The Foreign Corrupt Practices Act of 1977 (FCPA) was enacted principally to prevent corporate bribery of foreign officials. This act had three major parts: (1) it required the keeping by corporations of accurate books, records, and accounts; (2) it required issuers registered with the Securities and Exchange Commission to maintain a responsible internal accounting control system; and (3) it prohibited bribery by American corporations of foreign officials.
For a number of years after passage of the act, Congress debated amending it in response to numerous criticisms. On August 23, 1988, the President signed into law the Omnibus Trade and Competitiveness Act of 1988, of which Title V is known as the Foreign Corrupt Practices Act Amendments of 1988.
The amendments maintained the three major parts of the 1977 Act, but significant changes were made. One of these changes enacted a "knowing" standard in order to find violations of the act. This standard was intended to encompass "conscious disregard" and "willful blindness." The amendments provided certain defenses against finding violations of the act, such as that the gift is lawful under the laws of the foreign country and that the gift is a bona fide and reasonable expenditure or for the performance or execution of a contract with the foreign government.
In 1998 the act was further amended in order to implement the Organization of Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. These amendments expanded the scope of coverage to include some foreign persons and extended jurisdiction beyond the borders of the United States.
Criticisms of the act have continued. There have been, for example, suggestions that businesses convicted of violating the FCPA should be debarred from receiving federal government contracts. Bills specifically amending the FCPA were introduced in the 111th and 112th Congresses. In the 113th and 114th Congresses, there appear to be bills only tangentially mentioning the act. For example, H.R. 616, 114th Congress, would provide that the FCPA shall apply to any immigrant visa application under Section 203(b)(5) of the Immigration and Nationality Act.
The executive branch has brought actions for alleged violations of the Act. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) share enforcement authority—DOJ, primarily enforcement of criminal provisions; SEC, civil provisions. There have been a number of settlements and indictments, resulting in both successes and losses for the federal government. It has been reported that DOJ is intensifying its efforts to prosecute violators of the FCPA.
During the mid-1970s investigations and administrative and legal actions against numerous domestic corporations revealed that the practice of making questionable or illegal payments by United States corporations to foreign government officials existed to some extent within the American business community.1 The legal and regulatory mechanisms for dealing with these payments had involved actions by the Securities and Exchange Commission (SEC) against public corporations for concealing from required public disclosure substantial payments made by the firm, including to foreign government officials. There was also the potential for an antitrust action for restraints of trade or fraud prosecutions by the Department of Justice (DOJ).
Government officials and administrators contended that more direct prohibitions on foreign bribery and more detailed requirements concerning corporate recordkeeping and accountability were needed to deal effectively with the problem. The revelations of slush funds and secret payments by American corporations were stated to have affected adversely American foreign policy, damaged abroad the image of American democracy, and impaired public confidence in the financial integrity of American corporations.
Congress responded with the passage of the Foreign Corrupt Practices Act (FCPA) of 1977.2 The principal purpose of the 1977 Act was to prevent corporate bribery of foreign officials. It had three major provisions to attempt to accomplish this purpose.
The first major provision amended Section 13(b)3 of the Securities Exchange Act of 19344 to require issuers which must register their securities with the SEC to keep detailed books, records, and accounts which accurately record corporate payments and transactions.
The second major provision required SEC registered issuers to institute and maintain an internal accounting control system to assure management's control, authority, and responsibility over the firm's assets.5
The third major provision of the original 1977 Foreign Corrupt Practices Act prohibited domestic corporations, whether or not registered with the SEC, from corruptly bribing a foreign official, a foreign political party, party official, or candidate for the purpose of obtaining or maintaining business. Two provisions of the 1977 Act6 made it a crime for any American business to use the mails or interstate commerce to offer or pay money or anything of value to a foreign official or to a foreign political party, party official, or candidate for foreign political office in order to influence the person in his decisionmaking or to use his influence to assist the firm in obtaining or retaining business.
