INTRODUCTION II. ACCOUNTING PROVISIONS A. Elements of the Accounting Provisions 1. Covered Parties 2. Record-keeping 3. Internal Controls B. Criminal Liability C. 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 C. Legislative Developments 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 include some foreign nationals in an attempt to encourage international anticorruption efforts and to foster a level business playing field. (7)
Today, the FCPA covers two situations. First, the accounting provisions require regular reports to the SEC, mandate accurate record maintenance, and require the creation of internal compliance controls. (8) These provisions apply to 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 for the purpose of influence or obtaining or retaining business. (10) The anti-bribery prohibitions apply to activities 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. Between 1978 and 2000, the SEC and the U.S. Department of Justice ("DOJ") together averaged only three prosecutions per year. (12) But since 2000 a trend towards greater enforcement has emerged: both the SEC and DOJ have each brought double-digit enforcement actions in the last five years, with a peak of seventy-four actions between them in 2010. (13)
Fines have also generally increased since 2002, with penalties totaling a record $1.7 billion in 2010. (14) However, the most recent years have again proved to be more modest, with approximately $652 million in combined penalties between the DOJ and SEC in 2011 and $260 million of combined penalties in 2012. (15)
Taken together, these trends demonstrate that regulators are intent on preventing a return to an earlier era when the FCPA was widely disregarded and rarely enforced. Attempts to further strengthen the FCPA include the SEC's creation of a FCPA Unit in 2010, which has allowed the agency to become "more proactive" in FCPA enforcement." (16)
Developments in the substantive law have also created incentives to comply. For instance, regulators continue to interpret the FCPA's jurisdiction broadly to encompass conduct occurring entirely outside U.S. territory. (17) More robust international cooperation regarding anti-bribery action has also aided domestic enforcement efforts. (18) Finally, companies are often incentivized to disclose employee violations to obtain favorable treatment. (19)
This Article outlines the development of the FCPA, its elements, available defenses, and possible civil and criminal penalties. Additionally, the Article discusses effective FCPA corporate compliance programs and provides resources for in-house counsel seeking advisement from FCPA compliance consultants. Finally, the Article surveys recent and anticipated developments in FCPA enforcement.
The FCPA amended the Exchange Act by imposing record-keeping and internal control requirements on securities issuers. (20) This represented a major shift in securities law by treating inaccurately recorded payments as potential accounting violations regardless of materiality. (21) The accounting provisions and accompanying standard for imposing criminal liability are codified at 15 U.S.C. [section] 78m(b)(2) and (b)(5). (22) Traditionally, however, most enforcement of the accounting provisions has been through civil actions filed by the SEC. (23)
Elements of the Accounting Provisions
The FCPA accounting provisions apply to publicly held companies that are "issuers" under the Exchange Act, (24) including companies that hold American Depository Receipts. (25) Issuers either have securities registered with the SEC under [section] 12 of the Exchange Act (26) or are required to file periodic reports under [section] 15(d) of the Exchange Act. (27) Additionally, issuers owning more than fifty percent of foreign subsidiary stock are required to ensure that the subsidiary complies with the accounting provisions. (28) If classified as an issuer, a corporation must satisfy the accounting provisions whether or not it engages in foreign operations or offers bribes. (29)
The record-keeping provisions require all issuers to "make and keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." (30) The requirement applies to records in a variety of forms, (31) regardless of their materiality to investor decisions. (32) "Reasonable detail" is a "level of detail and degree of assurance that would satisfy prudent officials in the conduct of their own affairs." (33)
The record-keeping provisions serve three primary goals: (i) ensuring that illegal transactions are reported; (ii) preventing the falsification of records to conceal illegal transactions; and (iii) promoting the correct characterization of all transactions. (34) By creating affirmative duties in all transactions, the regulations facilitate the SEC's detection of business improprieties. (35)
The FCPA accounting provisions also require issuers to create internal controls that reasonably ensure transactions are properly authorized. (36) Congress intended the internal controls provision to ensure that issuers use accepted accounting methods when recording economic transactions. (37)
Compliance with the regulation depends on the overall reasonableness of the internal controls. (38) The SEC considers several factors in evaluating such systems: (39) (i) the role of the board of directors; (ii) communication of corporate procedures and policies; (iii) assignment of authority and responsibility; (iv) competence and integrity of personnel; (v) accountability for performance and compliance with policies and procedures; and (vi) objectivity and effectiveness of the internal audit function. (40) If a board of directors creates an audit committee, the committee must reasonably assure through internal accounting oversight that FCPA provisions are followed. (41)
To be criminally liable under either of the accounting provisions, an individual must "knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record or account." (42) Although the mens rea is designed to reduce potential liability for inadvertent accounting violations, (43) willful blindness (i.e., conscious avoidance) satisfies the intent requirement. (44)
Recent enforcement actions indicate individuals designated "control persons" may be liable for accounting violations that occurred without their knowledge or participation. (45) This theory surfaced in a settled civil enforcement action against corporate officers at Nature's Sunshine Products, Inc. (46) Under the control person theory, individuals with "supervisory responsibilities for the senior management and policies" are liable for failing to "adequately supervise" personnel overseeing record-keeping and internal controls. (47) Regulators, however, have not yet used the control person theory to establish criminal liability.
The FCPA accounting provisions contain two...
Foreign Corrupt Practices Act.
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