The Foreign Corrupt Practices Act (FCPA): An Overview

The Foreign Corrupt Practices Act (FCPA): An Overview

June 29, 2020
The Foreign Corrupt Practices Act (FCPA): An Overview
The Foreign Corrupt Practices Act (FCPA) of 1977
wrongfully influence the recipient. Corrupt intent may
generally prohibits corrupt payments to foreign officials in
include willful blindness or conscious avoidance. The
exchange for obtaining or retaining business. Congress
purpose of the payment must be to assist any person or
enacted the FCPA in response to an investigation conducted
company in obtaining or retaining business. A common
by the Securities and Exchange Commission (SEC)
example of a violation is a bribe to obtain a government
following the Watergate scandal. That investigation
contract. A defendant need not have actually completed a
revealed that U.S. companies had spent hundreds of
bribe to violate the Act, so long as they offered, promised,
millions of dollars bribing foreign officials to secure
or authorized it.
business abroad. The FCPA targets such practices through
both anti-bribery and accounting provisions.
Exceptions and affirmative defenses. The Act contains a
narrow exception for so-called “grease payments”—that is,
Anti-Bribery Provisions
payments to facilitate or expedite the performance of a
The FCPA’s anti-bribery provisions generally prohibit
nondiscretionary, routine governmental action. Examples
making corrupt payments (or giving anything of value) to a
may include processing visas or providing mail services.
foreign official to obtain or retain business.
The Act also includes two affirmative defenses. First, under
the “local law defense,” a defendant can prove that the
Who is covered? The anti-bribery provisions apply to the
bribe at issue was legal under the foreign country’s written
following categories of persons and entities, as well as to
laws. Second, the “reasonable and bona fide expenditure”
their officers, directors, employees, agents, or stockholders
defense applies to business-related expenses, such as a
acting on their behalf.
foreign official’s travel and lodging, if directly related to
the demonstration or performance of a company’s services.
1. Issuers (15 U.S.C. § 78dd-1): companies that
have securities registered with the SEC or that
Accounting Provisions
must file reports with the SEC;
The FCPA’s accounting provisions, 15 U.S.C. § 78m(b)(2),
2. Domestic concerns (15 U.S.C. § 78dd-2):
require issuers to keep accurate books and records in a
U.S. citizens or residents and businesses
reasonable level of detail and to devise and maintain
organized in the U.S. or that have their
adequate internal accounting controls. The purpose of the
principal place of business in the U.S.;
accounting provisions is to ensure that corporations do not
conceal bribes in their accounts or use corporate funds for
3. Territorial concerns (15 U.S.C. § 78dd-3):
improper purposes. Although enacted as part of the FCPA,
foreign nationals or entities who engage in
the accounting provisions do not apply just to bribery, but
any act in furtherance of a covered corrupt
set forth a broad standard to be applied to a public
payment while in U.S. territory.
company’s accounting for its assets and liabilities. Under
the Sarbanes-Oxley Act, passed in the wake of accounting
Issuers and domestic concerns must use interstate
scandals at a number of U.S. businesses in the early 2000s,
commerce (defined to include “trade, commerce,
certain company officers must evaluate and assess these
transportation, or communication among the States or
between any foreign country and the States”)
internal controls, and certify that they are well-designed, as
in furtherance
part of periodic financial filings with the SEC.
of the corrupt act to fall within the scope of the FCPA.
Enforcement and Penalties
Who is a foreign official? A foreign official refers broadly
The Department of Justice (DOJ) and the SEC share
to an employee of a foreign government, whether high or
enforcement authority under the Act. The DOJ has criminal
low in rank. The term also includes employees of an
“instrumentality”
enforcement authority and the SEC has civil enforcement
of a foreign government—which may
authority over issuers. In practice, the DOJ and SEC settle
include a state-owned or state-controlled enterprise (e.g., a
most FCPA investigations with subject companies rather
state-run hospital or energy company). Courts consider
than obtaining a conviction or court judgment. FCPA
factors such as the foreign state’s degree of ownership and
settlements generally require cooperation with the
control over an entity in determining whether it is an
“instrumentality” of the government.
government, payment of penalties, and remediation
The definition further
commitments. Settlement agreements may take different
includes a foreign political party or candidate, as well as
forms. For example, under a deferred prosecution
officers or employees of public international organizations
agreement (DPA), the agency agrees to postpone
(like the World Bank).
prosecuting charges it has filed against the subject
Intent and “business p
company, and to later dismiss them, if the company abides
urpose.” A defendant must act
“corruptly” to violate the Act
by the terms of the DPA. Under a non-prosecution
, that is, with an intent to
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The Foreign Corrupt Practices Act (FCPA): An Overview
agreement (NPA), the agency foregoes filing and
the large penalties that may be at stake. Some also argue
prosecuting charges if the company abides by the
that the FCPA puts U.S. businesses at a competitive
