Understanding the Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) is an American law passed in 1977 aimed at combating the bribery of foreign public officials. This law follows an investigation in the 1970s by the American regulator (Securities and Exchange Commission) in the context of the Watergate scandal, during which more than four hundred American companies admitted to having made illegal payments amounting to more than three hundred million American dollars for foreign government officials, politicians and political parties.

Since 1977, this law has been subject to amendments in 1988 and in 1998: the Omnibus Trade and Competitiveness Act of 1988 thus introduced the notion of knowledge to detect breaches of the law, as well as the notions of conscious contempt and willful blindness. This law also introduced the notion of donations in good faith, reasonable and lawful according to the legislation of the foreign countries concerned. The 1998 amendment had as its interest the ratification and incorporation into the American legal system of the OECD Anti-Corruption Convention. It thus made it possible to introduce the concept of extraterritoriality of the law, by extending its field of application beyond the borders of the United States of America.

The Foreign Corrupt Practices Act (FCPA) applies to two broad categories of persons: those with formal ties to the United States of America and those who take action in furtherance of a violation while in the United States of America. U.S. issuers and domestic concerns must obey the Foreign Corrupt Practices Act (FCPA), even when acting outside the country. An issuer is any company that has securities registered in the United States of America or is otherwise required to file periodic reports with the SEC. Domestic concerns is a broader category, encompassing any individual who is a citizen, national, or resident of the United States of America. The category of domestic concerns also includes any corporation, partnership, association, joint-stock company, business trust, unincorporated organisation, or sole proprietorship with its principal place of business in the United States of America or organised under the laws of a State of the United States of America or a territory, possession, or commonwealth of the United States of America. Accordingly, U.S. corporations and nationals can be held liable for bribes paid to foreign officials even if no actions or decisions take place within the United States of America. In the past several years, U.S. enforcement authorities have charged and prosecuted a number of foreign corporations for bribing non-U.S. officials. The DOJ interprets the Foreign Corrupt Practices Act (FCPA) to confer jurisdiction whenever a foreign company or national causes an act to be done within the territory of the United States of America by any person acting as the agent of that company or national.

A violation the Foreign Corrupt Practices Act (FCPA) consists of five elements. That is, a person or organisation is guilty of violating the law if the government can prove the existence of: 1. A payment, offer, authorisation, or promise to pay money or anything of value; 2. To a foreign government official (including a party official or manager of a state-owned concern), or to any other person, knowing that the payment or promise will be passed on to a foreign official; 3. With a corrupt motive; 4. For the purpose of (a) influencing any act or decision of that person, (b) inducing such person to do or omit any action in violation of his lawful duty, (c) securing an improper advantage, or (d) inducing such person to use his influence to affect an official act or decision; 5. In order to assist in obtaining or retaining business for or with, or directing any business to, any person.

A covered individual or entity that violates the Foreign Corrupt Practices Act (FCPA) can be subject to criminal charges by the DOJ, which might lead to imprisonment or a fine, in addition to penalties by the SEC of up to five hundred thousand American dollars or the amount by which the entity profited from the offense. The definitions of payment and foreign official are sufficiently broad to cover virtually any benefit conferred on someone in a position to affect a person’s business dealings with a foreign government. Nonmonetary benefits, including travel and entertainment, fall within the Foreign Corrupt Practices Act (FCPA)’s definition. Likewise, the DOJ has taken the position that employees of state-owned business enterprises are foreign officials for purposes of the Foreign Corrupt Practices Act (FCPA). The statute contains no monetary threshold; even the smallest bribes are prohibited.

Under the terms of the Foreign Corrupt Practices Act (FCPA), a bribe need not actually be paid in order to violate the law. Rather, the Foreign Corrupt Practices Act (FCPA) prohibits the offer, authorisation, or promise to make a corrupt payment in addition to the actual payment. The Foreign Corrupt Practices Act (FCPA) prohibits payments made with a corrupt motive. The legislative history of the statute describes this as an “evil motive or purpose, an intent to wrongfully influence the recipient”. The Supreme Court recently reinforced the notion that a criminal prohibition against corrupt conduct requires a consciousness of wrongdoing, although the Court declined to provide an all-encompassing definition of the statutory term. Truly innocent mistakes are not illegal under the Foreign Corrupt Practices Act (FCPA). In order to constitute a Foreign Corrupt Practices Act (FCPA) violation, a payment must be intended to cause an official to take an action or make a decision that would benefit the payer’s business interest. Note that the business to be “obtained or retained” by the corrupt payment need not be with the government or a government-owned entity. Rather, the Foreign Corrupt Practices Act (FCPA) is violated if a corrupt payment is made in order to facilitate improperly the obtaining or retaining of business with a third party.

Pursuant to its anti-bribery purpose, the FCPA amends the Securities Exchange Act of 1934 to require all companies with securities listed in the U.S. to meet certain accounting provisions, such as ensuring accurate and transparent financial records and maintaining internal accounting controls.