Foreign Corporate Practices Act: Is Your Company Prepared For The New Era Of Increased Enforcement?

Make no mistake: one thing has become increasingly evident from recent press releases and headlines regarding settlements for violations of the Foreign Corrupt Practices Act1—we are in a new era of enforcement.

Over the past year, the Department of Justice and the Securities and Exchange Commission have aggressively increased the level of cases being brought against companies and their executives for violations of the FCPA. In the past year alone, companies settling FCPA charges have paid a record $1.8 billion in penalties and fines to the SEC and DOJ.2 The SEC and DOJ have also charged more than 50 individuals in FCPA-related cases resulting in imposition of criminal penalties and prison time.

In this climate of increased enforcement, it is imperative that all firms doing or seeking to do business in foreign markets become familiar with the FCPA.

In January 2010, DOJ unsealed indictments against 22 executives and employees of companies in the military and law enforcement products industry for allegedly engaging in transactions geared at bribing foreign government officials in an attempt to obtain business.3 These indictments mark the single largest FCPA investigation and prosecution of individuals in the history of FCPA enforcement efforts. For the first time, an FCPA investigation utilized undercover law enforcement techniques, with undercover FBI agents soliciting bribes. This investigation, coupled with an unprecedented increase in the prosecution of companies and executives, demonstrates the SEC's and DOJ's new directive to aggressively pursue FCPA violations.

Now more than ever it is important for company executives to become vigilant of FCPA compliance. The provisions of the act are stringent and require strict compliance. A company's failure to monitor and abide by the FCPA can result in being barred from bidding on U.S. government contracts, imposition of large monetary penalties, disgorgement of profits, and criminal convictions against company executives. As markets become more global, and business is no longer limited by jurisdictional boundaries, it is crucial for companies of all sizes seeking to do business in foreign markets to become familiar with the FCPA.

The FCPA specifically prohibits payment to a third party while "knowing" that all or a portion of such payment or thing of value will be offered, given, or promised to a foreign official.

This article is intended to provide executives a general history and better general understanding of the FCPA, as well as highlight emerging trends and what companies can do to ensure compliance with the FCPA.

History

The enactment of the FCPA in 1977 was a direct response to investigations led by the SEC into the way U.S. companies conducted business in foreign countries. As a result of those investigations, more than 400 U.S. companies admitted to making questionable or illegal payments, totaling more than $300 million, to various foreign government agencies and officials. The act was enacted with the intended aim of extinguishing such behavior and changing the way U.S. companies conduct business abroad. Specifically, the FCPA sought to achieve this purpose by prohibiting bribery of foreign officials and requiring companies to accurately record and account for financial transactions related to their foreign activities.

Since 1977, the United States has taken additional steps to deter and safeguard against corrupt practices in foreign business. The United States, along with 37 other countries, has adopted the Organisation of Economic Co-operation and Development Anti-Bribery Convention. The OECD's goal was to enact legislation similar to the FCPA at a global level. The United States amended the FCPA in 1998 to reflect the anti-bribery conventions of the OECD, expanding its authority and jurisdictional reach to apply to foreign companies and individuals who make and/or attempt to make corrupt payments in the United States.

Overview of FCPA Provisions

The FCPA prohibits bribes to foreign officials with the intent to obtain or retain business. The two main parts of the FCPA are anti-bribery and accounting provisions. These provisions work in conjunction to prohibit unlawful payments to foreign officials and require U.S. companies to maintain accurate records and systems of internal controls for the purpose of monitoring FCPA compliance. In this era of increased enforcement, it is imperative that companies wishing to do business overseas become familiar with these provisions and consult with counsel about implementation of proper compliance programs.

Anti-Bribery Sections

The FCPA's anti-bribery provisions make it unlawful for companies, their officers and employees, third-party agents, or any person acting on their behalf to make payments or gifts or give anything of value to foreign government officials with the intent of influencing the official or causing the official to influence the foreign government to obtain or retain business.4 In addition, these anti-bribery provisions extend to foreign companies and individuals who take acts in furtherance of making corrupt payments while in the United States.5

The anti-bribery provisions focus on the corrupt intent of the parties making the payment. The intent of the payment must be to induce or influence a foreign official's decision, action or inaction, or to secure an improper advantage with the goal of procuring business. The business to be procured does not need to be with a foreign government or an instrumentality thereof, nor does the FCPA require that a company be successful in attaining business. Rather, the mere act of offering or promising to make payment or gift constitutes a violation of the FCPA.

For an offer to amount to a violation, the payment—or promise to pay—must be made to a foreign official. The FCPA defines foreign official very broadly to include 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 for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.6 However, the FCPA does not define the terms "department, agency, or instrumentality."Rather, the SEC and DOJ have utilized this "catch-all" term to their advantage and have liberally interpreted the definition to...