The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act

Ana E. Pawloski

Keiser University

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA), was enacted and signed into law by President Jimmy Carter in 1977 after a two year long investigation by the U.S. Securities and Exchange Commission (SEC)(Kohler, 2012).  The SEC investigated more than 400 U.S. Companies that abused the system by using bribery to ensure that foreign government officials, politicians, and political parties discharged certain favors such as obtaining business licenses and favorable action by foreign governments. The FCPA was enacted to restore public confidence in the integrity of the American business system. (Smith,2006). Congressional motivation was also sparked by a post- Watergate morality economic perceptions including a sense that prohibiting foreign corporate payments would give U.S. companies a competitive advantage and actually help companies resist foreign payment demands, as well as global leadership. (Kolher, 2012). Congress amended the FCPA in 1988 and 1998, in legislation ratifying and implementing the Organization for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public official in International Business Transactions (“OECD Convention”). The 1998 amendments broadened the scope and applicability of the FCPA.

The SEC states that:

The  FCPA generally prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. The FCPA can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.The FCPA also requires issuers to maintain accurate books and records and have a system of internal controls sufficient to, among other things, provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management's authorization. (2017)

The FCPA is composed of two principle parts, the anti-bribery provision and the accounting provisions.  The anti-bribery provision makes it unlawful to offer, pay, promise to pay, or authorize payment of money, or to offer, give, or promise to give anything of value to a foreign official in order to obtain or retain business or secure an improper business advantage.(McGraw, Rudd, 2014).  The accounting provisions require companies issuing securities registered on the U.S. stock exchanges to maintain accurate books and records and proper systems of internal controls regarding all transactions, not just those that might violate the anti-bribery provisions (O’Melveny, 2009, p 2).

Enforcement authority for the FCPA is shared by the SEC and the Department of Justice (DOJ). The DOJ has an FCPPA unit within the Criminal Division’s Fraud Section. It has criminal enforcement authority over issuers as well as criminal and civil enforcement authority over domestic concerns for the FCPA’s anti-bribery provisions. The SEC is responsible for civil enforcement of the anti-bribery provisions with respect to issuers (McGraw, Rudd, 2004).   Violations of the FCPA carry significant penalties, including criminal liability civil fines, substantial loss of goodwill, including the potential loss of government licenses.

Many experts that appose the FCPA do so for two reason. One, it has says that it has created an uneven playing field for American businesses and that foreign competitors would persistently seek to take advantage of this fact. Two, the cost and missed opportunities to  American companies (Harris , 2011). The costs the FCPA imposes on U.S. regulated companies provide an incentive for non-U.S. companies not to offer or register their securities in the U.S., or, if they have previously listed their equity securities on a U.S. exchange, to delist, in an effort to avoid FCPA jurisdiction and other compliance costs The FCPA, 2011). It is clear that the FCPA has contributed to the decisions of several companies to terminate their U.S. stock exchange listing. At least 60 companies that delisted their securities from a U.S. stock exchange between 2007 and 2011 specifically referred to the high administrative, regulatory and other costs associated with a U.S. listing as the reason for such decision  and, in at least one case, the delisting was announced shortly after an FCPA settlement (The FCPA, 2011). the most obvious direct costs are fines and penalties, when the DOJ or the SEC have what they believe to be sufficient evidence of a violation. These fines have increased dramatically in severity in recent years. As of January 2007, the largest fine was $28.5 million levied against Titan Corporation in 2005. In contrast, as of April 2011, the tenth largest fine was $70 million and each of the top eight fines exceeded $100 million with the top five exceeding $300 million.30 In addition, the penalties imposed generally total far more than any allegedly corrupt payments made or profit allegedly gained through corrupt means. In light of the difficulty of challenging the approach of the enforcement agencies (Harris, 2011).  These same experts however  agree that corruption does occurs when officials are willing to sell their services and private individuals or companies are willing to buy an unfair advantage. The public is weary of the scandals that plaque American business and demands the continued transparency and access into these companies (Smith, 2006).