The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA) makes it illegal for companies and individuals in the U.S. and foreign companies with ties to the U.S. to bribe foreign officials for the benefit of obtaining or retaining business in foreign countries. The FCPA, originally enacted under the Carter Administration in 1977, has since been amended twice - in 1988 and 1998 - to enable broader provisions of enforcement.
Intended as a way for law enforcement to route out public corruption, the United States Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have both made public pronouncements of rigorous enforcement schedules in their FCPA investigations for 2015, while the Federal Bureau of Investigation (FBI) announced the agency's establishment of "International Corruption Squads" - intended to source DOJ and SEC investigations of FCPA violators - in March of 2015.
What Does the FCPA Require?
The primary provision of the FCPA makes it illegal to offer or give anything of value to a foreign official for the purpose of obtaining or retaining business outside the United States. As a method for enforcement, the FCPA also holds a provision controlling the books, records, and internal controls of those seeking to do business outside the United States.
The record-keeping provision requires stringent reporting requirements to the SEC, including documentation and enforcement of internal control policies that are designed to prevent FCPA violations.
Who is at Risk of Investigation For FCPA Violations?
The FCPA's anti-bribery provisions apply to "issuers," "domestic concerns," and other persons. An "issuer" includes any company with securities traded on a U.S. exchange or otherwise within the purview of the SEC.
The "domestic concern" provision encapsulates any business entity with a principal place of business in the U.S. or organized under U.S. law, and further applies to any individual who is a citizen, national, or resident of the U.S.
Other persons, such as foreign companies or nationals, may also fall under the reach of the FCPA where the persons seek to advance an improper payment scheme while in U.S. territory or through the use of instrumentalities of interstate commerce in the U.S., such as through the U.S. postal service.
Who Prosecutes FCPA Violations?
The initial investigations may come from the DOJ or the SEC. The FBI, the Internal Revenue Service (IRS), and even the United States Postal Inspection Service may take part in the investigations. The SEC may impose civil penalties. However, criminal prosecution will originate from the DOJ.
What are the Penalties for FCPA Violations?
While the FCPA proscribes a set schedule for criminal and civil penalties, it is rarely followed to the letter. Civil penalties may require an individual to forfeit or disgorge any gains from FCPA violations. Criminal penalties will only follow from an individual's "willful" violation of the Act, with fifteen years being the maximum criminal penalty ever issued against an individual for Foreign Corrupt Practices Act violations. However, civil and criminal penalties against individuals are less frequently sought than civil penalties against companies.
The FCPA has cost companies millions of dollars in civil fines for violations and even alleged violations. Often, the prosecuting authority, particularly the SEC, will seek to pressure a company into accepting a Non Prosecution Agreement or a Deferred Prosecution Agreement - as such agreements demand a lesser burden of proof - requiring a civil fine and agreement for oversight by the agency for a set period of time.
What are the "Red Flags" That Spark an Investigation Into FCPA Violations?
Although one might think that doing business in certain countries - for example Brazil, Russia, India, or China -- may trigger a DOJ or SEC investigation, typically it is the company's voluntary disclosures in reporting to the SEC that are the cause for an investigation. Accordingly, thorough review of internal records and accurate reporting is paramount to avoiding charges of FCPA violations.
How to Avoid Charges for FCPA Violations?
A company is required by law to file annual reports with the SEC containing full and accurate disclosures of its books, records, and internal controls set up to prevent FCPA violations, including those of its 3rd party agents or subsidiaries.
Although a company may have little direct control of 3rd party subsidiaries or agents in a foreign country, they are still held to the same standard, regardless of the attenuation. Therefore, a company must provide training on the Foreign Corrupt Practices Act to foreign 3rd party agents and subsidiaries, and must implement internal control procedures to guard against violations by 3rd parties.
What to Do When You Learn of a DOJ or SEC Investigation?
Whether as the target of an investigation, a witness, or upon receiving a subpoena, you may not know where to turn. Once you become aware of an investigation, legal counsel can help to make the difficult decisions in what to do next. You must decide how to respond to the company's internal investigation, and the DOJ or SEC investigation. The question of cooperation with the government is a critical decision, which could lead to resolution or could expose the individual to criminal and civil liability.
Defending Charges of FCPA Violations?
The FCPA differentiates between corrupt payments and payments made to facilitate the securing of permits, licenses, or the expeditious performance of similar duties, allowing an exception for the latter. Furthermore, the FCPA provides for two affirmative defenses. Where the thing of value that was offered is lawful under the statute of the foreign country or, alternatively, where the thing of value was a "reasonable bona fide expenditure," a company may reasonably expect to successfully defend against charges of FCPA violations.
The Foreign Corrupt Practices Act is a complicated and specialized area of law. An experienced attorney focused in this practice area will be able to clarify the issues facing a client investigated by the SEC or facing prosecution from the Justice Department. A dedicated lawyer can help identify the elements required to defend against FCPA violations, and make the case in defending their client.
At Dhar Law, LLP, our committed attorneys have extensive experience representing clients before government investigations and proceedings. If you are facing a government investigation, or have any questions about insider trading, please do not hesitate to contact our offices.