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GUIDELINES ON THE
U.S. FOREIGN CORRUPT PRACTICES ACT
The U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) prohibits the bribery of foreign officials in an effort to further the business interests of a U.S. company in a foreign country.
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COVERAGE
The FCPA applies to “issuers” (U.S. and foreign companies listed on U.S. securities exchanges and their employees); “domestic concerns,” which run the gamut of business entities organized under U.S. laws or with their principal place of business in the United States; the officers, directors, employees, and agents of those U.S. business entities (irrespective of nationality); U.S. citizens; U.S. resident aliens; “any person,” including all foreign persons, who commit an act in furtherance of a foreign bribe while in the United States, and U.S. businesses and nationals acting abroad. A Company must require all of its affiliated companies and all of their employees to comply with the FCPA.
WHAT THE FCPA PROHIBITS
The FCPA prohibits the offer or making of payments or giving anything of value, either directly or indirectly, to any foreign official, political party or political candidate, or public international organization to obtain or maintain business when the offer, payment or gift is intended to:
- influence a desired action; or
- induce an act in violation of a lawful duty; or
- cause a person to refrain from acting in violation of a lawful duty; or
- secure any improper advantage; or
- influence the decision of a government or instrumentality
Defenses made by the FCPA are very limited, and include:
- the payments were lawful under the laws of the country in which payment
was made;
- the payment was a legitimate expense directly related to the promotion,
demonstration or explanation of the company’s product or services; or
- the payment was made in accordance with a contract between the company and
a foreign entity
It is also important to understand that merely “knowing” that a payment or a gift will be provided to a government official or agency—even by third parties—is prohibited. The definition of “knowing” under the FCPA is very broad. It includes actual knowledge or a firm belief that activity prohibited by the FCPA is substantially certain to occur. For example, if a payment of $10,000 is made to a consultant and you believe it is substantially certain that a portion of that $10,000 will be paid to a government official for the purpose of obtaining or retaining business, the FCPA has been violated. In practice, U.S. regulators will presume the necessary “knowledge” if circumstances exist such that the company or an employee should have known that such prohibited activity was substantially certain to occur. Further, the FCPA requires that questionable transactions be investigated by the company.
AREAS OF PARTICULAR CONCERN
Areas of particular concern include:
Ø new market development because of the intense interaction with a foreign
government during the opening of a market
Ø instances where a market is under heightened government scrutiny
Ø when a U.S. business uses foreign consultants and contractors
Ø relationships with foreign officials
Ø actions by partners in joint ventures
FACILITATING PAYMENTS
So-called facilitating payments are the only exception to the strict prohibitions imposed under the FCPA. Facilitating payments made in accordance with local custom or to expedite or secure the performance of routine government action that the payor is entitled to receive, such as government action to obtain licenses or permits, process government papers such as visas and work orders, or obtain government provided services such as police protection, mail, power or phone services are exempted from coverage by the FCPA. When in doubt, do not make the payment and seek additional guidance from the Company’s counsel.
ACCOUNTING PRACTICES
The FCPA requires that U.S. public companies trading on a U.S. stock exchange comply with all United States Securities and Exchange Commission (“SEC”) accounting rules. The FCPA prohibits the falsification of books and records required to be maintained by the SEC and the making of any false or misleading statements or omissions of material facts to accountants or auditors in connection with the preparation of required filings.
The principles and controls must at a minimum include that financial transactions:
- occur only with management’s authorization
- are recorded in accordance with generally accepted accounting practices
- are periodically audited to discover and correct any accounting discrepancies
- permit access to company assets only upon authorization by management
PENALTIES
Penalties for violation of the FCPA includes fines up to $2,000,000 and up to 5 years in prison, even greater penalties can be implemented under alternative penalty provisions.
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