Foreign corrupt practices act overview

• Author: Robert W. Tarun
• Pages: 1-44

CHAPTER 1

Foreign Corrupt Practices Act

Overview

The Foreign Corrupt Practices Act (FCPA)1 contains two types of provisions: anti-

bribery provisions, which prohibit corrupt payments to foreign officials, foreign

political parties or party officials, or candidates for foreign political office to influ-

ence the official in the exercise of his or her official duties to assist in obtaining

or retaining business or securing any improper advantage; and recordkeeping and

internal controls provisions, which impose certain obligations on all companies

whose securities are registered in the United States or that are required to file

reports with the Securities and Exchange Commission, regardless of whether or

not the companies have foreign operations.

I. ANTI-BRIBERY

A. Application

The FCPA’s anti-bribery provisions apply to three categories of persons: (1) “issu-

ers”2 (or an agent thereof); (2) “domestic concerns”3 (or an agent thereof); and

(3) foreign nationals or businesses4 (or an agent or national thereof) who take

any action in furtherance of a corrupt payment while within the territory of the

United States. “Issuer” means any company whose securities are registered in the

United States or that is required to file periodic reports with the SEC.5 “Domestic

concern” and “any officer, director, employee or agent of such domestic concern

or any stockholder thereof acting on behalf of such domestic concern” mean any

individual who is a citizen, national, or resident of the United States and any

corporation, partnership, association, joint-stock company, business trust, unin-

corporated organization, or sole proprietorship that has its principal place of

business in the United States, or that is organized under the laws of a state of the

United States, or a territory, possession, or commonwealth of the United States.6

The third category significantly increases the exposure of non–U.S. companies

and their employees or agents as the FCPA now covers foreign persons who com-

mit bribery on U.S. territory, regardless of whether the person is a resident or does

business in the United States.7

Issuers and domestic concerns may be held liable for violating the anti-bribery

provisions of the FCPA whether or not they took any action in the United States

in furtherance of the corrupt foreign payment. Prior to the 1998 FCPA amend-

ments, only issuers and domestic concerns could be held liable, and only if they

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used the U.S. mails or instrumentalities of interstate commerce in furtherance of

the illicit foreign payment. The 1998 amendments expanded the FCPA’s jurisdic-

tion to cover corrupt foreign payments outside the United States by U.S. persons

without any link to interstate commerce; the FCPA amendments make it illegal for

any United States person to violate the FCPA “irrespective of whether such United

States person makes use of the mails or any means or instrumentality of interstate

commerce in furtherance of [the illegal foreign activity].”8 Thus, a U.S. company

or issuer can be liable for the conduct of overseas employees or agents, even if no

money was transferred from the United States and no U.S. person participated in

any way in the foreign bribery.

Until 1998, foreign persons were not subject to the anti-bribery provisions unless

they were issuers or domestic concerns. The amendments, however, expanded the

FCPA to allow for the prosecution of any (foreign) person who takes any act in

furtherance of a corrupt payment while in the territory of the United States.9 Thus,

for example, a foreign subsidiary that causes directly, or through agents, an act in

furtherance of a bribe to take place within the United States is liable under the

FCPA. The 1998 amendments were passed to implement the 1997 Organization

for Economic and Cooperative Development (OECD) Convention on Combating

Bribery of Foreign Officials in International Business Transactions (the OECD

Convention). The legislative history of the 1998 FCPA amendments provides that

“the territorial basis for jurisdiction should be broadly interpreted so that an exten-

sive physical connection to the bribery act is not required.”10

B. Elements

A violation of the anti-bribery prohibition by a person as defined above consists of

five elements:

1. A payment, offer, authorization, or promise to pay money or anything of

value, directly or through a third party;

2. To (a) any foreign official, (b) any foreign political party or party official, (c)

any candidate for foreign political office, (d) any official of a public interna-

tional organization, or (e) any other person while “knowing” that the pay-

ment or promise to pay will be passed on to one of the above;

3. Using an instrumentality of interstate commerce (such as telephone, telex,

email, or the mail) by any person (whether U.S. or foreign) or an act out-

side the United States by a domestic concern or U.S. person, or an act in the

United States by a foreign person in furtherance of the offer, payment, or

promise to pay;

4. For the corrupt purpose of (a) influencing an official act or decision of that

person, (b) inducing that person to do or omit doing any act in violation of

his or her lawful duty, (c) securing an improper advantage, or (d) inducing

that person to use his influence with a foreign government to affect or influ-

ence any government act or decision;

5. In order to assist the company in obtaining or retaining business for or with

any person or directing business to any person.11

C. Key Concepts

1. Offers, Payments, Promises to Pay, or Authorizations of Payments

A company or person can be liable under the FCPA not only for making improper

payments, but also for an offer, promise, or authorization of a corrupt payment,

even if the employees or agents do not ultimately make a payment. In other words,

a bribe need not actually be paid, and a corrupt act need not succeed in its purpose.

2. Recipients

The FCPA prohibition extends only to corrupt payments (or offers, promises to pay,

or authorizations of payment) to a foreign official, foreign political party, party offi-

cial, or a candidate for foreign political office, and any other person while the payer

“knows” that the payment or promise to pay will be passed on to one of the above.

a. Foreign Official

The term “foreign official” is defined under the FCPA as “any officer or employee

of a foreign government or any department, agency or instrumentality thereof, or

of a public international organization, or any person acting in an official capacity

or on behalf of any such government, department, agency or instrumentality or

for, or on behalf of, any such public international organization.”12 This broad def-

inition is normally considered to encompass executive branch employees, elected

legislators or parliamentarians, managers, and, in the view of the Department of

Justice (DOJ) and the Securities and Exchange Commission (SEC), employees of

state-owned enterprises and officials of quasi-governmental entities. For exam-

ple, the U.S. government charged Dow Chemical with making payments to a key

member of a committee in India that determined when certain chemical products

would receive government registrations;13 it charged Monsanto with improper

payments to 140 current and former Indonesian government officials and their

families under a bogus product registration scheme in Indonesia;14 and it charged

Schnitzer Steel with making payments to a scrap metal manager of a state-owned

entity in Asia.15

The 1998 amendments added “public international organization officials” to

the definition of “foreign official.” A “public international organization” is defined

as “(1) an organization that is designated by Executive Order pursuant to section

288 of title 22; or (2) any other international organization that is designated by the

President by Executive Order for the purposes of this section.”16 Examples include

the World Bank, the Organization of American States (OAS), the Red Cross, and

the African Union. The FCPA has long been interpreted to preclude prosecution of

foreign officials, party officials, or candidates who are recipients of bribes.17

b. Foreign Political Party, Political Party Official, or Candidate for Foreign Office

The FCPA prohibits an illicit offer and payment not only to a foreign official but

also to a foreign political party, an official of a foreign political party, or a candi-

date for foreign office.18 A potential problem can arise where a U.S. person’s foreign

agent or partner makes political campaign contributions to persons in the country

where they are doing business. A U.S. company should consider instituting a policy

Foreign Corrupt Practices Act Overview 3