FOREIGN CORRUPT PRACTICES ACT

FOREIGN CORRUPT PRACTICES ACT

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1012

II. ACCOUNTING PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1015

A. Elements of the Accounting Provisions . . . . . . . . . . . . . . . . . 1016

1. Covered Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1016

2. Record-Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1017

3. Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1018

B. Control Person Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 1020

C. Criminal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1020

D. Related SEC Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1021

III. ANTI-BRIBERY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1022

A. Elements of the Anti-Bribery Provisions . . . . . . . . . . . . . . . . 1022

1. Covered Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1023

2. Qualifying Jurisdictional Acts . . . . . . . . . . . . . . . . . . . . 1023

a. Nexus with U.S. Interstate Commerce . . . . . . . . . . . 1024

b. Any Action Within or Outside U.S. Territory . . . . . . 1025

3. Anything of Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1027

4. Corruptly, Willfully, and Knowingly . . . . . . . . . . . . . . . 1028

5. Foreign Off‌icial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1029

6. Obtaining or Retaining Business . . . . . . . . . . . . . . . . . . 1031

B. Permissible Payments and Aff‌irmative Defenses . . . . . . . . . . 1032

1. Grease Payments Exception . . . . . . . . . . . . . . . . . . . . . . 1032

2. Local Law Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1033

3. Reasonable and Bona Fide Business Expenditure Defense 1034

C. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035

1. Formal Regulatory Enforcement . . . . . . . . . . . . . . . . . . 1035

2. Deferred and Non-Prosecution Agreements . . . . . . . . . . 1036

3. Voluntary Disclosures to Enforcement Agencies . . . . . . . 1037

4. Private Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040

5. Advisory Guidelines and “No-Action” Letters . . . . . . . . 1042

IV. PENALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043

A. Criminal Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

1. Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

2. Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045

B. Additional Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048

1. Civil Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048

2. Government Procurement Sanctions . . . . . . . . . . . . . . . . 1049

V. GLOBAL ANTI-CORRUPTION NETWORK . . . . . . . . . . . . . . . . . . . . . . . 1050

A. World-Wide Anti-Bribery Efforts . . . . . . . . . . . . . . . . . . . . . 1050

1011

1. Organization for Economic Cooperation and Development

Convention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1050

2. The United Nations Convention Against Corruption . . . . 1052

B. Regional Anti-Bribery Efforts. . . . . . . . . . . . . . . . . . . . . . . . 1052

1. European Conventions and Domestic Law . . . . . . . . . . . 1053

2. Other Anti-Bribery Conventions and Domestic Laws . . . 1054

VI. FCPA CORPORATE COMPLIANCE PROGRAMS . . . . . . . . . . . . . . . . . . . 1055

A. Benef‌its of Compliance Programs . . . . . . . . . . . . . . . . . . . . . 1056

B. Designing and Implementing Corporate Compliance Programs 1057

C. Ensuring FCPA Compliance in Dealings with Third Parties . 1060

VII. RECENT AND ANTICIPATED DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . 1062

A. Enforcement and Penalties Statistics . . . . . . . . . . . . . . . . . . 1062

B. Trends in Enforcement Methods . . . . . . . . . . . . . . . . . . . . . . 1064

C. The Future of FCPA Enforcement . . . . . . . . . . . . . . . . . . . . 1069

I. INTRODUCTION

In 1977, Congress amended the Securities Exchange Act of 1934 (“Exchange

Act”) and enacted the Foreign Corrupt Practices Act (“FCPA” or “the Act”).

1

The

FCPA’s passage followed an extensive Securities and Exchange Commission

(“SEC”) investigation and voluntary disclosure program in the 1970s, which

revealed that U.S. companies had paid hundreds of millions of dollars in bribes to

secure business from foreign off‌icials.

2

Corporate bribery hindered the markets

from operating eff‌iciently and eroded public conf‌idence in U.S. companies’ f‌inan-

cial integrity.

3

Seeking to restore public conf‌idence in the business community,

Congress passed the FCPA,

4

which regulates international corruption through two

sets of provisions: the accounting provisions and the anti-bribery provisions.

5

1. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494 (codif‌ied as amended at 15 U.S.C.

§§ 78dd-1, 78dd-2, 78dd-3, 78ff, 78m(b), (d)(1), (g)–(h)), amended by Foreign Corrupt Practices Act

Amendment of 1988, Pub. L. No. 100-418, 102 Stat. 1107, 1415 (codif‌ied at 15 U.S.C. §§ 78dd-1–78dd-3, 78ff)

and International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 105-366, 112 Stat. 3302 (codif‌ied

at 15 U.S.C. §§ 78dd-1–78dd-3, 78ff).

2. See S. Rep. No. 95-114, at 3–4 (1977); H.R. Rep. No. 95-640, at 4–5 (1977); see also U.S. Sec. & Exch.

Comm’n, Report of the Securities and Exchange Commission on Questionable and Illegal Corporate Payments

and Practices (May 12, 1976), reprinted in Sec. Reg. & L. Rep. (BNA) No. 353 (May 19, 1976). Approximately

400 U.S. corporations admitted to making such payments, totaling over $300 million. The FCPA is also a

byproduct of the Watergate scandal. After discovering unreported campaign contributions, the SEC initiated an

investigation into payments to domestic and foreign political off‌icials by corporations. See generally Theodore

C. Sorensen, Improper Payments Abroad: Perspectives and Proposals, 54 Foreign Affs. 719 (1976) (discussing

widespread support for enactment of the FCPA).

