The Foreign Corrupt Practices Act is a federal law passed in 1977, which prohibits U.S. citizens giving bribes to foreign officials in order to obtain or maintain foreign business. This Act is codified in 15 U.S. Code Section 78dd-1. Under the Foreign Corrupt Practices Act (commonly abbreviated as “FCPA”), the federal government is able to prosecute conduct that happens anywhere in the world.
The U.S. Department of Justice and the U.S. Securities and Exchange Commission have joint jurisdiction over investigations and enforcement of FCPA. Therefore, violations of FCPA can result in both criminal and civil penalties against you. Thus, it is essential to retain counsel with experience handling both federal criminal matters as well as securities cases.
Summary of the Foreign Corrupt Practices Act
When the Foreign Corrupt Practices Act passed in 1977, it had three major provisions. Specifically, the Act required:
- Corporations to keep accurate books and records, recording financial transactions.
- Corporations registered with the Securities and Exchange Commission to maintain an internal control and compliance system, AND
- Criminal penalties for bribery of foreign officials by U.S. companies. This section applies to corporations regardless of whether they are registered with U.S. Securities and Exchange Commission.
1988 Amendment to FCPA
In 1988, Congress passed an amendment to the Foreign Corrupt Practices Act. Under the Foreign Corrupt Practices Act Amendment of 1988, the following changes were made to FCPA:
- A “knowing” standard was imposed to violations of the act. This standard also covers “conscious disregard” and “willful blindness.”
- Affirmative defenses such as the gift being lawful under the laws of the other country, as well as the gift being a reasonable expenditure were incorporated into the statute.
1998 Amendment to FCPA
In 1998, the Foreign Corrupt Practices Act was amended for a second time to expand the scope of this Act. This round of amendments extended jurisdiction beyond the borders of the United States and included some foreign persons.
Who is Subject to FCPA?
The following entities are subject to Foreign Corrupt Practices Act:
- Publicly traded companies, or companies that are required to register with the U.S. Securities and Exchange Commission;
- Officers, directors, employees, agents, or stockholders acting on behalf of these companies;
- U.S. Citizens, residents or businesses with their primary place of business being in the U.S.;
- Foreign Nationals who engage in conduct in furtherance of a corrupt payment while on U.S. soil.
What Criminal Conduct Does FCPA Prohibit?
FCPA prohibits corrupt criminal conduct with these three elements:
- Making the use of mail or any other instrumentality of interstate commerce
- Corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value
- To any of the following groups or people:
- Any foreign official,
- Any foreign political party or official, or a candidate for a foreign political office,
- Any other person with knowledge that the portion of the money will be offered, given, or promised, directly or indirectly, to a foreign official, foreign political party, or candidate for a foreign political office.
Who Is Considered a “Public Official” for the purposes of FCPA?
The legal definition the term “Public Official” comes from 15 U.S. Code § 78dd–1(f)(1)(A). Under that statute, a “Public Official” is:
- Any officer or employee of a foreign government, OR
- Of any department, agency, or instrumentality thereof, OR
- Of a public international organization, OR
- 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 organization.
What Is the Legal Definition of “Corruptly?”
The word “corruptly” is used in order to make clear that the offer, payment, promise, or gift, must be in- tended to induce the recipient to misuse his official position; for example, wrongfully to direct business to the payor or his client, to obtain preferential legislation or regulations, or to induce a foreign official to fail to perform an official function.
What Is “Anything of Value?”
The legal definition of “Anything of Value” is very broad for the purposes of Foreign Corrupt Practices Act. The following are examples of “anything of value”:
- Cash (oftentimes, it takes the form of paying consulting fees, commissions or charitable contributions);
- Travel and lodging expenses, such as a $12,000 birthday trip including tours of wineries;
- Expensive gifts.
Importantly, the FCPA does not contain a minimum dollar value for the improper benefit. Thus regardless of the value, a corrupt payment can subject someone to a prosecution for violating the Foreign Corrupt Practices Act. However, the more expensive the gift, or the payment, the more indicative it is of corrupt intent of the gifter.
Importantly, the payment of money, offer gift, or promise must be done with an intent to wrongfully influence a foreign official. This nefarious intent includes:
- Influence any act or decision of a person in their official capacity,
- Induce the official, or candidate for a foreign political office to violate their lawful duty,
- Secure an improper advantage, OR
- Cause the foreign official to use their influence on a political party.
