPA discourages US firms from investing in foreign markets.[6] Companies engaging in M&A in emerging markets face a uniquely increased level of regulatory and corruption risk.[7]

Persons subject to the FCPA

Issuers
Includes 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
Domestic concerns
Refers to any individual who is a citizen, national, or resident of the United States and any corporation and other business entity organized under the laws of the United States or of any individual US State, or having its principal place of business in the United States
Any person
covers both enterprises and individuals

History

As a result of U.S. Securities and Exchange Commission investigations in the mid-1970s, over 400 U.S. companies admitted making questionable or illegal payments in excess of $300 million to foreign government officials, politicians, and political parties.[8] The abuses ran the gamut from bribery of high foreign officials to secure some type of favorable action by a foreign government to so-called facilitating payments that were made to ensure that government functionaries discharged certain ministerial or clerical duties.[8] If the official has no choice but to bribe, and bribery is legal in the country, bribing is seen as greasing the wheels. One major example was the Lockheed bribery scandals, in which officials of aerospace company Lockheed paid foreign officials to favor their company's products.[9]:10 Another was the Bananagate scandal in which Chiquita Brands had bribed the President of Honduras to lower taxes. 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. It 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.[10]

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 extending the scope beyond U.S. borders.

Enforcement

The Securities and Exchange Commission (SEC) and the Department of Justice are both responsible for enforcing the FCPA. This is because the FCPA both amends an SEC Act and the criminal code. The SEC enforces the Act for companies it regulates and the Department of Justice enforces the bill regarding all other domestic companies. This split was criticized even before the act was passed.[8]:10–11 In 2010 the SEC created a specialized unit for FCPA enforcement.[11] In 2012, the SEC and the DOJ issued their first joint guide to the FCPA.[12]

Requirements

The anti-bribery provisions of the FCPA make it unlawful for a U.S. person, and certain foreign issuers of securities, to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. Since the 1998 Amendment of FCPA they also apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the U.S. The meaning of foreign official is broad. For example, an owner of a bank who is also the minister of finance would count as a foreign official according to the U.S. government. Doctors at government-owned or managed hospitals are also considered to be foreign officials under the FCPA, as is anyone working for a government-owned or managed institution or enterprise. Employees of international organizations such as the United Nations are also considered to be foreign officials under the FCPA. A 2014 federal appellate court decision has provided guidance on how the term "foreign official" is defined under FCPA.[13]

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.

The FCPA also requires companies whose securities are listed in the U.S. to meet its accounting provisions.[14] 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. This strategy is one element of an effective FCPA Compliance Program, as it shows a sincere attempt to avoid business situations where high risk (prior history or proximity to unethical behavior) individuals are concerned.

Regarding payments to foreign officials, the act draws a distinction between bribery and facilitation or "grease payments", which may be permissible under the FCPA, but may still violate local laws. The primary distinction is that grease payments or facilitation payments are made to an official to expedite his performance of the routine duties he is already bound to perform. The exception focuses on the purpose of the payment rather than on its value.Payments to foreign officials may be legal under the FCPA if the payments are permitted under the written laws of the host country. Certain payments or reimbursements relating to product promotion may also be permitted under the FCPA.

A U.S. company acquiring a foreign firm could face successor liability for FCPA violations committed by the foreign firm prior to being acquired.[15] 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.[16] 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.[17]

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; businesses do not have direct control over their third parties and as such, are exposed to the regulatory and reputational risk of third party FCPA violations.[18] In accordance with the FCPA, businesses bear accountability for activities involving both their internal and external relationships. Companies who operate internationally, or who 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 Third Party Management. These systems can automatically manage on-boarded third party information and monitor their ongoing activities in compliance with FCPA regulation.[19]

Application

Stronger DOJ and SEC enforcement has increased the prominence of the FCPA from 2010 onwards.[20] The SEC website shows a complete list of enforcement cases since 1978.[21] 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, Siemens AG paid a $450 million fine for violating the FCPA. This is one of the largest penalties ever collected by the DOJ for an FCPA case.[22]

In 2012, Japanese firm Marubeni Corporation paid a criminal penalty of US$54.6 million for FCPA violations when acting as an agent of the TKSJ joint venture, which comprised Technip, Snamprogetti Netherlands B.V., Kellogg Brown & Root Inc., and JGC Corporation. Between 1995 and 2004, the joint venture won four contracts in Nigeria worth more than US$6 billion, as a direct result of having paid US$51 million to Marubeni to be used to bribe Nigerian government officials.[23]

In 2012 Smith & Nephew paid US$22.2 million to the DOJ and SEC, and Bizjet International Sales and Support Inc. paid US$11.8 million to the DOJ for bribery of foreign government officials. Both companies entered into a deferred prosecution agreement.[24][25]