3. See Crim. Div., U.S. Dep’t of Just., & Enf’t Div., U.S. Sec. & Exch. Comm’n, A Resource Guide to the

U.S. Foreign Corrupt Practices Act at 2 (July 2020), https://www.justice.gov/criminal-fraud/f‌ile/1292051/

download [hereinafter FCPA Resource Guide].

4. See id.; see also Mike Koehler, The Story of the Foreign Corrupt Practices Act, 73 Ohio St. L.J. 929, 932

(2012) (describing various bribery schemes prominent in bringing about the FCPA, including scandals involving

companies such as Gulf Oil, Northrop Grumman, Exxon, Mobil Oil, and Lockheed Martin).

5. See 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3, 78ff, 78m(b), (d)(1), (g)–(h).

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First, the accounting provisions require regular reports to the SEC, mandate

maintenance of accurate records, and require the establishment of internal compli-

ance controls.

6

These provisions apply to both domestic and foreign companies

traded on U.S. stock exchanges.

7

Second, the FCPA’s anti-bribery provisions crim-

inalize the transfer of money or other gifts to foreign off‌icials and political actors

with the intent to inf‌luence the obtainment or retainment of business.

8

The anti-

bribery prohibitions apply to conduct by securities issuers, U.S. citizens and enti-

ties, and certain foreign nationals and entities.

9

Both the SEC and the United States

Department of Justice (“DOJ”) have jurisdiction to enforce the FCPA’s anti-

bribery provisions with civil or criminal enforcement actions, respectively.

10

Increased enforcement and severe f‌ines have made understanding the FCPA im-

perative for business across the world. While the SEC and the DOJ jointly aver-

aged only three prosecutions annually between 1978 and 2000,

11

the number of

enforcement actions per year since then has drastically increased.

12

Notably, 2019

may have been “the most signif‌icant year ever” in FCPA enforcement; the year

saw record-breaking penalties of $2.6 billion and had four FCPA related trials, the

most ever conducted in one year.

13

There were also seventy-three actions taken in

2019, which is second only to 2010.

14

2010 experienced a peak of seventy-four

total actions with penalties of $1.8 billion.

15

Although the years between 2010 and

2019 did not exceed the 2010 peak, both the DOJ and SEC remained committed to

FCPA enforcement.

16

For example, the agencies brought f‌ifty-three actions in

6. § 78m(a)–(b). See infra Part II.A for discussion of the accounting provisions.

7. § 78m(a)–(b).

8. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a). See infra Part III.A for discussion of the anti-bribery provisions.

9. Provisions apply to “issuers,” “domestic concerns,” and “persons other than issuers or domestic concerns.”

§§ 78dd-1(a), 78dd-2(a), 78dd-3(a). See infra Part III.A.1 for a discussion of parties subject to the anti-bribery

provisions.

10. See U.S. Sec. & Exch. Comm’n, Spotlight on Foreign Corrupt Practices Act (Sept. 20, 2016), http://www.

sec.gov/spotlight/fcpa.shtml [hereinafter Spotlight on FCPA]; see also 15 U.S.C. § 78ff (laying out the various

civil and criminal penalties for violations).

11. Priya Cherian Huskins, FCPA Prosecutions: Liability Trend to Watch, 60 Stan. L. Rev. 1447, 1449 (2008)

(citing Eugene R. Erbstoesser, John H. Sturc, & John W.F. Chesley, The FCPA and Analogous Foreign Anti-

Bribery Laws—Overview, Recent Developments and Acquisition Due Diligence, 2 Cap. Mkts. L.J. 381, 386

(2007)).

12. See Gibson, Dunn & Crutcher LLP, 2018 Year-End FCPA Update 2 (2019), https://www.gibsondunn.

com/wp-content/uploads/2019/01/2018-year-end-fcpa-update.pdf [hereinafter Gibson, Dunn & Crutcher 2018

Year-End FCPA Update].

13. Gibson, Dunn, & Crutcher LLP, 2019 Year-End FCPA Update 1 (2020), https://www.gibsondunn.com/

wp-content/uploads/2018/01/2017-year-end-fcpa-update-1.pdf [hereinafter Gibson, Dunn & Crutcher 2019

Year-End FCPA Update].

14. Id.

15. See Paul T. Friedman, Ruti Smithline, & Angela E. Kleine, 2010: Another Record-Breaking Year for

FCPA Enforcement, Conf‌irming “New Era”, Morrison Foerster (Jan. 12, 2011), https://media2.mofo.com/

documents/110112-fcpa-enforcement.pdf.

16. See Gibson, Dunn & Crutcher LLP, 2017 Year-End FCPA Update 2 (2018), https://www.gibsondunn.

com/wp-content/uploads/2018/01/2017-year-end-fcpa-update-1.pdf [hereinafter Gibson, Dunn & Crutcher 2017

Year-End FCPA Update].

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