Overview
What is the Foreign Corrupt Practices Act (FCPA)?
The FCPA stands for the Foreign Corrupt Practices Act. This is a United States law passed in 1977 that makes it illegal for US companies and individuals to pay bribes to foreign officials in an attempt to gain an advantage in business.
Bribery is the offering or giving of something of value to influence the actions of an official or other person in charge of a public or legal duty. It has been used over the years by companies looking to secure valuable business contracts, often in countries where bribery is not viewed as a serious legal problem.
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.
Both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are 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.
In his 2021 article, “The Continuing Façade of FCPA enforcement’’, which was published by The New York University Journal of Law and Business, Rahman Ravelli’s Joshua Ray emphasises that only one FCPA case has gone to trial since 2010.[1]
The others, he explains, have led 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) the gains it made as a result of the bribery.
Josh says:
“Of the more than 130 DOJ enforcement actions targeting entities for FCPA violations since the start of 2010, all but one resulted in a non-prosecution agreement, deferred prosecution agreement, plea, or a DOJ declination letter preceded by an agreement to disgorge allegedly ill-gotten gains.[1]
“In the single exception where a corporate FCPA defendant proceeded to trial, its conviction was thrown out for severe prosecutorial misconduct. This aberration aside, in the forty-three years since the FCPA was passed, no corporate defendant has challenged a civil or criminal FCPA case in court.’’[1]
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 has 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 breaching of the Act may also lead to a company having to pay large amounts on 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.
Why was the FCPA introduced?
The FCPA was introduced to target corruption and bribery around the world. The Act was passed at a time when paying foreign officials in order to win contracts or have legal matters resolved quickly and favourably was an activity that many companies were involved in.
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.
But 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 in the world today.
The rest of Europe does now appear to be catching up with the US and UK when it comes to bribery legislation, some of which is stricter than the FCPA. Countries such as China and UAE have also developed their own approaches to bribery.
Important FCPA cases
As mentioned earlier, it is rare for a FCPA case to go to trial.
In his NYU article, Josh emphasises that “companies in FCPA cases have—virtually without exception—continued to refrain from challenging law enforcement in favor of reaching a settlement.’’
He adds: “Corporate FCPA settlements are generally not subject to substantive judicial examination, and when a company’s admissions to the DOJ result in criminal charges against individual employees, such cases rarely go to trial. Rather, in virtually all instances the individual defendants plead guilty, thereby ensuring that the DOJ’s factual allegations are never truly questioned in court.’’
Five FCPA settlements have now reached a billion dollars or more.
The biggest cases to date are:
- In 2020, the DOJ and SEC imposed $3.3 billion in financial penalties on the Goldman Sachs banking group and a Malaysia 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.
Josh’s NYU article concludes that:
“Considering that the five largest FCPA settlements ever all occurred within the last three years, there is no indication that this enforcement program and the immense industry that has grown around it—dubbed “FCPA Inc.”—will voluntarily depart from the status quo any time soon.’’[1]
Rahman Ravelli - FCPA Law Firm
Joshua L. Ray (B.A. Cornell; J.D. Cornell Law) is a London-based Partner at Rahman Ravelli and leads our U.S.-facing business crime practice group. Our experts are ideally placed to offer advice and devise a course of action for any individual or corporate in relation to these matters.
References
- NEW YORK UNIVERSITY JOURNAL OF LAW & BUSINESS VOLUME 17 SUMMER 2021 NUMBER 3 - THE CONTINUING FA ¸CADE OF FCPA ENFORCEMENT: A CRITICAL LOOK AT THE TELIA DPA JOSHUA L. RAY (https://5e1dd987-5f71-42ac-ab22-142046bfae62.filesusr.com/ugd/716e9c_d5a5392384e14223b193748f9e0430b9.pdf)
