Foreign Corrupt Practices Act.

• Author: Brewster, Hal
• Position: I. Introduction into IV. Penalties, p. 1171-1195 - Thirtieth Annual Survey of White Collar Crime

1. INTRODUCTION II. ACCOUNTING PROVISIONS A. Elements of the Accounting Provisions 1. Covered Parties 2. Record-Keeping 3. Internal Controls B. Control Person Liability C. Criminal Liability D. Related SEC Rules III. ANTI-BRIBERY PROVISIONS A. Elements of the Anti-Bribery Provisions 1. Covered Parties 2. Nexus with Interstate Commerce 3. Anything of Value 4. Knowingly, Corruptly, Willfully 5. Foreign Official 6. Obtaining or Retaining Business B. Permissible Payments and Affirmative Defenses 1. Grease Payments Exception 2. Affirmative Defenses C. Enforcement 1. Formal Regulatory Enforcement 2. Advisory Guidelines and "No-Action" Letters 3. Private Enforcement a. FCPA-Related Civil Litigation b. Voluntary Disclosures to Enforcement Agencies IV. PENALTIES A. Criminal Penalties 1. Individuals 2. Corporations B. Additional Penalties 1. Civil Penalties 2. Government Procurement Sanctions 3. Deferred and Non-Prosecution Agreements V. GLOBAL ANTI-CORRUPTION NETWORK A. World-Wide Anti-Bribery Efforts 1. Organization for Economic Cooperation and Development Convention 2. The United Nations Convention Against Corruption B. Regional Anti-Bribery Efforts 1. Inter-American Convention Against Corruption 2. European Conventions and Domestic Law a. European Union b. Council of Europe c. United Kingdom 3. Africa 4. Asia C. International Financial and Development Anti-Bribery Initiatives VI. FCPA Corporate Compliance Programs A. Benefits of Compliance Programs B. Designing and Implementing Corporate Compliance Programs C. Ensuring FCPA Compliance in Dealings with Third Parties VII. Recent and Anticipated Developments A. Enforcement Trends 1. Enforcement and Penalties Statistics 2. Trends in Enforcement Methods B. Role of Compliance Programs in FCPA Enforcement I. INTRODUCTION

   In 1977, Congress amended the Securities Exchange Act of 1934 ("Exchange Act") and enacted the Foreign Corrupt Practices Act ("FCPA"). (1) The FCPA's passage followed an extensive Securities and Exchange Commission ("SEC") investigation and voluntary disclosure program during the 1970s, which revealed that U.S. companies had made millions of dollars in bribes to secure business from foreign officials. (2) Seeking to restore public confidence in the business community, Congress passed the FCPA, outlawing bribery and imposing accounting requirements on certain securities issuers. (3) These restrictions, however, competitively disadvantaged U.S. businesses operating in international markets and competing against foreign businesses that were unrestrained by similar provisions. (4) Congress took this issue into consideration and twice amended the FCPA, first in 1988 ("1988 Amendments") and then again in 1998 ("1998 Amendments"). (5) These amendments created affirmative defenses (6) and expanded the FCPA's reach to impose liability on some foreign nationals in an attempt to encourage international anti-corruption efforts and to create a level playing field for business. (7)

   Today, the FCPA regulates international corruption using two approaches: the accounting provisions and the anti-bribery provisions. First, the accounting provisions require regular reports to the SEC, mandate maintenance of accurate records, and require the establishment of internal compliance controls. (8) These provisions apply to both domestic and foreign companies traded on U.S. stock exchanges. (9) Second, the FCPA's anti-bribery provisions criminalize the transfer of money or other gifts to foreign officials and political actors with the intent to influence or obtain or retain business. (10) The anti-bribery prohibitions apply to conduct by securities issuers, U.S. citizens and entities, and certain foreign nationals and entities. (11)

   For those subject to the FCPA, understanding the law has become increasingly important due to recent trends towards increased enforcement and increased fines. While the SEC and the U.S. Department of Justice ("DOJ") jointly averaged only three prosecutions annually between 1978 and 2000, (12) the number of enforcement actions increased steadily until 2010, when there was a peak of 74 total actions with penalties of a record $1.7 billion. (13) Although the number of enforcement actions has since decreased, the 23 actions in 2012 and 27 actions in 2013, with combined penalties of $260 million and $720 million respectively, (14) demonstrate continued efforts to curb international corruption. Attempts to further strengthen the FCPA include the SEC's creation of an FCPA Unit in 2010, which enabled the agency to become "more proactive" in FCPA enforcement." (15)

   Developments in the substantive law, including the broad interpretation of FCPA jurisdiction to encompass conduct occurring entirely outside U.S. territory, (16) more robust international cooperation, (17) and the provision of incentives to companies to disclose employee violations, have aided enforcement efforts and increased compliance. (18)

   This Article outlines (I) the development of the FCPA, the elements of (II) the accounting provisions and (III) the anti-bribery provisions, including available defenses, and (IV) the criminal and civil penalties. Additionally, the Article discusses (V) international anti-bribery efforts and (VI) effective FCPA corporate compliance programs, including resources for in-house counsel seeking consultation on the design and implementation of compliance programs. Finally, the Article surveys (VII) recent and anticipated developments in FCPA enforcement.

2. ACCOUNTING PROVISIONS

   The FCPA amended the Exchange Act to impose record-keeping and internal control requirements on securities issuers, as codified in 15 U.S.C. [section] 78m(b)(2) and (b)(5). (19) This marked a major shift in securities law by treating inaccurately recorded payments as potential accounting violations regardless of the materiality to investor decisions. (20) Whereas the imposition of criminal liability for accounting violations has been limited, most enforcement of the accounting provisions has been through civil actions filed by the SEC. (21)

   This section outlines (A) the elements of the accounting provisions; (B) control person liability; (C) criminal liability; and (D) related SEC rules.

   A. Elements of the Accounting Provisions

   Element of the accounting provisions include (1) the covered parties, (2) the record-keeping, or "books and records," provision, and (3) the internal controls provision.

   1. Covered Parties

      The FCPA accounting provisions apply to "issuers" under the Exchange Act, (22) which includes publicly held companies and companies that hold American Depository Receipts. (23) An "issuer" either has securities registered with the SEC under [section] 12 of the Exchange Act (24) or is required to file...