If you conduct business outside the United States, you must be aware of the Foreign Corrupt Practices Act, which is a federal law that prohibits American businesses and individuals from paying bribes to foreign officials to secure business deals.
It also mandates keeping accurate books so as not to hide illegal transactions. Violations of this law could result in steep civil fines as well as federal criminal charges.
Further, the FCPA includes anti-bribery provisions and books and records provisions criminalizing covering up corrupt practices by using false entries in the company books. This provision within the law prohibits anyone from making payments to foreign officials to secure or maintain business.
The books and records provisions prohibit someone from knowingly making materially incorrect entries in the business books with the intent to hide foreign payoffs.
The Foreign Corrupt Practices Act is a wide-ranging law interpreted broadly by the United States Department of Justice (DOJ). It's pretty standard for a company to start an internal investigation by outside attorneys related to the FCA who will make a report to an audit committee comprised of members in high-level management.
Suppose you are the target of a federal investigation related to the FCPA? In that case, you should contact a federal criminal defense lawyer with experience handling these types of offenses.
There are often some confusing details over what precisely would be considered corruption and what someone must do to stay in compliance with FCPA laws. We can help guide you through the complex federal court process. Let's take a look at some more details below.
Overview of the FCPA
The Foreign Corrupt Practices Act was first enacted in 1977 as a response to the widespread proliferation of illegal corporate payments to foreign officials where many are living in countries where bribery was legal.
These bribes made it expensive and difficult for businesses to compete internationally and tarnished the global reputation of the American business world in general.
By making it illegal for U.S. citizens and companies to make these unlawful payments anywhere in the world, the federal government has been able to level the playing field and improve the integrity of American business dealings.
The FCPA is jointly enforced by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) and is codified in Title 15 U.S.C. 78dd-1. The law contains both anti-bribery and accounting provisions.
The FCPA applies to U.S. citizens and businesses and foreign businesses listed on the U.S. Stock Exchange and conducting business within the United States.
It prohibits a business from making a payment or promise for anything of value to a foreign official, political party, or a candidate for foreign office with the intent to influence them into assisting in acquiring or retaining business.
Further, the statute prohibits any third-party payments made to an outside party when they know some or all of the payments will be sent to a foreign government official as a bribe which could be considered a type of money laundering.
In other words, the primary purpose of this law is to prevent United States corporations from bribing foreign officials. The FCPA includes accounting language requiring public companies to maintain records that show their transactions.
What Are the Anti-Bribery and Accounting Provisions?
The anti-bribery rules make it unlawful to bribe foreign officials to obtain or retain business, which is usually connected with government contracts.
It is also illegal to offer anything of value to a foreign official with the intent to influence that official in their official capacity. The term “anything of value” is broad and covers numerous payment types, including cash, property, jewelry, vehicles, company shares, and more discussed below. The FCPA effectively outlaws two kinds of payments:
- Bribes to foreign government officials to influence them to give your company business. For example, you can't pay a bribe to a foreign official to get a construction contract.
- Bribes to foreign officials to influence them to act in a way that benefits your company. For example, you can't pay a bribe to a foreign official to get him to lower taxes on your company's imports.
The FCPA's accounting provisions require companies to keep accurate books and records and to have adequate internal controls in place. These rules are designed to prevent companies from hiding illegal payments or transactions. Companies must maintain oversight to ensure that assets are appropriately used and prevent fraud, corruption, and bribery.
Other Important Things to Know About the FCPA
Illegal bribes can take other forms than cash payments. Some common examples of unlawful bribes include:
- Gifts or lavish entertainment;
- Travel expenses;
- Loans or other financial benefits;
- Charitable donations;
- Political contributions.
The FCPA places no minimum cash value on the amount of an illegal bribe. A bribe of any amount (even the price of a cup of coffee) made to a foreign official in the wrong context in the furtherance of business may violate the FCPA.
The FCPA also applies to indirect transactions and third parties. Since it was passed, the FCPA has been tightened so that agents and third parties cannot pay bribes on your company's behalf to get around the law.
Even bribes made indirectly to other businesses with the roundabout intent of influencing foreign officials may violate the FCPA.
For example, if you offer an influential person a cash kickback to endorse your product, then use that endorsement to convince a foreign official to let you sell in their country, that could violate the FCPA.
What are the Exceptions to the Law?
It's important to note that not all payments to foreign officials are considered illegal under the FCPA. For example, payments made for “routine governmental action” are exempt from the law.
Routine governmental actions are defined as those that are “ordinarily and commonly undertaken by a foreign official in his or her official capacity.” Examples of routine governmental actions include:
- Obtaining permits or licenses;
- Processing government papers, such as visas and work orders;
- Providing police protection, mail pick-up, and delivery, or utility service;
- Performing other routine governmental functions.
The FCPA also exempts “facilitating payments,” which are those made to “expedite or secure the performance of a routine governmental action.”
An example of a facilitating payment would be a bribe paid to a customs official to get your shipment released more quickly. As long as the official doesn't have the discretion to deny your request, it's not illegal to pay them to expedite the process.
With these exceptions, note that the accounting provisions still apply. In other words, if you make a payment qualifying as an exception and fail not to mention it in your books, you could still violate the FCPA over your accounting discrepancies.
What Are the Penalties for FCPA Violations?
Violating the FCPA can be very costly in terms of civil fines and criminal penalties. If you as an individual are found guilty of violating the anti-bribery provisions, you could face:
- Civil fines up to $10,000 per offense;
- Criminal fines up to $250,000 or twice the amount of gain/loss resulting from the illegal payment; and
- Up to five years in federal prison.
The penalties for accounting violations are even steeper. If convicted, you could face:
- Civil fines up to $100,000;
- Criminal fines up to $5 million (or twice the amount of gain/loss caused by the violation); and
- Up to 20 years in federal prison.
Companies can face severe penalties for violating the FCPA, too. A company in violation may face civil fines up to $500,000 and criminal fines up to $25 million, or twice the gain or loss.
How Can I Fight FCPA Allegations?
If you were accused of violating the Foreign Corrupt Practices Act, we will closely examine all the details to determine an appropriate defense strategy.
The FCPA provides two affirmative defenses. The first is that the payments were legal under the laws of the foreign official's country.
The second defense is that the payment was a “reasonable and bona fide expenditure,” such as travel-related expenses on behalf of the foreign official related to promoting products or services or to fulfill a contract with a foreign government.
Perhaps we can argue that you didn't know about any unlawful payments, but each case has unique details. Early intervention into your case by our law firm could prove crucial to the outcome as negotiation with the federal prosecutor might be possible.
Eisner Gorin LLP is located in Los Angeles, California, and you can reach us for an initial case review by calling (877) 781-1570 or use the contact form.