FOREIGN CORRUPT PRACTICES ACT
The Foreign Corrupt Practices Act penalties can be very serious and cases can be riddled with complexities. This legislation was introduced in 1977 for the purpose of preventing U.S. corporations from bribing foreign officials. The FCPA makes it unlawful for any U.S. corporation or individual, and also certain foreign entities, to give money or anything of value to a foreign government official for the purpose of obtaining or retaining business for, or with, or directing business to, any other individual. There are accounting requirements built into the act that obligate public companies to maintain records that show the company’s transactions.
Who Does the Foreign Corrupt Practices Act Apply To?
Among those who are subject to the FCPA are “issuers” and “domestic concerns”.
- An “issuer” is basically a company that has securities traded or is otherwise obligated to submit filings with the SEC.
- A “domestic concern” is any organization that resides in the United States. or any individual who is a resident, national, or citizen of the U.S.
The FCPA may also apply to foreign corporations and persons if certain territorial jurisdictional requirements are satisfied. Indeed, several of the most highly publicized FCPA cases involved foreign firms and persons.
What Qualifies as “Anything of Value” under the FCPA?
The term “anything of value” covers many forms of payment including cash, vehicles, travel expenses, company shares, and even educational expenses.
What Does the Term “Obtain or Retain Business” Mean Under the FCPA?
This is most often associated with a government contract. That said, the statute prohibits a much wider swath of business activities and transactions.
Penalties for Violating the Foreign Corrupt Practices Act
The Securities and Exchange Commission (SEC) handles civil enforcement of this law, while it is enforced criminally by the Department of Justice. The way in which an investigation proceeds can differ widely depending on whether the target is an individual or a corporation. FCPA investigations typically don’t result in criminal charges being filed against a corporation. In lieu of prosecution, the government and the corporation will customarily reach a settlement agreement before any court action is taken. The settlement is known as a non-prosecution agreement or a deferred prosecution agreement. In it, the corporation admits to the violations and agrees to make changes to its internal policies and practices. Once successfully completed, the charges against the corporation are dismissed. As far as an SEC investigation is concerned, a corporation usually settles a civil complaint filed by the SEC or resolves the case in an administrative order.
Charges are more likely to be filed against an individual, exposing them to severe repercussions. According to the FCPA, any officer, director, employee, or agent of an issuer or stockholder acting on behalf of such issuer, who willfully violates the anti-bribery provisions, is subject to fines up to $100,000 and five years behind bars. For corporations, the fine is up to $2 million. It is worthy of note that willful violations of the FCPA’s accounting requirements subject individuals to huge fines of $5 million and a term of 20 years. Corporate fines can soar as high as $25 million.
THE SIEMENS AG CASE
This industrial and consumer product manufacturer based in Munich, Germany pled guilty to bribery charges and also to violating accounting provisions. Siemens AG arrived at a settlement in the amount of $800 million, in December 2008. The company agreed to pay $350 million to the SEC in disgorgement and $450 million to the U.S. Department of Justice in criminal fines. On top of that, the company was responsible for a fine of more than $5.5 million to the Office of the Prosecutor General in Munich.
Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, stated that the scale of Siemens’ nearly $1.5 billion in foreign bribery was unprecedented, involving government officials from Africa, the USA, Asia, Europe, and the Middle East. It was also discovered that in addition to more than 4,200 payments to bribe government officials worldwide in exchange for business to Siemens, the corporation made more than 1,000 other payments in the sum of nearly $400 million to third parties for embezzlement and other illicit and unethical causes.
Defending Foreign Corrupt Practices Act Cases
The FCPA contains just one exception. The legislation provides that the anti-bribery provisions do not apply to any facilitating or expediting payment to a foreign official, political party, or a party official the purpose of which is to expedite or to secure the performance of a routine governmental function by a foreign official, political party, or party official.
The act also provides for two affirmative defenses.
- One affirmative defense is possible where payments remitted were lawful under the written laws of the foreign official’s country.
- The second affirmative defense comes into play if the payment was a reasonable and bonafide expenditure, such as travel and lodging expenses, that was incurred by or on behalf of the foreign official and was directly connected to the promotion, demonstration, or explanation of products or services or the execution or performance of a contract with a foreign government or agency thereof.
Additonal to these affirmative defenses is the fact that an individual charged with an FCPA violation may have a multitude of other defenses that could be raised at trial. For example, an individual might have had no knowledge that there was a payment made. A payment may have been made in good faith. In other scenarios, the “government official” might not have been a government official as defined for the purpose of this law. The most effective ddefense to use will depend on the unique collection of facts for each case.
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