The 1977 Act also prohibited the payment of money to any person by a business if the business knew or had reason to know that the payment was to be used to bribe a foreign official for his influence in obtaining or retaining business. Congressional intent appeared to place an affirmative responsibility on the corporation to exercise control over its officers, directors, and employees, and to take steps to assure that its foreign agents did not use corporate assets or payments to make other payments to bribe foreign officials.7
Under the 1977 Act not all payments to employees of foreign governments were intended by Congress to be considered illegal bribes. For example, the definition of "foreign official" excluded employees of a foreign government "whose duties are essentially ministerial or clerical." Also, the legislative history of the act specifically stated that it was not intended to cover "grease payments" to foreign officials, explained as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.8 The legislative history also suggested that extortions of money by foreign officials might be used as a defense against bribery charges by a business if its property or lives of its employees were threatened. An example used to illustrate acceptable payments was the payment to a foreign official to prevent the dynamiting of an oil rig.9
Almost since passage of the 1977 Act, frequent criticism of the operation of the act occurred.10 Opponents argued that the act had a chilling effect upon United States export trade and that many companies ceased foreign operations rather than face the uncertainties and the burdens of the act.
Critics of the 1977 Act also argued for removal of the "reason to know" standard concerning liability for actions of a firm's agent in a foreign country. This would eliminate the legal responsibility of the management of a domestic firm over the unauthorized and undirected actions of an agent without the necessity of management's also showing that it had no "reason to know" that the agent was using corporate funds, payments, or commissions to bribe foreign officials. These critics argued that American firms should not have to bear the responsibility of playing detective concerning the independent actions of persons that they retained as agents in foreign countries.
Critics also contended that the internal accounting controls required by the 1977 Act were too costly and burdensome upon domestic firms, especially when potential criminal penalties within the act for failure to institute adequate controls arguably made officials of firms overly and unnecessarily cautious in implementing costly accounting controls. The public recordkeeping requirements were also criticized as unduly burdensome. Critics of the act argued for a materiality standard for public recordkeeping in which a firm would be required to report only expenditures and outlays deemed material to the profits and revenues of the firm.
Another frequent criticism of the 1977 Act was that the United States was more interested in exporting its cultural biases than its products. It was argued that, in nations in which acceptance of a fee or payment by a government official from one doing business with the government is customary and not unlawful under the laws of that nation, no violation of a United States law should occur. Critics also argued that an international agreement among the world's industrialized nations prohibiting businesses of all those countries from bribing foreign officials was necessary to prevent businesses of other countries from gaining an unfair and harmful competitive advantage over American businesses.
In response to these criticisms, Congress for a number of years considered amending the 1977 Foreign Corrupt Practices Act. After considerable debate through at least three Congresses, the Foreign Corrupt Practices Act Amendments of 1988 were signed into law as Title V of the Omnibus Trade and Competitiveness Act of 198811 on August 23, 1988. Although the amendments maintained the three major parts of the 1977 Act discussed above—the accounting standards, the requirements of SEC registered issuers, and the anti-bribery provisions—the 1988 amendments made some significant changes to the 1977 Act.
Section 5002 of the Trade Act amended Section 13(b) of the Securities Exchange Act to provide that no criminal liability shall be imposed for violation of the accounting standards unless a person knowingly circumvents or knowingly fails to implement a system of accurate and reasonable accounting controls. According to the legislative history, this provision was intended to ensure that criminal penalties would be imposed where acts of commission or omission in keeping books or records or administering accounting controls have the purpose of falsifying books, records, or accounts or of circumventing accounting controls. This was also intended to include the deliberate falsification of books and records and other conduct calculated to evade the internal accounting controls requirement.12
Section 5002 of the Trade Act also added to Section 13(b) of the Securities Exchange Act a provision that an issuer holding 50% or less of the voting power of a domestic or foreign firm is required to use its influence only in good faith to cause the domestic or foreign firm to devise and maintain a system of acceptable accounting controls. The House report stated that this amendment was intended to recognize that it was unrealistic to expect a minority owner to exert a disproportionate degree of influence over the accounting practices of a subsidiary.13
For purposes of the accounting standards, "reasonable assurances" and "reasonable detail" mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs. Thus, the prudent man qualification was adopted to clarify that the current standard does not require an unrealistic degree of exactitude or precision.
