Foreign corrupt practices act

• Author: Sean Swinford/Vito Whitmore/Cassidy Poole/Jakob Urda/Matteo Crow/Andrew Yablonski
• Pages: 875-935

FOREIGN CORRUPT PRACTICES ACT

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 876

II. ACCOUNTING PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879

A. Elements of the Accounting Provisions . . . . . . . . . . . . . . . . . 880

1. Covered Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880

2. Record-Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 881

3. Internal Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 882

B. Control Person Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 883

C. Criminal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884

D. Related SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885

III. ANTI-BRIBERY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885

A. Elements of the Anti-Bribery Provisions . . . . . . . . . . . . . . . . 886

1. Covered Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 886

2. Qualifying Jurisdictional Acts . . . . . . . . . . . . . . . . . . . . 887

a. Nexus with U.S. Interstate Commerce. . . . . . . . . . . 887

b. Any Action Within or Outside U.S. Territory . . . . . 888

3. Anything of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 890

4. Corruptly, Willfully, and Knowingly . . . . . . . . . . . . . . . 891

5. Foreign Official . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 893

6. Obtaining or Retaining Business . . . . . . . . . . . . . . . . . . 894

B. Permissible Payments and Affirmative Defenses . . . . . . . . . . 895

1. Grease Payments Exception . . . . . . . . . . . . . . . . . . . . . 895

2. Local Law Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 897

3. Reasonable and Bona Fide Business Expenditure Defense 897

C. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899

1. Formal Regulatory Enforcement . . . . . . . . . . . . . . . . . . 899

2. Deferred and Non-Prosecution Agreements . . . . . . . . . . 899

3. Voluntary Disclosures to Enforcement Agencies . . . . . . 901

4. Private Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . 903

5. Advisory Guidelines and “No-Action” Letters . . . . . . . . 905

IV. PENALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907

A. Criminal Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907

1. Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907

2. Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 908

B. Additional Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912

1. Civil Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912

2. Government Procurement Sanctions . . . . . . . . . . . . . . . 913

V. GLOBAL ANTI-CORRUPTION NETWORK . . . . . . . . . . . . . . . . . . . . . . . 914

A. World-Wide Anti-Bribery Efforts . . . . . . . . . . . . . . . . . . . . . 914

875

1. Organization for Economic Cooperation and Development

Convention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914

2. The United Nations Convention Against Corruption . . . . 916

B. Regional Anti-Bribery Efforts. . . . . . . . . . . . . . . . . . . . . . . . 916

1. European Conventions and Domestic Law . . . . . . . . . . . 917

2. Other Anti-Bribery Conventions and Domestic Laws . . . 918

VI. FCPA CORPORATE COMPLIANCE PROGRAMS . . . . . . . . . . . . . . . . . . . 920

A. Benefits of Compliance Programs. . . . . . . . . . . . . . . . . . . . . 920

B. Designing and Implementing Corporate Compliance Programs . 921

C. Ensuring FCPA Compliance in Dealings with Third Parties 924

VII. RECENT AND ANTICIPATED DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . 926

A. Enforcement and Penalties Statistics . . . . . . . . . . . . . . . . . . 926

B. Trends in Enforcement Methods . . . . . . . . . . . . . . . . . . . . . . 929

C. The Future of FCPA Enforcement . . . . . . . . . . . . . . . . . . . . 933

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 had hindered the markets

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

cial integrity.

3

See CRIM. DIV., U.S. D EP’T OF JUST. & ENF’T DIV., U.S. SEC. & EXCH. COMM’N, A RESOURCE GUIDE TO

THE U.S. FOREIGN CORRUPT PRACTICES ACT 2 (July 2020) [hereinafter FCPA RESOURCE GUIDE], https://www.

justice.gov/criminal-fraud/file/1292051/download.

