What is the Foreign Corrupt Practices Act?
The FCPA has proven to be one of the most powerful and effective transnational anticorruption laws in the world. It has two main provisions, centered around anti-bribery and proper accounting.
The FCPA is extremely broad in scope and applicable worldwide. It applies to all U.S. or foreign public companies listed on stock exchanges in the U.S. or companies that are required to file periodic reports with the U.S. Securities and Exchange Commission (SEC). It also extends to a company’s employees, officers, stockholders, and agents such as third-party actors, distributors, and consultants.
It was originally enacted by the U.S. Congress in 1977 after uncovering widespread corruption in the wake of the Watergate political scandal. Since its implementation, the FCPA has seen several revisions and become increasingly powerful.
In 2010, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, whistleblowers obtained protections for raising allegations of Foreign Corrupt Practices Act violations. Whistleblowers are now entitled to a financial reward between 10% to 30% of all sanctions obtained by the U.S. government in cases where the money collected is above $1 million when they voluntarily provide the SEC with actionable information. Whistleblowers do not need to be U.S. citizens to qualify to receive a reward.
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What is covered under the Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act includes two main provisions: anti-bribery and accounting.
Under the anti-bribery provision, individuals and businesses are prohibited from bribing foreign officials with offerings of payments or anything of value in order to retain or obtain business. The term “anything of value” includes items such as cash, computer equipment, expensive clothing, vehicles, etc. Some examples of prohibited bribery include paying foreign officials to win a contract, influence the procurement process, avoid contract termination, or obtain exceptions to regulations.
The FCPA also prohibits “indirect bribes” or bribes made to any person who knows a portion of a payment will be used, directly or indirectly, to bribe foreign officials. Therefore, persons or companies that aid or abet in a bribery scheme are guilty under the FCPA to the same degree as those who pay the bribe.
The accounting provision of the FCPA requires issuers to create and keep books, record, and accounts to accurately reflect the transactions of corporations. Issuers are also prohibited from falsifying these records and must devise and maintain an adequate system of internal account controls.
Examples of FCPA accounting violations include failing to implement internal controls, to keep accurate books and records, to conduct appropriate audits of payments, and to implement sufficient anti-bribery compliance policies. Even if the U.S. government cannot prove a bribe has taken place, companies can still be held liable for improper payments that were not accurately recorded.
Who enforces the Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act is jointly enforced by the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ).
The SEC is responsible for civil enforcement of the FCPA related to accounting provisions and is the agency with jurisdiction to review and approve whistleblower rewards.
The DOJ has both civil and criminal enforcement responsibilities related to acts of bribery. The difference between civil and criminal enforcement is civil cases do not carry the threat of prison time whereas criminal cases do. However, the burden of proof is lower for civil cases.
The Foreign Corrupt Practices Act is Enormously Successful
Since the Foreign Corrupt Practices Act was signed into law, the U.S. government has collected over $7.2 billion through FCPA violations. In 2019 alone, a record $2.6 billion in corporate fines were levied, and there were 54 enforcement actions brought by the FCPA units of the DOJ and SEC.
In December 2019, the FCPA Blog looked back on the forty largest FCPA resolutions of all time, noting:
There’s a surprisingly wide geographical distribution of the companies in the top 40. Ten come from the United States and five from France. Four companies are from Germany, followed by three each from Switzerland, Japan, Brazil, the Netherlands, and the United Kingdom. Two companies come from Sweden. And one each from Israel, Singapore, Italy, Hungary, South Korea, and Russia.
Some of the largest sanctions under the FCPA include: Petróleo Brasileiro S.A. (Brazil) – $1.78 billion; Telefonaktiebolaget LM Ericsson (Sweden) – $1.06 billion; Mobile TeleSystems Public Joint Stock Company (Russia) – $850 million; and VimpelCom (United States): $795 million.
Since 2010, whistleblower-initiated cases have played a significant role in prosecuting FCPA violations. The recent OECD Working Group Phase 4 Report says that according to the Department of Justice (DOJ), over the past 10 years “approximately 20% of its FCPA matters since Phase 3 have come from whistleblowers.”
In one notable example from 2014, a foreign national whistleblower received $30 million for their assistance. The SEC has acknowledged that whistleblower tips are “among the most powerful weapons in the law enforcement arsenal” to help the U.S. government identify violations “much earlier than might otherwise have been possible,” thus “more swiftly hold[ing] accountable those responsible.”
To learn more about the success of the FCPA, read the read The New Whistleblower’s Handbook, the first-ever guide to whistleblowing, by the nation’s leading whistleblower attorney. The Handbook is a step-by-step guide to the essential tools for successfully blowing the whistle, qualifying for financial rewards, and protecting yourself.