Section 5003 of the Trade Act amended the provisions of the Foreign Corrupt Practices Act concerning the anti-bribery prohibitions by issuers and domestic concerns. The Foreign Corrupt Practices Act continued to prohibit any issuer;14 officer, director, employee, or agent of the issuer; any stockholder acting on behalf of the issuer; or, in fact, any United States concern to offer, pay, promise to give, or authorize the giving of anything of value to a foreign official, a foreign political party, party official, candidate, or to any person for the purpose of obtaining or maintaining business. Section 5003 amended the 1977 Act to prohibit payments to any foreign official for the purpose of "influencing any act or decision of such foreign official in his official capacity, or inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official." This language was inserted so that the foreign bribery standard would conform to the domestic bribery standard found in 18 U.S.C. Section 201.15
The "knowing" requirement was retained, and the "recklessly disregarding" standard was abandoned in conference. However, the "knowing" requirement was intended to encompass the "conscious disregard" and "willful blindness" standards, including a conscious purpose to avoid learning the truth.
[T]he Conferees agreed that "simple negligence" or "mere foolishness" should not be the basis for liability. However, the Conferees also agreed that the so-called "head-in-the-sand" problem—variously described in the pertinent authorities as "conscious disregard," "willful blindness" or "deliberate ignorance"—should be covered so that management officials could not take refuge from the act's prohibitions by their unwarranted obliviousness to any action (or inaction), language or other "signalling device" that should reasonably alert them of the "high probability" of an FCPA violation.16
The major changes which Section 5003 of the Trade Act made in the 1977 Foreign Corrupt Practices Act had to do with when the bribery provisions apply to an American business or person acting on behalf of an American business. For example, the anti-bribery provisions under the 1988 Amendments did not apply to any facilitating or expediting payment to a foreign official, political party, or party official.
Further, an American business or individual may use one of the "affirmative defenses" in urging that no violation of the FCPA occurred. The first of these enumerated affirmative defenses is that the payment, gift, offer, or promise of anything of value that was made was lawful under the written laws and regulations of the foreign official's, political party's, party official's, or candidate's country. Another affirmative defense is that the payment, gift, offer, or promise of anything of value that was made was a reasonable and bona fide expenditure, such as travel and lodging expenses which were incurred by or on behalf of a foreign official, party, party official, or candidate, and was directly related to the promotion, demonstration, or explanation of products or services or the execution or performance of a contract with a foreign government or agency. This defense does not apply, however, if a payment or gift is corruptly made in return for an official act or omission because it is then not considered a bona fide, good faith payment.
In the definitional sections of the 1988 Amendments, the terms "knowing" and "routine governmental action" are especially important. A person's state of mind is "knowing" with respect to conduct, a circumstance, or a result if the person is aware of engaging in the conduct, that the circumstance exists, or that the result is substantially certain to occur or if the person has a firm belief that the circumstance exists or that the result is substantially certain to occur. When knowledge of the existence of a particular circumstance is required for an offense, the knowledge is established if a person is aware of a high probability of the existence of the circumstance, unless the person actually believes that the circumstance does not exist.
"Routine governmental action" is only ordinarily and commonly performed by a foreign official in obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; processing governmental papers, providing police protection, mail pickup and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; or providing phone service, power and water supply, loading and unloading cargo, or protecting perishable commodities or products from deterioration. The term does not include any decision by a foreign official whether or on what terms to award new business to or to continue business with a particular firm.
Criminal penalties for violations of the Foreign Corrupt Practices Act were increased. The maximum anti-bribery fine for a firm or domestic concern was raised from $1 million to $2 million and for individuals set at $100,000. The maximum imprisonment for bribery for an individual remained five years.17 For willful violations of the accounting provisions the fine for a corporation may not exceed $25 million and for an individual not more than $5 million and/or imprisonment of up to 20 years.18 The act also provides for civil penalties of up to $10,000 for violations of the bribery provisions.19
In 1998 the Foreign Corrupt Practices Act was again amended in order to implement the Organization of Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Officials in International Business Transactions.20 The 1998 Amendments expanded the scope of persons covered to include certain foreign nationals, such as any officer of a public international organization.21 The 1998 Amendments also extended the act's jurisdiction beyond the borders of the United States.22
Criticisms of the Foreign Corrupt Practices Act have continued over the years, ranging from its putting American businesses at a competitive disadvantage in the global marketplace to its permitting unethical forms of payment tantamount to bribery. There appear to have been more bills in the 111th and 112th Congresses to amend the Act than in the 113th and 114th Congresses. For example, during the 111th Congress, there was interest in prohibiting businesses convicted of violating the Act from receiving government contracts. H.R. 5366 would have, unless waived by the head of a federal agency, permitted any person found to have violated the FCPA to be proposed for debarment from any contract or grant awarded by the federal government. On September 15, 2010, the House passed the bill. The House report stated the following need for the legislation: "Federal government contractors have used bribes in the past to influence the actions of foreign governments. The source of these bribes in part is American tax dollars paid by the federal government to contractors. This bill seeks to root out companies which tarnish the image of the United States of America by engaging in illegal activities."23
H.R. 5837, 111th Congress, would have prohibited an executive agency from entering into a contract for goods or services unless that person or entity had certified that it and each of its officers, employees, and agents had not violated the FCPA or any comparable law of any other country. A contractor awarded a contract by a federal agency would have been prohibited from entering into any subcontract at any tier with any person or entity which had not made this certification.
