Foreign Corrupt Practices Act.

Author:Brewster, Hal
Position:Continuation of IV. Penalties through VII. Recent and Anticipated Developments, with footnotes, p. 1195-1221 - Thirtieth Annual Survey of White Collar Crime
 
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  1. Criminal Penalties

    1. Individuals

      Individuals who willfully violate the FCPA accounting provisions may be fined up to $5,000,000, or twice the gain or loss caused by the violation under the alternative fine structure, and imprisoned for up to twenty years. (161) Among other factors, the Guidelines increase sentences for fraudulent offenses that were substantially committed from outside the United States; (162) substantially caused economic harm to a financial institution, publicly traded company, or large company; (163) or involved corporate fiduciaries violating U.S. securities or commodities trading laws. (164)

      Under the FCPA penalty provisions, individuals who willfully violate the Act's anti-bribery provisions may be fined up to $250,000, or twice the gain or loss caused by the violation under the alternative fine structure, and five years in prison. (165) Sentences for individuals that violate the anti-bribery provisions are determined under section 2B4.1 of the Guidelines, which states sentences may be enhanced if, among other factors, the bribe or benefit conferred exceeded $2,000, (166) the individual received over $1,000,000 from one or more financial institutions, (167) or the bribe otherwise jeopardized the safety and soundness of a financial institution. (168)

    2. Corporations

      Corporations or other business entities that willfully violate the FCPA's accounting provisions may be fined up to $25,000,000 under the Act's penalty provisions or up to twice the gain or loss caused by the violation under the alternative fine structure. (169) Corporate violations of the FCPA's anti-bribery provisions carry a maximum fine of $20,000,000 under the Act's penalty provisions (170) or up to twice the gross gain or loss to another under the alternative fine structure. (171) Sentences are determined within these statutory maxima under chapter eight of the Guidelines, which governs corporate criminal liability generally. (172) Under the Guidelines, an organization may receive a reduced fine for having an effective compliance program designed to prevent violations and foster cooperation in an investigation, (173) voluntarily disclosing the violation, (174) and cooperating in an investigation. (175) However, an organization's fine may be increased if, among other factors, high-level personnel participated in or tolerated the corrupt activity. (176)

      Corporations have routinely settled FCPA charges with the DOJ by paying alternative fines that exceed the statutory maximum set forth in the FCPA itself. In 2008, for example, Siemens AG and its foreign subsidiaries were assessed $450 million in criminal fines, which remains the largest criminal FCPA penalty to date. (177) A year later, Kellogg Brown & Root LLC settled with the DOJ by paying the second largest criminal FCPA fine: $402 million. (178) While some corporations may choose to enter into a Deferred Prosecution Agreement (DPA) or a Non-Prosecution Prosecution Agreement (NPA), many still face large fines. For example, Total, S.A. paid $398.2 million and Weatherford International Limited, paid over $152 million. (179) Of the nine corporations charged with FCPA violations in 2013, not one paid less than $1 million combined to the DOJ and SEC. (180)

  2. Additional Penalties

    1. Civil Penalties

      Violations of the anti-bribery provisions can result in civil penalties of up to $10,000 for both individuals and corporations in civil actions brought by the SEC. (181) Corporations cannot indemnify civil fines imposed against its officers, employees, or other agents. (182) For violations of either set of FCPA provisions, the SEC may also utilize its general enforcement authority under the Exchange Act to impose civil penalties of up to $500,000 for corporations and $100,000 for individuals; (183) order accountings and disgorgement of illegally obtained funds; (184) or seek injunctions (185) or administrative cease-and-desist orders (186) barring current or future violations of the FCPA.

      Disgorgement is an equitable remedy authorized by the Securities and Exchange Act of 1934 that allows the SEC to force companies to give up something on demand or by legal compulsion, mainly illegal profits, and it is the primary reason civil fines increase beyond the FCPA's $10,000 limit. (187) The SEC first sought disgorgement as a remedy in 2004 against ABB Ltd., which agreed to disgorge $5.9 million in profits derived from illegally obtained government contracts. (188) Since then, companies have paid large disgorgement sums to the SEC. For example, Siemens paid $350 million in disgorgements in 2008, which remains the highest disgorgement amount paid. In 2013, Total S.A. paid $153 million in disgorgement. (189)

