General Practice, Solo & Small Firm DivisionBest of ABA Sections
International Law & Practice
Foreign Corrupt Practices Act
O. Thomas Johnson, Jr.
Prohibitions against official bribery are by no means unique to the United States. What is unique to the United States is that its concern with corruption does not stop with its own officials but extends to the corruption of foreign officials as well. By far the most important, and certainly the best known, reflection of this concern is the Foreign Corrupt Practices Act of 1977 (the FCPA or the Act), which imposes criminal penalties on American enterprises that bribe officials of foreign governments. There are several federal statutes that preceded the FCPA, however, and that bear on the behavior of American enterprises abroad. Although these statutes have largely been eclipsed by the FCPA, at least insofar as they might apply to the bribery of foreign officials, they are part of the legal context within which the FCPA is enforced, and from which the FCPA arose. Moreover, any American enterprise charged with a violation of the FCPA may also be charged with violations of one or more of these other provisions.
Among the most significant of these pre-FCPA statutes are the Securities Exchange Act of 1934 (which requires all publicly traded companies in the United States to disclose any material fact necessary to make financial and management statements "not misleading"), the Mail and Wire Fraud Acts (which prohibit use of the mails or interstate or international telecommunications for the purpose of executing any scheme to defraud), the Internal Revenue Code (which prohibits the deduction of illegal payments to foreign officials), and the False Statements Act (which imposes criminal penalties on persons or corporations that knowingly make false statements to any department or agency of the U.S. government).
The FCPA deals with two separate, but related subjects: payments to government officials and corporate accounting and control practices. These subjects are related because, in the past, payments made by U.S. companies to government officials often were made out of funds that were not recorded on the company’s books or, if made from recorded funds, were inaccurately described. Thus, the FCPA makes it a crime not only to bribe a foreign official, but also to make false or misleading entries on a company’s books for any purpose whatsoever.
The FCPA’s antibribery provisions apply to issuers of securities registered under section 12 of the Exchange Act or companies that are required to file reports under section 15 of the Exchange Act; other legal entities that are organized under the laws of the United States or a U.S. state or that have their principal place of business within the United States; and natural persons who are citizens, nationals, or residents of the United States. Violation of the FCPA’s antibribery provisions requires: (1) use of the "mails or any means of instrumentality of interstate commerce"; (2) "corruptly in furtherance of"; (3) offer or payment of money or a "thing of value"; (4) to a foreign official or to a third party while "knowing" that some of the pay will be shared with a foreign official; (5) for the purpose of inducing the foreign official to help the company in "obtaining or retaining business." Three of these conditions warrant further discussion
Foreign Official. The FCPA’s definition of a "foreign official" includes not only persons employed directly by a foreign government, but also persons employed by commercial enterprises owned or controlled by foreign governments and private persons who have responsibilities similar to those of governmental employees, such as private architects or engineers retained by government agencies to design or supervise the construction of governmental buildings.
Payment to Third Parties. A payment to a third party may be prohibited by the FCPA even if the payor is not certain that the payment will be shared with a foreign official. It is sufficient if the payor acts with "willful blindness," or simply fails to make inquiries that a reasonable person would make, given the information available concerning the third party and the nature of the payment.
"Obtaining or Retaining Business." This term includes not only payments made for the purpose of obtaining a government contract, but also payments made for the purpose of obtaining favorable regulatory decisions.
The FCPA’s bribery provisions also contain an exception for so-called facilitating payments, as well as two affirmative defenses. The facilitating-payments exception permits companies to make payments for the purpose of expediting the performance of routine govenmental actions, such as clearing goods through customs and obtaining telephone service. This exception does not permit payments made for the purpose of obtaining a particular substantive decision from a governmental agency.
The two affirmative defenses apply to payments that are legal in the foreign official’s country and payments of expenses incurred by foreign officials (such as travel and lodging expenses) in connection with the promotion, demonstration, or explanation of products or services, or the performance of a contract. The first of these defenses will rarely be applicable, inasmuch as bribery of government officials is illegal in virtually all countries.
The accounting provisions of the FCPA amended section 13(b) of the Exchange Act. There has been only one published judicial opinion interpreting these provisions. Accordingly, their interpretation must be guided by the language of the provisions, their legislative history, and their interpretation by the SEC.
Liability of Foreign and Domestic Subsidiaries. The accounting provisions apply only to issuers that have a "class of securities registered pursuant to section 12 of this title and every issuer which is required to file reports pursuant to section 15(d) of this title." Although an issuer has certain responsibilities for its subsidiaries, the accounting provisions do not apply directly to foreign or domestic subsidiaries of U.S. corporations that are not themselves "issuers."
Responsibility of Issuers. The FCPA originally was silent on the issue of the legal responsibility of an issuer for compliance by subsidiaries with the accounting requirements. In 1988, Congress amended the FCPA to address this issue. The FCPA now provides that issuers with less than a majority ownership interest in domestic or foreign subsidiaries need only make good faith efforts to cause the subsidiary to maintain an adequate system of internal controls. By implication, where an issuer has a majority interest in a domestic or foreign subsidiary, the issuer must use its majority position to ensure that the subsidiary has an adequate system or internal accounting controls in place.
Under the current Justice Department review procedure, the Justice Department must, upon request, advise an issuer or a domestic concern whether specified future conduct would "violate the Act’s antibribery provisions and lead the Department of Justice to take enforcement action." This procedure applies only to the antibribery provisions of the FCPA; opinions cannot be obtained with respect to the FCPA’s recordkeeping provisions. Opinions also cannot be obtained with respect to hypothetical conduct.
The department must issue its opinion within thirty days of receipt, assuming that it is supplied with all required information in a timely fashion. The department has, on occasion, issued opinions in a matter of days.
O. Thomas Johnson, Jr., is a partner at Covington &Burling in Washington, D.C.
This article is an abridged and edited version of one that originally appeared in The International Lawyer’s Deskbook, published by the American Bar Association in January 1996.