The Foreign Corrupt Practices Act (FCPA) is a landmark United States federal law that addresses bribery and corruption in international business. Enacted in 1977, the FCPA falls under the broader financial category of Regulatory Compliance and aims to deter illicit payments and promote transparency in global commerce. This act makes it illegal for U.S. persons and entities to offer, promise, or give anything of value to foreign government officials with the intent to obtain or retain business. It also includes stringent accounting provisions for publicly traded companies to ensure their financial records are accurate and that they maintain adequate internal controls.
History and Origin
The Foreign Corrupt Practices Act emerged from a series of investigations by the U.S. Securities and Exchange Commission (SEC) in the mid-1970s. These investigations, prompted by discoveries made during the Watergate scandal, uncovered widespread instances of American companies making questionable payments and bribes to foreign government officials to secure business deals. Public outcry and a desire to restore integrity to U.S. business practices led to Congress passing the FCPA, which President Jimmy Carter signed into law on December 19, 1977.18 The legislation was a pivotal moment, marking the first significant effort by the U.S. to legally prohibit the bribery of foreign officials. It underscored a commitment to ethics and fair dealing in the international arena.
Key Takeaways
- The Foreign Corrupt Practices Act prohibits the bribery of foreign government officials by U.S. individuals and entities.
- It applies globally to U.S. citizens, residents, and companies, as well as to foreign companies listed on U.S. exchanges or those acting within U.S. territory.
- The FCPA comprises two main parts: anti-bribery provisions and accounting provisions.
- Enforcement is jointly carried out by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC).
- Penalties for violations can include substantial fines, imprisonment, and disgorgement of ill-gotten gains.
Interpreting the Foreign Corrupt Practices Act
The FCPA's anti-bribery provisions broadly prohibit corrupt payments or offers of "anything of value" to foreign officials, political parties, or candidates for the purpose of influencing official actions and securing or retaining business. This prohibition extends beyond direct payments to include indirect payments made through third parties, such as agents or consultants. The law defines "foreign official" broadly to include any officer or employee of a foreign government, a department, agency, or instrumentality thereof, or any public international organization, as well as any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
The accounting provisions of the FCPA, which apply to issuers (companies with securities registered in the U.S. or that are required to file reports with the SEC), require them to:
- Maintain books, records, and accounts in reasonable detail that accurately and fairly reflect the transactions and dispositions of the assets of the issuer.17
- Devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management's authorization.16
These accounting requirements are crucial for preventing the concealment of bribery and ensuring adherence to proper accounting standards.
Hypothetical Example
Consider a U.S.-based construction company, "Global Builds Inc.," bidding on a large infrastructure project in a foreign country. A local agent, hired by Global Builds Inc. to assist with the bid, suggests making a "facilitating payment" to a high-ranking government official responsible for awarding the contract, assuring the company it's "standard practice" to expedite the process.
Under the Foreign Corrupt Practices Act, even if the payment is made by the agent and not directly by Global Builds Inc., the company could be held liable if it knew or should have known that the payment was intended to improperly influence the official to secure the contract. This scenario directly violates the anti-bribery provisions. If Global Builds Inc. then attempts to conceal this payment by mislabeling it in its financial records (e.g., as "consulting fees"), it would also violate the FCPA's accounting provisions. The FCPA aims to prevent such actions, ensuring fair competition and ethical conduct in international trade.
Practical Applications
The Foreign Corrupt Practices Act has significant practical implications for businesses operating internationally. Companies often implement robust due diligence procedures when engaging with foreign partners, agents, or joint ventures to mitigate FCPA risks. This includes thorough vetting of third parties and contractual clauses that require adherence to anti-bribery laws. Companies also invest heavily in training programs for employees who interact with foreign officials or conduct business in high-risk jurisdictions.
Enforcement of the FCPA is aggressive, with the Department of Justice and the Securities and Exchange Commission pursuing significant penalties against violators. These penalties can include large monetary fines, disgorgement of ill-gotten gains, and the appointment of independent monitors to oversee a company's compliance program. The DOJ publishes a list of FCPA enforcement actions, demonstrating the breadth of its application across various industries and global regions.15
Limitations and Criticisms
Despite its importance, the Foreign Corrupt Practices Act has faced certain criticisms. One common critique centers on the perceived competitive disadvantage it imposes on U.S. companies. Some argue that by preventing American firms from engaging in practices common in certain foreign markets, the FCPA may put them at a disadvantage against foreign competitors not subject to similar strict regulations.14 The Act's exception for "facilitating payments" (small payments made to expedite routine governmental actions, not to obtain or retain business) has also been a point of debate, with critics arguing it creates a loophole that can be difficult to interpret and enforce.13
Additionally, some analyses suggest that while the FCPA has been successful in deterring overt corruption by U.S. entities, its overall impact on global corruption levels is complex and debated.11, 12 Despite these limitations, the FCPA is broadly seen as a crucial tool for promoting corporate governance and transparency in the international business landscape.
Foreign Corrupt Practices Act vs. UK Bribery Act
The Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA) are both prominent anti-bribery laws, but they have distinct differences. The FCPA, enacted in 1977, primarily targets U.S. persons and companies bribing foreign public officials, and also includes accounting provisions. It permits a narrow exception for "facilitating payments" designed to expedite routine government actions, not to obtain or retain business.10
In contrast, the UK Bribery Act, which came into force in 2011, is often considered broader and stricter.9 It criminalizes active and passive bribery (giving and receiving bribes) in both the public and private sectors. Crucially, the UKBA explicitly prohibits all facilitating payments, making no exception for them.8 Furthermore, the UKBA introduced a corporate offense of "failure of a commercial organization to prevent bribery" by associated persons (e.g., employees, agents), for which the only defense is having "adequate procedures" in place to prevent bribery.7 This strict liability offense significantly expands the scope of corporate accountability compared to the FCPA, which requires proving specific corrupt intent.6 Both acts aim to foster regulatory compliance globally.
FAQs
Who enforces the Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act is jointly enforced by the U.S. Department of Justice (DOJ) for criminal actions and the U.S. Securities and Exchange Commission (SEC) for civil actions.4, 5
What are the penalties for violating the FCPA?
Penalties for violating the FCPA can be severe, including significant fines for both individuals and companies, imprisonment for individuals, and disgorgement of illicit profits. Companies may also face the imposition of independent compliance monitors.3
Does the Foreign Corrupt Practices Act apply to foreign companies?
Yes, the FCPA can apply to certain foreign companies. It applies to foreign companies that have securities listed on U.S. stock exchanges (issuers) and their agents. It also applies to any foreign person or entity that takes an act in furtherance of a corrupt payment while in U.S. territory.
Can whistleblowers report FCPA violations?
Yes, whistleblowers can report FCPA violations. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 provided protections and financial incentives for whistleblowers who voluntarily provide the SEC with original information about violations of securities laws, including the FCPA.2 Such individuals may be eligible for monetary awards if their information leads to successful enforcement actions resulting in sanctions over a certain threshold.1