3. Business Purpose Test
The FCPA only applies if the actions are done with the purpose of securing or maintaining business with the foreign country or entity. This usually applies to maintaining or keeping Government contracts. Other examples of obtaining or retaining business include:
- Winning a contract;
- Avoiding payment of taxes or penalties;
- Obtaining preferential treatment in the bidding process;
- Influencing determinations of judicial actions;
- Avoiding the termination of contract.
Which Agencies Investigate FCPA Violations?
The U.S. Department of Justice and the U.S. Securities and Exchange Commission share jurisdiction over FCPA’s anti-bribery and record-keeping and accounting provisions.The U.S. Department of Justice has oversight over criminal matters involving violations of Foreign Corrupt Practices Act. Securities and Exchange commission has oversight over civil violations of FCPA.
These two federal law enforcement agencies work with multiple law enforcement partners on investigations of FCPA violations, including:
- Federal Bureau of Investigation and its International Corruption Unit;
- Department of Homeland Security;
- Criminal Investigation Division of Internal Revenue Service;
- Department of Treasury’s Office of Foreign Assets Control.
What are the Penalties for Violations of FCPA?
In practice, both the U.S. Department of Justice and the U.S. Securities and Exchange Commission settle cases involving violations of the Foreign Corrupt Practices Act. U.S. Department of Justice also started a FCPA Corporate Enforcement Policy, which encourages companies to self-disclose FCPA violations in exchange for a Deferred Prosecution Agreement or a Non-Prosecution Agreement.
Violations of Foreign Corrupt Practices Act can result in significant financial penalties. In 2020, the average sanction for a FCPA violation is $293,824,428.
Criminal Penalties of Foreign Corrupt Practices Act
Foreign Corrupt Practices Act is punishable by up to 20 years in prison. The exact sentence will depend on the calculations of the U.S. Sentencing Guidelines including any enhancements or reductions, as well as the individual nature and characteristics under 18 U.S.C. 3553(a). Furthermore, criminal prosecutions of FCPA violations are subject to monetary penalties as explained below:
- Anti-bribery provisions are subject to a fine up to $2 million dollars for corporations and $250,000 for individuals for each violation. In total, a corporation may be fined up to $25 million dollars for FCPA violations and an individual may be fined up to $5 million dollars.
- Additionally, under 18 U.S.C. 3571(d) higher fines may be imposed, as that provision allows for fines up to twice the criminal gains.
Civil Penalties of Foreign Corrupt Practices Act
Both the U.S. Department of Justice and U.S. Securities and Exchange Commission are able to impose civil penalties for violations of FCPA. For violations of anti-bribery provisions, corporations and business entities are subject to a civil penalty up to $16,000 per violation. Similarly, individuals including officers, directors, stockholders and agents of companies are subject to a ciil penalty up to $16,000 per violation. This penalty cannot be paid by their employer or principal.
For violations of the accounting provisions, the civil penalty is the greater of:
- Gross amount of the pecuniary gain as a result of the violation, OR
- Specified dollar limitation, which ranges from $7,500 to $150,000 for an individual and $75,000 to $725,000 for a corporate entity.
What Are Potential Defenses to Violations of FCPA?
Although each case is unique, these are some common defenses that can be raised to a Foreign Corrupt Practices Act Investigation, Civi Case or Prosecution:
1. Routine Governmental Action
Parts of Foreign Corrupt Practices Act do not apply to payments made to a foreign official, political party or party official for the purposes of facilitating or expediting payment for a routine governmental action.
2. Payment Made Under a Lawful Order
It is an affirmative defense to FCPA violations that the payment was made under a lawful order. That is, the payment was allowed under the written laws and regulations of the foreign country.
3. Payment Was a Bona Fide Business Expenditure
Another affirmative defense to violations of FCPA is that the payment, gift, offer or promise that was made is a reasonable and bone fide expenditure, such as travel, or lodging, which is directly related to:
- Promotion, demonstration, or explanation of products of services;
- Execution or performance of a contract with a foreign government or its agency.
4. Payments Made Under Duress
FCPA liability will not arise in situations involving true extortion or duress. That is, criminal intent cannot be inferred in payments made under the imminent threat of physical harm. However, mere economic coercion is not a defense to violations of Foreign Corrupt Practices Act.
What Is the Statute of Limitations for Violations of Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act does not specify the applicable statute of limitations. Accordingly, the five year statute of limitations from 18 U.S.C. Section 3282 applies. However, five year statute of limitations can be extended in two ways:
- The Government can seek permission from the Court pursuant to 18 U.S.C. 3292 to suspend the statute of limitations for up to three years to obtain discovery from a foreign country, AND
- The Companies may voluntarily enter into a tolling agreement.
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