agreement.
disadvantage in the global marketplace. However, a
convention of the Organization for Economic Co-operation
FCPA settlements often require the subject corporation to
and Development (OECD) that was finalized in 1997
pay criminal and civil penalties , or to disgorge gains,
requires all signatories to enact laws criminalizing foreign
amounting to millions—if not hundreds of millions —of
bribery, placing other nations on similar footing. Selected
dollars. While the level of penalties varies from year to
legal issues concerning the FCPA that have been considered
year, 2019 broke records, with corporate penalties totaling
by Congress, the courts, and commentators include:
over $2.5 billion. This total includes a landmark settlement
with Ericsson, a Swedish telecom company registered as an
Additional defenses. Some in the business community
issuer with the SEC. Through a DPA, Ericsson agreed to
argue for strengthened affirmative defenses, such as a
pay penalties of over $1 billion for engaging in large-scale
defense based on a company’s implementation of a strong,
bribery schemes in five countries, including China and
good-faith FCPA compliance program. Proponents argue
Vietnam. Ericsson subsidiaries paid bribes to win contracts
that such a “safe harbor” may provide businesses with
from state-owned customers, recording the bribe monies in
increased certainty about their legal exposure. They posit
their books as expenses from sham service agreements.
that the prevalence of FCPA settlements means that there is
a relative lack of judicial precedent and oversight when it
comes to interpreting key FCPA provisions, making it
difficult for companies to understand their precise
obligations under the Act. The DOJ has stated, however,
that the strength of compliance programs is already
considered in prosecutorial decisions, and that this defense
may cause a “race to the bottom” as companies institute
mere check-the-box programs.
Extraterritorial reach to foreign actors. Some
commentators also argue that the Act is vague regarding
when foreign actors come within its scope. The enforcing
agencies have stated that they might prosecute foreign
actors under general principles of conspiracy and
accomplice liability, even if they could not prosecute those
Source: Gibson Dunn & Crutcher, LLP, 2019 Year-End FCPA
parties independently under the Act (e.g., as “territorial
Update (Jan. 6, 2020).
concerns”). However, in a 2018 decision, U.S. v. Hoskins,
Notes: FCPA penalty figures reported by different sources may vary
the U.S. Court of Appeals for the Second Circuit rejected
to some degree, depending on the components of the penalty they
that approach. In Hoskins, the DOJ sought to impose
include in the total. For example, if a settlement agreement offsets
conspiracy and accomplice liability on a foreign employee
penalties paid to foreign regulators for the same misconduct, some
of a foreign company who coordinated a U.S. company’s
sources omit the offset amount when citing the total penalty amount,
bribes to Indonesian officials, but had never set foot in the
while other sources may include it.
U.S. The court held that he could not be prosecuted unless
the DOJ proved he was an “agent” of the U.S. company,
The DOJ and SEC consider a number of factors when
and thus independently liable under the FCPA . The court
deciding whether to initiate or resolve corporate
reasoned that Congress’s precise description of the
investigations under the FCPA. These include the
categories of persons who can be liable under the FCPA
pervasiveness of wrongdoing within the corporation, the
reflects an intention to leave persons not specified in the
existence and strength of a compliance program, and the
Act’s language beyond its reach. The court also held that
corporation’s cooperation in the investigation. Additionally,
Hoskins could not be held directly liable as a “territorial
under its FCPA Corporate Enforcement Policy announced
concern” because he was never present in the U.S.
in 2017, the DOJ presumptively declines to prosecute
voluntary self-disclosures by corporations that meet certain
No private right of action. Courts have repeatedly held that
conditions. In 2018, the DOJ also announced a policy
the FCPA does not authorize a private right of action.
encouraging cooperation with foreign regulators to prevent
While observers posit that corruption potentially harms
“piling on” duplicative penalties for the same misconduct.
competitors, shareholders, government agencies, and the
The policy is particularly relevant to FCPA cases, due to
citizens of foreign countries, these FCPA “victims” do not
the likelihood that companies may be liable in multiple
typically receive compensation often available in other
jurisdictions based on the same conduct.
criminal or securities matters, such as restitution, grants
Issues for Congress
from the Crime Victims Fund, or securities law Fair Fund
distributions. Bills introduced in Congress have sought to
The goals of the FCPA include safeguarding the reputations
provide a private right of action for harmed businesses or to
of U.S. businesses abroad and maintaining public
use FCPA penalty funds for specific causes.
confidence in the integrity of markets. The Act also
discourages harmful corruption overseas. Opponents have
Nicole Vanatko, Legislative Attorney
argued, however, that the Act has a chilling effect on U.S.
corporations conducting business abroad, particularly given
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The Foreign Corrupt Practices Act (FCPA): An Overview

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