Another bill in the 111th Congress would have addressed the criticism that the act does not allow a private right of action. H.R. 2152 would have amended the FCPA to authorize a private right of action against a company for violation of the Act. Lawsuits have been brought to urge allowing a private right of action, but the Sixth Circuit in 1990 found that the act does not allow a private right of action.24
In the 112th Congress, H.R. 3531 would have authorized a private right of action under the FCPA against foreign businesses that have damaged U.S. businesses by bribing foreign officials. H.R. 3588 would have debarred persons found guilty of violating the FCPA from contracting with the federal government.
H.R. 4178 in the 113th Congress and H.R. 616 in the 114th Congress would provide that the FCPA shall apply to any immigrant visa application under Section 203(b)(5)of the Immigration and Nationality Act.25
The executive branch has conducted oversight of American businesses for alleged violations of the act. Both the DOJ and the SEC have brought actions under their shared enforcement authority. DOJ is responsible for enforcing the Act when violations are of a criminal nature. The SEC is responsible for enforcing the Act when violations are of a primarily civil nature.
It has been reported that DOJ is intensifying its efforts to find violators of the FCPA.26 There are a number of recent actions that indicate DOJ concerns with FCPA violations. For example, in a 2014 case, United States v. Esquenazi,27 the U.S. Court of Appeals for the Eleventh Circuit agreed with the DOJ that two employees of a U.S. company who had made payments to what the court determined was an instrumentality of a foreign government were guilty of bribery under the FCPA. The case is important for being the first federal appellate court decision to provide guidance for and flesh out the definition of the term "foreign official" under the FCPA.28 Other DOJ actions have involved executives and employees in the military and law enforcement products industry who have been indicted for engaging in schemes to bribe foreign government officials to obtain and retain business.29
The government has had varied results in its FCPA actions. Some cases have been resolved by plea deals or settlements, such as a case involving Mercator Corporation, which pled guilty to charges that it had made an illegal payment to a senior government official in Kazakhstan in violation of the act.30 In another example, the DOJ's Criminal Division announced that Marubeni Corporation had agreed to pay a $54.6 million criminal penalty to resolve charges for violating the FCPA during a 10-year-long scheme of bribing the Nigerian government for engineering, procurement, and construction contracts.31
At times, the government has launched investigations of companies for FCPA violations but has not brought charges. For example, both the DOJ and the SEC have looked into whether Merck, a pharmaceutical company, has violated the act in multiple foreign countries.32 Merck has stated that DOJ has ended this investigation.33 Similarly, there were reports in 2010 that federal investigators looked into the possibility that Blackwater (renamed Xe) may have violated the FCPA, but a 2012 report states that the investigation was closed with no charges brought.34
Other cases have gone to trial. For example, a jury acquitted two businessmen charged by the DOJ with violating the FCPA involving a fake deal for the sale of goods to Gabon.35 In 2012, a judge declared a mistrial involving three other businessmen in the same FBI sting case involving a military equipment contract for Gabon.36
The SEC has also brought actions, often resulting in settlements rather than court decisions. For example, in its list setting forth its FCPA actions since 2009,37 the SEC noted that VimpelCom, the Dutch-based telecommunications provider, had agreed to a $795 million global settlement to resolve its violations of the FCPA to win business in Uzbekistan. In 2015, the SEC received a $14 million settlement from Bristol-Myers Squibb for charges that employees of its China-based joint venture had made improper payments to obtain sales; a $19 million settlement from Hitachi for charges that it had inaccurately recorded improper payments to South Africa's ruling party in order to obtain contracts for building power plants; and a $14.8 million settlement from BNY Mellon for charges that it had provided student internships to family members of foreign government officials associated with a Middle Eastern sovereign wealth fund.