In March 2012, Biomet Inc. paid a criminal fine of US$17.3 million to resolve charges of FCPA violations and US$5.5 million in disgorgement of profits and pre-judgment interest to the SEC.[26]

In January 2014, ALCOA paid $175 million in disgorgement of revenues and a fine of $209 million to settle charges that its Australian bauxite mining subsidiary retained an agent that made bribes to government officials in Bahrain and to officers of Aluminum Bahrain B.S.C. to secure long-term contracts to supply the company with bauxite ore.[27]

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.[28]

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.[29] 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.[30] 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.[31]

Charges

In 2009, former Representative William J. Jefferson, Democrat of Louisiana, was charged with violating the FCPA by bribing African governments for business interests.[32]

In 2010 the DOJ and the SEC were investigating whether Hewlett Packard Company executives paid about $10.9 million in bribery money between 2004 and 2006 to the Prosecutor General of Russia "to win a €35 million-dollar contract to supply computer equipment throughout Russia."[33]

In July 2011, the DOJ opened an inquiry into the News International phone hacking scandal that brought down News of the World, the recently closed UK tabloid newspaper. In cooperation with the Serious Fraud Office (United Kingdom), the DOJ was to examine whether News Corporation violated the FCPA by bribing British police officers.[34]

An April 2012 article in the New York Times reported that a former executive of Walmart de México y Centroamérica alleged in September 2005 that Walmart de Mexico had paid bribes to officials throughout Mexico in order to obtain construction permits, that Walmart investigators found credible evidence that Mexican and American laws had been broken, and that Walmart executives in the U.S. "hushed up" the allegations.[35][36] According to an article in Bloomberg, Wal-Mart's "probe of possible bribery in Mexico may prompt executive departures and steep U.S. government fines if it reveals senior managers knew about the payments and didn't take strong enough action, corporate governance experts said."[37] Eduardo Bohorquez, the director of Transparencia Mexicana, a "watchdog" group in Mexico, urged the Mexican government to investigate the allegations.[38] Wal-Mart and the US Chamber of Commerce had participated in a campaign to amend FCPA; according to proponents, the changes would clarify the law, while according to opponents, the changes would weaken the law.[39]

Other cases are with Avon Products, Invision Technologies.BAE Systems, Baker Hughes, Daimler AG, Monsanto, Halliburton, Titan Corporation, Triton Energy Limited, Lucent Technologies.