    2. Government Procurement Sanctions

      Corporations and individuals that violate the FCPA may be debarred or suspended from doing business with federal agencies. (190) Indictment is sufficient grounds for suspension, which temporarily excludes the party from government contracting pending the conclusion of investigation or prosecution of the wrongdoing. (191) By contrast, debarment may only occur upon civil judgment or criminal conviction. (192) Although each agency determines on its own whether to debar or suspend an FCPA offender, one such prohibition generally has a "government-wide effect" that bars the individual or corporation from transacting with all other federal agencies. (193) Agency sanctions also may include denials of export privileges by the State Department and debarment by Multilateral Development Banks, including the World Bank. (194)

    3. Deferred and Non-Prosecution Agreements

      With increasing frequency, corporations that have violated the FCPA have entered into deferred prosecution agreements ("DPAs") and non-prosecution agreements ("NPAs") with the DOJ and SEC. In these, the corporations agree to perform a variety of actions--including paying substantial fines, disgorging profits, implementing internal compliance programs and monitorships, and generally cooperating with any ongoing investigation--in exchange for settlement of FCPA charges. (195) Although the SEC previously refrained from entering these contractual arrangements, in 2010 the Commission shifted course and announced its intention to enforce securities violations through alternative "cooperation tools" such as DPAs and NPAs. (196) The SEC entered into its first DPA in May 2011, in which the Commission and the DOJ settled FCPA allegations involving Tenaris S.A.'s alleged bribery of Uzbeki employees of a state-owned utility plant. (197) In 2013, the SEC entered its first NPA with Ralph Lauren over its subsidiary's bribes to Argentine officials and the DOJ utilized DPAs or NPAs for all of its corporate enforcement actions. (198)

      1. GLOBAL ANTI-CORRUPTION NETWORK

      In the two decades following the passage of the FCPA, no other country enacted a similar piece of anti-bribery legislation. (199) That changed in 1997 when the international community began to take substantial steps to criminalize corruption in transnational commercial dealings. (200) Now U.S. corporations and individuals transacting abroad must not only be aware of the FCPA but also of other international regulatory regimes. On the global level, the Organization for Economic Cooperation and Development ("OECD") and the U.N. have implemented international conventions targeting corruption that bind ratifying member states. (201) Regional organizations have also established multi-lateral anti-corruption efforts in Africa, Asia, Europe, and Latin America. (202)

  3. World-Wide Anti-Bribery Efforts

    1. Organization for Economic Cooperation and Development Convention

      In 1997, the OECD, a group of the world's largest economies, adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ("OECD Convention"). (203) The OECD Convention entered into force in 1999, and has been ratified by all thirty-four OECD member states as well as seven nonmember countries. (204) The primary objective of the OECD Convention is to level the playing field for multinational corporations competing in global markets by encouraging states to combat bribery of foreign public officials in similar ways. (205) In particular, signatories are obliged to criminalize the bribery of foreign officials, (206) outline criminal sanctions for violations, (207) strengthen accounting laws, (208) and cooperate with other signatories in investigating and extraditing those charged with bribery offenses. (209)

      Despite its apparently broad support and the OECD's strong international reputation, the OECD Bribery Convention lacks full commitment and implementation by many member states, most notably China, India, and Russia. (210) Furthermore, the Convention allows for flexibility in implementation between party-countries. (211) For example, the OECD Bribery Convention does not criminalize the same scope of conduct as the FCPA. Most notably, the Convention's definition of "foreign official" permits bribes to political candidates and other nonofficial political figures that influence government. (212)

    2. The United Nations Convention Against Corruption

      In 2003, the United Nations adopted the Convention Against Corruption ("UNCAC", (213) which has been called "the most comprehensive corruption treaty in the world." (214) Like the FCPA and OECD Convention, the UNCAC's antibribery provisions call on member states to criminalize the bribery of foreign public officials; (215) implement record keeping, accounting, and auditing rules for corporations; (216) and enact sanctions to enforce its terms. (217)

      The UNCAC's proscribed conduct goes beyond the FCPA and OECD Convention restrictions in three important ways. (218) First, the UNCAC prohibits bribes to national as well as foreign officials. (219) Second, in addition to prohibiting the offering and tendering of bribes--so-called "supply side" bribery--the UNCAC also prohibits "demand-side" bribery of...

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