Author Contact Information
| 1. |
S. Rept. 95-114, at 3 (1977); see also Sen. Comm. on Banking, Housing, and Urban Affairs, Report of the Securities and Exchange Commission: Report on Questionable and Illegal Payments and Practices, 94th Cong., 2d Sess. (1976) (Comm. Print). |
| 2. |
P.L. 95-213, Title I; 91 Stat. 1494 (1977). |
| 3. |
15 U.S.C. §78m(b). |
| 4. |
15 U.S.C. §§78a et seq. |
| 5. |
15 U.S.C. §78m(b)(2)(B). |
| 6. |
15 U.S.C. §§78dd-1 and 78dd-2. |
| 7. |
S. Rept. 95-114, at 1 (1977). |
| 8. |
S. Rept. 95-114, at 10 (1977). |
| 9. |
S. Rept. 95-114, at 10-11 (1977). |
| 10. |
See, e.g., John L. Graham, The Foreign Corrupt Practices Act: A New Perspective, 15 J. of Int'l Business Studies 107 (Winter 1984). |
| 11. |
P.L. 100-418, Title V; 102 Stat. 1107 (1988). |
| 12. |
H. Rept. 100-576, at 916-917 (1988). |
| 13. |
H. Rept. 100-576, at 917 (1988). |
| 14. |
An issuer for this purpose is a publicly traded company that must file periodic reports with the SEC. |
| 15. |
H. Rept. 100-576, at 918 (1988). |
| 16. |
H. Rept. 100-576, at 920. |
| 17. |
15 U.S.C. §78dd-2(g). |
| 18. |
15 U.S.C. §78ff(a). |
| 19. |
15 U.S.C. §78dd-2(g). |
| 20. |
P.L. 105-366; 112 Stat. 3302 (1998). |
| 21. |
15 U.S.C. §78dd-1(f). |
| 22. |
15 U.S.C. §§78dd-1(g) and 78dd-2(i). United States businesses and persons are prohibited from acting corruptly outside the United States "in furtherance of" a bribe whether or not using the "mails or any means or instrumentality of interstate commerce." |
| 23. |
H.Rept. 111-588, at 2 (2010). |
| 24. |
Lamb v. Phillip Morris, Inc., 915 F.2d 1024, 1029-1030 (6th Cir. 1990), cert. denied 498 U.S. 1086 (1991). |
| 25. |
8 U.S.C. § 1153(b)(5). |
| 26. |
FBI Wields Mob, Insider Tactics as Agents Hunt for Bribery, Bloomberg BNA Criminal Law Reporter (Feb. 17, 2016), http://www.bloomberg.com/news/articles/2016-02-11/fbi-wields-mob-insider-tactics-as-new-agents-hunt-for-bribery. |
| 27. |
752 F.3d 912 (11th Cir. 2014). |
| 28. |
For more on this decision, see CRS Legal Sidebar WSLG1084, Eleventh Circuit Provides Guidance for the Definition of "Foreign Official" under the FCPA, by [author name scrubbed], Oct. 15, 2014. |
| 29. | |
| 30. |
United States v. Mercator Corporation, S3-03-CR (S.D.N.Y. Aug. 6, 2010). |
| 31. | |
| 32. |
Linda A. Johnson, Merck Being Probed for Possibly Violating Anti-Bribery Laws, Washington Post, August 10, 2010, at A14. |
| 33. |
http://www.law360.com/articles/514545/merck-says-doj-has-ended-its-multicountry-fcpa-probe. |
| 34. | |
| 35. |
http://legaltimes.typepad.com/blt/2012/01/jury-acquits-two-businessmen-in-fcpa-sting-case-.html. |
| 36. |
http://blogs.wsj.com/law/2012/01/31/judge-declares-mistrial-in-sting-bribery-case/. |
| 37. |