See also

References

  1. ↑ Funk, T. Markus (September 10, 2010). "Getting What They Pay For: The Far-Reaching Impact Of the Dodd-Frank Act's 'Whistleblower Bounty' Incentives on FCPA Enforcement" (PDF). White Collar Crime Report. Bureau of National Affairs. 5 (19): 1–3.
  2. ↑ LeRoy Miller, Roger (2011). Business Law Today: The Essentials. United States: South-Western Cengage Learning. p. 127. ISBN 1-133-19135-5.
  3. 1 2 3 4 5 Luthans, Fred; Doh, Jonathan (2014). International Management Culture, Strategy, and Behavior (9th ed.). New York, NY: McGraw-Hill Education. ISBN 978-0-07-786244-2.
  4. ↑ USDOJ, (2014)
  5. ↑ Posadas, Alejandro. "Combating Corruption Under International Law" (pdf). School of Law, Duke University.
  6. ↑ Graham, Bradley, Stroup, Caleb (2016). "Does Anti-bribery Enforcement Deter Foreign Investment?" (PDF). Applied Economics Letters. doi:10.1080/13504851.2015.1049333.
  7. ↑ Brooks, Robin; Stacey, Oliver; Jarman, Daniel. "Tackling Corruption and Regulatory Risk in M&A Transactions". Transaction Advisors. ISSN 2329-9134.
  8. 1 2 3 House Committee on Interstate and Foreign Commerce (September 28, 1977). "H.R. Rep. 95-640 REPORT together with MINORITY VIEWS To accompany H.R.3815" (PDF). Retrieved 22 February 2015.
  9. ↑ Rich, Ben R. and Janos, Leo. Skunk Works: A Personal Memoir of My Years at Lockheed. New York: Little Brown & Co., 1994, ISBN 0-7515-1503-5.
  10. ↑ Michael V. Seitzinger (February 7, 2012). "Foreign Corrupt Practices Act, Congressional Interest and Executive Enforcement" (PDF). CRS Report to U.S. Congress. Congressional Research Service. p. 11. Retrieved 22 February 2015.
  11. ↑ "SEC Names New Specialized Unit Chiefs and Head of New Office of Market Intelligence" (Press release). SEC. January 13, 2010. Retrieved 23 February 2015.
  12. ↑ Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission (November 14, 2012). "A Resource Guide to the U.S. Foreign Corrupt Practices Act" (PDF). p. 130. Retrieved 23 February 2015.
  13. ↑ Michael V. Seitzinger (15 October 2014). "Eleventh Circuit Provides Guidance for the Definition of "Foreign Official" under the FCPA" (PDF). Legal Sidebar via Congressional Research Service. Federation of American Scientists. Retrieved 23 February 2015.
  14. ↑ 15 U.S.C. § 78m
  15. ↑ Lawler, William; Phillips, Anthony. "Avoiding the Threat of FCPA Successor Liability". Transaction Advisors. ISSN 2329-9134.
  16. ↑ Sprinzen, Nicole; Hildebrand, Jennifer. "DOJ Clarifies Successor Liability for Foreign Acquisitions". Transaction Advisors. ISSN 2329-9134.
  17. ↑ Fisher, Alice; Greenburg, Douglas; Sabin, Barry; Seltzer, Nathan; Su, Jonathan; Volkman, Eric; Chandler, Kari; Brown Jones, Erin. "DOJ Guidance Underscores Importance of Anti-corruption Due Diligence in International M&A". Transaction Advisors. ISSN 2329-9134.
  18. ↑ http://www.economist.com/media/globalexecutive/outsourcing_revolution_e_02.pdf
  19. ↑ https://www.hiperos.com/anti-bribery-corruption.html
  20. ↑ T. Markus Funk, "Another Landmark Year: 2010 FCPA Enforcement Year-in-Review and Trends for 2011," Bloomberg Law Reports (January 3, 2010).
  21. ↑ "SEC Enforcement Actions: FCPA Cases". SEC. 26 January 2015. Retrieved 23 February 2015.
  22. ↑ Administrator. "Foreign Corrupt Practices Act Reporting Center - Siemens AG pays $450 million to settle FCPA bribery charges". foreign-corrupt-practices-act.org.
  23. ↑ US Department of Justice (17 January 2012). "Marubeni Corporation Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay a $54.6 Million Criminal Penalty".
  24. ↑ Smith & Nephew (6 February 2012). "Smith & Nephew reaches settlement with US Government". Smith & Nephew.
  25. ↑ Reuters (14 March 2012). "U.S. says BizJet settles foreign bribery charges". Reuters.
  26. ↑ Richard L. Cassin (26 March 2012). "Biomet Pays $22.8 Million To Settle Bribe Charges". The FCPA Blog.
  27. ↑ "SEC Charges ALCOA with FCPA Violations". United States Securities and Exchange Commission.
  28. ↑ Brown, Howard. "$88 Million Fine Agreed by Marubeni Corporation of Japan with the U.S. Department of Justice to Settle a Foreign Corrupt Practices Act Investigation".
  29. ↑ Pelletier, Paul; Tidman, Aaron; Haviland, Jane (25 February 2015). "Goodyear's Settlement with the SEC Emphasizes the Importance of FCPA Due Diligence in M&A Transactions and of Having a Robust Anti-Corruption Policy". Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Retrieved 2 March 2015.
  30. ↑ Horn, George (1 March 2015). "M and A Due Diligence Failures: FCPA and Goodyear". The National Law Review. Barnes & Thornburg LLP. Retrieved 2 March 2015.
  31. ↑ Mandelker, Sigal P.; Emert, Rochelle H.; Caraballo-Garrison, Phillip J. (27 February 2015). "Goodyear Pays for Sins of Subsidiaries in $16 Million Settlement". Proskauer Rose LLP. Retrieved 2 March 2015.
  32. ↑ Stout, David (2009-08-06). "Ex-Rep. Jefferson Convicted in Bribery Scheme". The New York Times. p. A14.
  33. ↑ Crawford, David; Searcey, Dionne (April 16, 2010). "U.S. Joins H-P Bribery Investigation". The Wall Street Journal.
  34. ↑ "News Corp shares hit two-year low on hacking arrest". BBC World News. 18 July 2011.
  35. ↑ Barstow, David (April 21, 2012). "Vast Mexican Bribery Case Hushed Up by Wal-Mart After High-Level Struggle". The New York Times. Retrieved April 23, 2012.
  36. ↑ Miguel Bustillo (April 23, 2012). "Wal-Mart Faces Risk in Mexican Bribe Probe". The Wall Street Journal.
  37. ↑ Welch, David; Weidlich, Thom (April 23, 2012). "Wal-Mart Bribery Probe May Exposes Retailer to U.S. Fines". Bloomberg. Retrieved April 23, 2012.
  38. ↑ "Mexican watchdog group says Mexico's federal government should probe alleged Wal-Mart bribes". The Washington Post. Associated Press. April 22, 2012. Retrieved April 23, 2012.
  39. ↑ Hamburger, Tom; Dennis, Brady; Yang, Jia Lynn (April 24, 2012). "Wal-Mart took part in lobbying campaign to amend anti-bribery law". The Washington Post. Retrieved November 18, 2012.

External links

Incidents of actual or alleged bribery
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