Foreign Corrupt Practices Act – Background, Provisions and Sanctions

• By: Staff Editor
• Date: July 22, 2010

Background:

In the mid-1970s the Securities and Exchange Commission (SEC) conducted a series of investigations into the practice by American companies of making questionable or illegal payments to foreign officials in order to secure their cooperation. More than 400 US companies admitted to making these payments. As a result of this, the Foreign Corrupt Practices Act (FCPA) was enacted by Congress in order to put a stop to these abuses.

In 1998 the act was further amended to include the International Bribery Act that contained provisions formulated by the Organization of Economic Cooperation and Development (OECD).

The FCPA also includes provisions aimed at increasing transparency in accounting processes of US companies or companies whose securities are listed in the US.

Anti-Bribery Provisions:

Basic Prohibitions

For an action to be considered a violation of the FCPA, it has to meet the definition of the following five elements:

Third Party Payments

Corrupt payments made through intermediaries are expressly forbidden by the FCPA. The act makes it unlawful to make such a payment to a third party while knowing that all or part of it will go directly or indirectly to a foreign official. An intermediary may include joint venture partners or agents.

Permissible Payments and Affirmative Defenses

The FCPA, unlike the UK Bribery Act, does not consider facilitation payments bribes. A facilitation payment is money paid to facilitate or expedite routine government actions such as:

• Obtaining permits, licenses or other official documents
• Processing governmental papers such as visas and work orders
• Providing police protection, mail pick-up and delivery
• Providing phone service, power and water supply, loading and unloading cargo or protecting perishable products
• Scheduling inspections associated with contract performance or goods transit

Under the FCPA, the following defenses are considered affirmative defenses:

• That the payment was lawful under the written laws of the foreign country
• The money was spent in demonstrating a product or performing a contractual obligation

The defendant will be required to show that the payments met the above requirements.

Sanctions Against Bribery
 

Accounting Provisions:

The FCPA’s accounting provisions were formulated to be used along with the anit-bribery requirements. These provisions require corporations to:

• Make and keep accurate books and records of the corporation’s transactions
• Devise and maintain robust internal accounting controls

Additional Resources:

To know more about the Foreign Corrupt Practices Act, read the full act here.

Learn more about the FCPA and complying with its requirements in these ComplianceOnline webinars:
   
Federal Corrupt Practices Act - How Your Institution Can Comply
Foreign Corrupt Practices Act (FCPA) Webinar