Foreign Corrupt Practices Act.

• Author: Nilsson, Michael D.
• Position: Eleventh Survey of White Collar Crime

1. INTRODUCTION II. ACCOUNTING PROVISIONS

   1. Affected Parties

   2. Elements of the Offense

      1. Record-keeping

      2. Internal Controls

   3. Intent

   4. Affirmative Defenses

   5. Enforcement III. ANTI-BRIBERY PROVISIONS

   1. Affected Parties

   2. Elements of the Offense

   3. Intent

   4. Permissible Payments and Defenses.

      1. Routine Government Action

      2. Affirmative Defenses

   5. Enforcement

      1. Prosecution

      2. Attorney General's Guidelines and Opinions IV. PENALTIES

   1. Federal Sentencing Guidelines

   2. Additional Penalties

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) TO date, relatively few actions have been brought under the FCPA.(6) However, several recent high profile cases suggest that the SEC and the Department of Justice are more aggressively investigating and prosecuting under the FCPA.(7)

   The FCPA is organized around accounting and anti-bribery provisions. The accounting provisions concern: (1) record-keeping, (2) internal controls, (3) intent requirements, (4) affirmative defences, and (4) enforcement. The anti-bribery provisions concern: (1) definition of bribery, (2) intent requirementS, (3) permissable payments and defences, and (4) enforcement. Penalties under the FCPA are governed both by Federal Sentencing Guidelines and other statutory provisions.

2. ACCOUNTING PROVISIONS

   The FCPA amends the Securities Exchange ACt ("Exchange ACt")(8) to add record-keeping and disclosure requirements to those already subject to the Exchange Act.(9)

   1. Affected Parties

      The accounting provisions apply to issuers,(10) which are all companies which must register with the SEC under [sections] 12 of the Exchange act(11) and file reports under [sections] 15(d) of the Exchange Act.(12) The accounting provisions apply whether or not issuers engage in foreign activities.(13)

   2. Elements of the Offense

      1. Record-keeping

         The first major requirement of the accounting provisions is that all issuers must "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.(14) The term "reasonable detail" is defined by the adoption of the "prudent man" standard,(15) to mean a "level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs."(16)

         In practice, the record-keeping provisions are used to prevent three types of improprieties: (1) failure to record improper transactions at all, (2) falsification of records to cover up improper transactions, and (3) the creation of records which are quantitatively correct, but which fail to specify the qualitative aspects of a transaction which might reveal the true purpose of a particular payment.(17) In short, records must include information which would call the SEC's attention to any possible impropriety.(18) These provisions allow the SEC both to avoid defences such as lack of materiality of the undisclosed activity, and to step in where there are inadequate and/or archaic accounting systems.(19)

      2. Internal Controls

         The accounting provisions also require issuers to create a system of internal accounting controls which provide reasonable assurances that transactions are properly authorized.(20) The term "reasonable assurances" is defined using the same standard as is reasonable detail in the record-keeping provisions. The internal controls provision is designed to prevent unauthorized and/or unrecorded transactions.(21)

         The SEC has specified several factors it considers when deciding if a system of internal controls is or is not adequate.(22) These include (1) the role of the board of directors,(23) (2) communication of corporate procedures and policies,(24) (3) assignment of authority and responsibility,(25) (4) competence and integrity of personnel,(26) (5) accountability for performance and for compliance with policies and procedures,(27) and (6) objectivity and effectiveness of the internal audit function.(28) One commentator notes that the SEC has in some cases insisted that only an audit committee set up by the board of directors can exercise "adequate control."(29)

   3. Intent

      To be found 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."(30) This provision was added in 1988 to address the seemingly unlimited liability that the accounting provisions placed on corporate interests.(31) However, the term "knowing" has been construed to include conscious attempts not to know.(32)

   4. Affirmative Defenses

      The drafters of the FCPA included several provisions to ensure that everyday accounting deficiencies would not run afoul of the Act. Under [sections] 78m(b)(4), no criminal liability will be imposed for technical or insignificant account errors.(33) Further, [sections] 78m(b)(6) provides a defense for issuers who own less than fifty percent of a business concern.(34) 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.(35)

   5. Enforcement

      Because the accounting provisions are codified in the Exchange Act, the SEC is responsible for the enforcement of those provisions.(36) The SEC has brought enforcement actions of the accounting provisions both in cases involving actual foreign bribes and in domestic transactions.(37)

3. ANTI-BRIBERY PROVISIONS

   The FCPA also provides anti-bribery provisions that prohibit certain types of payments to foreign officials, to parties of their officials, or to intermediaries who might make such payments.(38)

   1. Affected Parties

      The anti-bribery provisions are divided into two sections. The first prohibits the bribery of foreign officials by issuers(39) and reporting firms under the jurisdiction of the SEC.(40) The second places substantially the same constraints on domestic concerns, including any U.S. citizen, national, or resident, or any business entity organized under U.S. law.(41)

   2. Elements of the Offense

      As noted earlier, the two anti-bribery provisions place largely the same restrictions on issuers and domestic concerns. Professor Cruver organizes the provisions into the following five elements:(42) (1) the use of an instrumentality of interstate commerce(43) in furtherance of (2) a payment or an offer to pay(44) something of value,(45) (3) to a foreign official, political party, or political candidate,(46) (4) for the corrupt(47) purpose of inducing the official to act or refrain from acting(48) (5) to assist the company in obtaining, retaining or directing business.(49)

   3. 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.(50) Under this standard, criminal liability applies only to firms and individuals who act knowingly.(51)

      Much like in the accounting provisions, the "knowing" standard in the anti-bribery provisions is intended to cover those corporate...