Congress designed the FCPA to address these issues

4

through two

sets of provisions aimed at regulating international corruption: the accounting pro-

visions 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); U.S. SEC. & EXCH. COMM’N,

94TH CONG., REP. OF THE SECURITIES AND EXCHANGE COMMISSION ON QUESTIONABLE AND ILLEGAL CORPORATE

PAYMENTS AND PRACTICES (Comm. Print May 1976); see also Theodore C. Sorensen, Improper Payments

Abroad: Perspectives and Proposals, 54 FOREIGN AFFS. 719 (1976) (discussing widespread support for

enactment of the FCPA in the aftermath of the Watergate scandal).

3.

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).

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

876 AMERICAN CRIMINAL LAW REVIEW [Vol. 60:875

The FCPA’s accounting provisions require regular reports to the SEC, mainte-

nance of accurate records, and the establishment of internal compliance controls.

6

These provisions apply to both domestic and foreign companies traded on U.S.

stock exchanges.

7

The FCPA’s anti-bribery provisions criminalize the transfer of

money or other gifts to foreign officials and political actors with the intent to obtain

or retain business.

8

The anti-bribery prohibitions apply to conduct by securities

issuers, U.S. citizens and entities, and certain foreign nationals and entities.

9

The

SEC and the United States Department of Justice (“DOJ”) share civil enforcement

authority for the FCPA’s accounting and anti-bribery provisions.

10

FCPA RESOURCE GUIDE, supra note 3, at 3–4; U.S. SEC. & EXCH. COMM’N, SPOTLIGHT ON FOREIGN

CORRUPT PRACTICES ACT (Sept. 20, 2016) [hereinafter SPOTLIGHT ON FCPA], http://www.sec.gov/spotlight/fcpa.

shtml.

However, DOJ

has sole authority to enforce criminal sanctions under the Act.

11

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

perative for businesses around the world. Although the SEC and the DOJ jointly

averaged only three prosecutions annually between 1978 and 2000,

12

since then

the number of enforcement actions per year has drastically increased.

13

See GIBSON, DUNN & CRUTCHER LLP, 2018 YEAR-END FCPA UPDATE 2 (2019) [hereinafter GIBSON,

DUNN & CRUTCHER 2018 YEAR-END FCPA UPDATE], https://www.gibsondunn.com/wp-content/uploads/2019/

01/2018-year-end-fcpa-update.pdf.

There was

an annual peak of seventy-four total FCPA enforcement actions with penalties of

$1.8 billion in 2010,

14

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://www.mofo.jp/topics/

2011/01/24/20100120_2010_Another_Record-Breaking_Year_for_FCPA_Enforcement__Confirming__New_Era_.

pdf.

and in 2016 twenty-seven corporations charged with FCPA

violations paid an average of $223.4 million in criminal penalties—the highest av-

erage in history.

15

See GIBSON, DUNN & CRUTCHER LLP, 2017 YEAR-END FCPA UPDATE 2 (2018) [hereinafter GIBSON,

DUNN & CRUTCHER 2017 YEAR-END FCPA UPDATE], https://www.gibsondunn.com/wp-content/uploads/2018/

01/2017-year-end-fcpa-update-1.pdf. The 2016 average was, however, distorted by six large enforcement

actions; the median corporate sanction was comparable to past years. See SHEARMAN & STERLING LLP, FCPA

DIGEST: RECENT TRENDS AND PATTERNS IN THE ENFORCEMENT OF THE FOREIGN CORRUPT PRACTICES ACT 1

(2017) [hereinafter SHEARMAN & STERLING 2017 FCPA DIGEST], http://www.shearman.com/-/media/Files/

NewsInsights/Publications/2017/01/FCPA-Trends–Patterns–January-2017–050217.pdf.

Moreover, there was an unprecedented total of four FCPA-

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

7. Id. at § 78m(a)–(b).

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

provisions.

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

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

bribery provisions.

10.

11. See FCPA RESOURCE GUIDE, supra note 3, at 3; see also 15 U.S.C. § 78ff (prescribing civil and criminal

penalties for violations).

12. 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)).

13.

14.

15.

2023] FOREIGN CORRUPT PRACTICES ACT 877