The Foreign Corrupt Practices Act: compliance issues in the tax and customs arena.

Among the many changes in the legal and business landscape following the Enron scandal and the Sarbanes-Oxley Act of 2002 has been a dramatic increase in the pace and ferocity of enforcement of the Foreign Corrupt Practices Act (FCPA), which prohibits improper payments to influence foreign officials who have the power to affect a company's business. (1) Enforcement officials at the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are pursuing more and more cases and securing settlements that include criminal fines and penalties, disgorgement of ill-gotten gains, prison terms for individual wrongdoers, and ongoing compliance monitoring obligations. Recent FCPA cases have been closely followed in the press, in boardrooms, and in sales meetings, and have prompted many companies to redouble their anti-corruption compliance efforts. One Lower-profile aspect of these cases is that they arise not only in the traditional area of government procurement, but also in the arenas of customs duties, tax assessments, and tax controversies.

Consider, for example, an FCPA case that came to a dramatic conclusion earlier this year. On June 29, 2005, the District Court of the Southern District of Texas sentenced two former executives of American Rice, Inc. for violations of the FCPA. (2) The defendants were convicted of violations arising from payments to Haitian officials to reduce the Company's customs duties and sales tax assessment. The court agreed with DOJ recommendations and sentenced David Kay, the Vice President of Caribbean Operations, to 37 months in prison, and Douglas Murphy, the President and Chief Executive Officer, to 63 months in prison. These sentences are the longest provided for in any FCPA case to date.

This article examines these cases and their importance for tax personnel and tax advis...

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