Foreign Corrupt Practices Act.

AuthorBhachu, Amarjeet S.
PositionTenth Survey of White Collar Crime
  1. 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 invoked the provisions of the FCPA in a number of cases, violations of the FCPA have generally constituted 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 anti-bribery provisions that prohibit certain types of payments to foreign officials, to political parties or their officials, or to intermediaries who might make such payments."

    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 accounting provisions of the FCPA impose two major requirements: (1) they 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) they mandate 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 detail" and "reasonable assurances" were defined by the adoption of the "prudent man" standard.(21) Under this standard, "reasonable detail" and "reasonable assurances" 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 clarify the intent of the Act, Congress added section 78m(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)

      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.(33) The provisions also prohibit the indirect or third-party bribery of foreign officials, political parties, or candidates.(34) Domestic concerns and issuers are prohibited from using the mail or interstate commerce "corruptly in furtherance of an offer or payment of money or anything of value to a `foreign official.'"(35) Further, they are prohibited from giving or promising to give anything of value to foreign officials or foreign political parties to influence any act within their "official capacity"(36) or to induce foreign officials to violate their "lawful duty."(37) These terms are similar to those found in the domestic bribery statute.(38)

      C Intent

      Under the FCPA, a firm or individual will be held criminally liable if it makes payments to third parties "while knowing" that the payments will be used by the third party as bribes or for the purposes contrary to the intent of the FCPA.(39) Under this standard, criminal liability applies only to firms and individuals who act knowingly.(40)

      The "knowing" standard is intended to cover those corporate officials who fail to take action when reasonable signs of a FCPA violation exist.(41) The legislative history makes clear that the required state of mind for this type of offense includes a "`conscious purpose to avoid learning the truth.'"(42) "Thus the `knowing' standard covers both prohibited action taken with `actual knowledge' of...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT