FCPA - The Foreign Corrupt Practices Act

What is the Foreign Corrupt Practices Act (FCPA)?

The Foreign Corrupt Practices Act is a United States law that was passed in 1977. It makes it an offence for US companies and individuals to bribe foreign officials to try and gain an advantage in business.

The FCPA was introduced to target corruption and bribery around the world. It was passed at a time when bribing foreign officials in order to win contracts or to have legal matters resolved quickly and favourably was an activity that many companies were involved in.

There are two main parts to the FCPA:

• The Act makes it illegal to offer, promise or provide anything of value to a foreign official in order to influence that official to obtain or retain business or some other advantage.
• It is also an offence to fail to maintain accurate, detailed books and records in order to prevent illegal activity.

The United States’ Securities and Exchange Commission (SEC) and Department of Justice (DOJ) are both responsible for enforcing the FCPA. They can prosecute those who break the law by violating – also known as breaching – the FCPA. But they also have other options if there have been violations of the Act.

It is extremely rare for such cases to go to trial. Most lead to some form of agreement or the DOJ stating – in what is called a declination letter - that it will not prosecute if the corporation voluntarily reports the possible FCPA violations to the government, makes changes to prevent it happening again and pays back (also known as disgorges) any gains it made as a result of the bribery.

But any settlement of FCPA-related allegations cannot be viewed as a painless way of avoiding prosecution. There have been a number of large, multi-billion dollar settlements concluded.

To date, there have been five FCPA settlements that have involved a billion dollars or more being paid:

• In 2020, the DOJ and SEC imposed $3.3 billion in financial penalties on the Goldman Sachs banking group and a Malaysian subsidiary to resolve FCPA charges related to the scandal-hit Malaysian sovereign wealth fund, 1MDB.
• In January 2020, Airbus paid $4 billion to settle global bribery and trade charges with French, UK, and US authorities after an eight-year investigation. As part of this, the DOJ imposed a criminal penalty of $2.09 billion for FCPA offences.
• Petrobras, Brazil’s state energy company, paid $1.78 billion in 2018 for having paid bribes to politicians and political parties in Brazil.
• Swedish telecommunications company Ericsson paid the DOJ and SEC over $1 billion in 2019 for breaching the FCPA.
• In 2017, Sweden’s telecommunications firm Telia Company agreed to pay $1.01 billion to settle bribery allegations.

Who does the FCPA apply to?

The FCPA applies to both US publicly-traded companies (those that are listed on a stock exchange) and privately-held companies. It also applies to non-US individuals and companies that violate the Act while they are in the US. A company is responsible for any violations of the Act by its staff, directors and anyone else acting on its behalf.

The list of foreign officials that the FCPA covers includes:

• Ministers of state and civil servants.
• Government employees.
• Teachers, law enforcement officers and military personnel.
• Those working for a company that  is full or partly-owned or controlled by the state.
• Tax authorities.
• Local government staff.
• Political party officials and candidates.
• Judges, prosecutors and other court officials.

Why is the FCPA important?

The FCPA is important because it covers the behaviour of US companies anywhere in the world and carries severe penalties.

Any company breaching the anti-bribery provisions of the FCPA can be fined up to $2 million for each offence. Individuals - including officers, directors, stockholders and agents of companies - can be fined up to $250,000 and imprisoned for up to five years. For each violation of the accounting provisions of the Act, companies can be fined up to $25 million. Individuals can be fined up to $5 million and imprisoned for up to 20 years.

Any breach of the Act may also lead to a company having to pay large amounts in legal costs, suffering damage to its reputation and / or being excluded from bidding for future government contracts in one or more countries. There is also the risk of legal action being brought by the company’s unhappy shareholders or by other firms who did not gain the contracts that the company gained through bribery.

While the FCPA covers the use of bribery to ensure a country or organisation buys goods and services from those offering the bribe, it also covers:

• Settling tax matters.
• Applications for licences, concessions, planning permissions and travel visas.
• The providing of utilities, such as water or gas.
• Import or export of goods.
• Providing gifts and other benefits to government officials and organisations with government links.
• Lobbying of government on policy and legislation.
• The use of “middlemen’’ to deal with a government on behalf of a company.

How to comply with the FCPA

Complying with the FCPA involves a company (or an individual) making sure they have taken all reasonable steps to minimise the risk of them carrying out any activity that is a breach of the Act. The US government has published a list of “red flags’’ – situations where those in business should be aware of the risk of bribery.

These red flags are:

• Unusual financial arrangements or strange patterns of payments.
• A country having a history of corruption.
• A current or possible future foreign business partner not wanting to give assurances they will not do anything that would be an offence under the FCPA.
• Requests for high commission payments on a deal.
• A lack of openness about the payment of expenses and the keeping of accounts.
• A person brought into a deal not having the necessary skills or experience.
• A government official in a foreign country recommending that a particular person should be hired as part of the deal.

If an offence has been committed, the following factors are likely to affect the penalty (or penalties) imposed:

• The company reporting the offence as early as possible.
• Cooperation with any DOJ or SEC investigation.
• The quality of the company’s anti-bribery procedures. Any action taken by the company to establish or improve its anti-bribery procedures after the wrongdoing has been identified.

Key differences between the FCPA and the UK's Bribery Act

Both the FCPA and the UK’s Bribery Act were devised to prevent bribery and corruption. But there are differences between them:

• The FCPA prohibits the bribing of foreign officials but the Bribery Act also prohibits the bribery of private business people.
• The FCPA looks for an intention to bribe but the Bribery Act is only concerned with whether bribery took place.
• The Bribery Act has an offence of failure to prevent bribery whereas the FCPA has no such offence.
• The FCPA makes it an offence to pay bribes and hide the payments. The Bribery Act makes it an offence to both pay bribes and receive them.
• Fines for individuals and companies are limited under the FCPA but individuals can be jailed for up to 20 years. But under the Bribery Act, fines for companies and individuals are unlimited yet prison sentences can be no longer than 10 years.

Until the Bribery Act came into effect, the FCPA was viewed as the most far-reaching, conclusive anti-bribery legislation in the world. But it is now the Bribery Act that is generally acknowledged as being the most comprehensive piece of legislation of its type.

The rest of Europe does now appear to be catching up with the US and UK when it comes to bribery legislation. Countries such as China and UAE have also developed their own approaches to bribery.

The Importance of the Right Response to an FCPA Investigation

Anyone who is being investigated – or thinks they are about to be – regarding FCPA-related matters needs to respond promptly and seek the best available advice and representation.

At any given time, Rahman Ravelli is advising clients in investigations that involve both the FCPA and the Bribery Act. We have an internationally-recognised expertise in compiling and co-ordinating teams in the US and UK.

Those we represent in such cases benefit fully from our experience, our in-depth knowledge of the legislation and our ability to devise a “joined-up’’ strategic approach to all elements of such an investigation.