December 11, 2014 Articles

Foreign Corrupt Practices Act 101

A basic guide to the provisions of the FCPA and how it is enforced.

By Felicia C. Quentzel

The Foreign Corrupt Practices Act (FCPA) is a U.S. law that (1) prohibits corrupt payments to foreign officials (the “anti-bribery provisions”); (2) requires companies with securities traded on U.S. exchanges to maintain accurate books and records (the “books and records” provision); and (3) requires those companies to implement and maintain adequate internal controls over financial operations (the “internal controls” provision). The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) share joint enforcement power over the FCPA.

Anti-bribery provisions. The FCPA’s “anti-bribery provisions,” which are found at 15 U.S.C. §§ 78dd-1, 78dd-2, and 78dd-3, prohibit corrupt payments made to foreign officials to obtain or retain business. Corrupt payments are those payments made with the intent to wrongfully influence the recipient. While the value of the gift may be relevant, it is not determinative. Rather, the purpose of the payment is the relevant consideration under the FCPA. The term “to obtain or retain business” has also been broadly construed. For example, the DOJ and SEC have recently taken enforcement action against companies that offered bribes to obtain customs clearance, permit approval, and other government benefits.

Accounting provisions. The FCPA’s “books and records” and “internal controls” provisions are generally considered easier to enforce than the anti-bribery provisions. These provisions are found at 15 U.S.C. § 78m and require issuers to keep and maintain accurate financial records and to implement internal controls that are sufficient to prevent fraud.

Exceptions and affirmative defenses. In recent years, the DOJ and SEC have taken an aggressive approach with respect to their enforcement power. However, there are recognized limits to this authority. The FCPA contains a “facilitating payments” exception, which exempts from FCPA enforcement “payments to secure routine governmental action.” In addition, there are two recognized affirmative defenses that apply in FCPA enforcement actions: (1) when the improper payments are considered lawful under the laws of the recipient’s country, and (2) when the payments constitute reasonable business expenses.

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