Background to the FCPA
Corruption is a pressing issue for global businesses operating all around the world. This is especially prevalent for corporations doing businesses in developing and third world countries with political instability. More than 400 companies have admitted to making unauthorised payments to foreign government officials or politicians in the United States. These measures are commonly undertaken to allow the companies to be on the favourable side of foreign government policies or to ensure that the government authorities discharge their duties properly.
In light of these problems, the Foreign Corrupt Practices Act of 1977 ('FCPA') was enacted to legislate against payments to foreign government officials to assist in obtaining or retaining business dealings. This Act affects multinational U.S corporations seeking to do business in foreign countries and also any foreign firms operating in the U.S. It is therefore imperative for these firms to be familiar with the FCPA to avoid attracting strict investigation and heavy penalties.
Applicability of FCPA
The FCPA applies to any U.S or foreign corporation that has a class of securities registered under the Securities and Exchange Act of 1934, any citizen of the United States and business entity organized under the laws of the United States or having its principal place of business in the United States or a territory, possession or commonwealth of the United States.
Prohibitions under the FCPA
A person or organization would be guilty of engaging in a prohibited trade practice under the FCPA if:
- an offer, payment, promise to pay or authorization of any payment of money or anything of value is made;
- to any foreign official, foreign political party or candidate or any other person knowing that the payment or gift will be offered to a foreign official;
- with corrupt intent;
- with the purpose of:
-
- influencing any act or decision of the party
- inducing the party to do or omit any act in violation of his lawful duty
- securing an advantage
- inducing the party to
- use his influence a decision of a foreign government;
- in order to assist in obtaining or retaining business for or directing business to any person.
Includes any officer or employee of a foreign government or governmental agency or of a public international organization. Any dealings with these parties, which include giving nonmonetary benefits for a corrupt motive, would attract the sanction of FCPA. However, a person can be found guilty even if the corrupt act is not actually executed. This is so as long as an offer or promise of a gift is made with corrupt motive. Under the FCPA, the term "obtaining or retaining business" is not restricted to mere award or renewal of a contract. Moreover, the business obtained does not have to be related to the foreign government.
Penalties for Violation of FCPA
Criminal
A violation of the FCPA will attract a penalty of up to US$2 million for business entities and US$100,000 for individuals. In the case of wilful violations, the maximum fine may be increased to US$25 million and US$5 million for corporations and individuals respectively. Individuals also face up to 5 years of imprisonment or up to 20 years for wilful violations. years for wilful violations. Furthermore, under the Alternative Fines Act, the fines may be increased to twice the gain obtained by the recipient or twice the loss to any other person.
Civil
The Department of Justice ('DOJ') and the Securities and Exchange Commission ('SEC') may also bring a civil action for a fine of up to US$10,000 against the firm for any violation of antibribery provision. The DOJ and SEC may also seek a court order to enjoin any violations of the FCPA.
Others
A firm in violation of the FCPA may be barred from doing business with the Federal government and other governmental agencies, excluded from federal agency programs, suspended from the securities industry and be deemed ineligible for export licenses. Other additional private causes of action will also be taken against the firm under the Racketeer Influenced and Corrupt Organizations Act ('RICO') by third parties (for example, a competitor may claim that the bribery gave the defendant windfall contract).
Exceptions and Defences under FCPA
Facilitating payments for routine governmental actions
Example of such transactions listed in the FCPA include: obtaining permits, licenses, processing governmental papers, providing police protection, mail pick-up delivery, providing phone service, power and water supply. These payments must relate to the performance of routine and non-discretionary governmental functions. It does not encompass any decision by a foreign official to award a new business or continue business with any party.
Lawful payments
A party charged with violating the FCPA may assert as a defence that the payments made were in accordance with the written laws and regulations of the foreign country. However the party must first ascertain that the alleged payment was indeed lawful under the written laws of the foreign country and discharge this burden at first instance.
Bona fide expenditures
A party charged with violating the FCPA may also prove that the alleged transaction was a bona fide expenditure. An example of this would be travel and lodging expenses incurred in connection with the business dealings. However any expenditure that is intended to influence the foreign official's decision would amount to violation of the FCPA.
Governmental Advisory Opinion for Future Conduct
Companies or individual seeking advice for future business conduct may seek clarification via the Foreign Corrupt Practices Act Opinion Procedure to obtain a statement of the present enforcement intentions under the FCPA or an opinion from the Attorney General in response to a specific inquiry within 30 days of request. The opinions issued by the AG are published on the DOJ's FCPA website.
Red Flags for Corporations and Individuals
Parties may be held liable under the FCPA even if they have no actual knowledge that illegal payments are being made. The definition of "knowledge" under the FCPA includes situations where the party is aware of a high probability of the existence of such circumstance. Thus a party would be liable if he is reckless in making a transaction in circumstances which indicate that money is used for corrupt objectives. This is notwithstanding that the party did not have actual knowledge of the corrupt payment. As such, the DOJ has put forward guidelines to help companies and individuals identify indicators for any FCPA violation. Clients should take note when
- the parties they are dealing with make irregular payment arrangements;
- their business are located in countries with a reputation for corruption;
- parties make request to transfer commissions to multiple bank accounts;
- their foreign business partners have a lack of transparency to their books and records;
- when a particular foreign government official insists that a third party be hired and paid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
