Foreign Corrupt Practices Act.

• Author: Jadwin, Pamela J.
• Position: Ninth Survey of White Collar Crime

1. Introduction 677 II. Elements of the Offense 678 A. Accounting Provisions 679 B. Anti-Bribery Provisions 680 C Intent 681 III. Permissible Payments and Defenses 683 A. Routine Governmental Action 683 B. Affirmative Defenses 683 IV. Enforcement 684 A. Prosecution 684 B. Attorney General's Guidelines and Opinions 685 C. Penalties 685 1. Federal Sentencing Guidelines 685 2. Additional Penalties 686 I. Introduction

   The Foreign Corrupt Practices Act ("FCPA")(1) was enacted in 1977 as a response to a series of corporate bribery scandals during the 1970's involving foreign government officials.(2) Following inquiries by the United States Senate(3) and the Securities and Exchange Commission ("SEC"),(4) Congress, expressing concern that disclosures of corrupt corporate practices seriously undermined public confidence in the business community and tarnished America's image abroad, enacted the FCPA.(5)

   The Act regulates businesses in two separate categories, issuers and domestic concerns:

   An issuer is defined as any entity having a class of securities registered under Section 12 of the 1934 Exchange Act, or which is required to file reports under Section 15(d) of the same act. A domestic concern includes individuals who are citizens, nationals or residents of the United States, as well as corporations, partnerships, associations, joint-stock companies, business trusts, unincorporated organizations, or sole proprietorships having their principal place of business in the United States or organized under the laws of a state, territory, or commonwealth of the United States.(6)

   The FCPA can be broken down into seven different provisions: (1) accounting, (2) anti-bribery, (3) intent requirements, (4) permissible payments, (5) affirmative defenses, (6) enforcement mechanisms, and (7) penalties. Although the Department of Justice has initiated a number of cases under the FCPA, for the most part these have only involved minor counts in larger prosecutions.(7)

2. Elements of the Offense

   The FCPA addresses the problems of foreign corrupt practices in a two-pronged manner: First, it sets up corporate accounting provisions designed to serve as indirect internal deterrents. Second, it provides antibribery provisions that prohibit certain types of payments to foreign officials, to political parties or their officials, or to intermediaries who might make such payments.(8)

   1. Accounting Provisions

      The FCPA amends the Securities Exchange Act ("Exchange Act")(9) to add recordkeeping and disclosure requirements to those already subject to the Exchange Act.(10) All companies which must register with the SEC under section 12 of the Exchange Act(11) and file reports under section 15(d) of the Exchange Act(12) must observe the accounting provisions(13), whether or not they engage in foreign activities.(14) Because the accounting provisions are codified in the Exchange Act, the SEC is responsible for the enforcement of these provisions.(15) Though the FCPA's anti-bribery provisions, discussed below, apply equally to individuals and companies(16), no recordkeeping requirements apply to domestic concerns.

      The FCPA imposes two major requirements to curtail foreign corrupt practices: (1) It sets up accounting provisions which 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"(17); and (2) it mandates corporations to create a system of internal accounting controls which provide "reasonable assurances" that transactions are properly authorized.(18)

      Under section 78m(b)(4), no criminal liability will be imposed for technical or insignificant accounting errors.(19) To be found criminally liable, an individual must "knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book record or account."(20)

      The terms "reasonable assurances" and "reasonable detail" were defined by the adoption of the "prudent man" standard. Under this standard, "reasonable assurances" and "reasonable detail" are defined to mean a "level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs."(22)

      To further define the intent of the Act, Congress added section 78(m)(b)(6), which provides a defense for issuers who own less than fifty percent of a business concern.(23) Such issuers are said to be discharged from responsibility for the violations of a subsidiary if the larger corporate entity used "good faith" in its attempts to encourage compliance with the FCPA accounting controls.(24)

   2. Anti-Bribery Provisions

      The FCPA establishes anti-bribery provisions which criminalize certain payments made to foreign officials.(25) The anti-bribery provisions apply not only to companies which must register under the Exchange Act(26) but also to domestic concerns, which include any American company or individual.(27)

      The anti-bribery section of the FCPA consists of the following provisions for both issuers and domestic concerns: Prohibition; Exception for routine governmental action; Affirmative defenses; Guidelines by the Attorney General; Opinions of the Attorney General; and Definitions.(28) Prohibitions for domestic concerns contain two additional sections entitled Injunctive Relief and Penalties.(29)

      This part of the article discusses the most important aspects of each bribery provision.(30)

      The anti-bribery provisions are divided into two sections. The first prohibits the bribery of foreign officials by issuers and reporting firms under the jurisdiction of the SEC.(31) The second section governs the same action by domestic concerns, including any U.S. citizen, national, or resident, and any business entity organized under U.S. law.(32)

      The amendments to prohibited foreign corrupt practices by issuers(33) and domestic concerns(34) are essentially the same. The legislature intended that the conforming changes reflected in the 1988 amendments to the FCPA "have the same meaning and impact" in each section.(35)

      In all cases, the FCPA explicitly prohibits domestic firms from directly bribing a foreign official, foreign political party, party official or candidate in order to obtain or retain business.(36) The provisions also prohibit the indirect or third-party bribery of foreign officials, political parties, or candidates.(37) Domestic concerns and...