The Foreign Corrupt Practices Act (FCPA) is the most effective transnational anticorruption law in the world. It includes two main provisions:
- Anti-bribery: Individuals and businesses are prohibited from bribing foreign officials in order to retain or obtain business.
- Accounting: Issuers must create and keep books, records, and accounts to accurately reflect the transactions of corporations. Issuers are prohibited from falsifying these records. Issuers must also devise and maintain an adequate system of internal accounting controls.
The U.S. Congress enacted the Foreign Corrupt Practices Act (FCPA) in 1977 after uncovering widespread corruption in the wake of the Watergate political scandal.
In 1988, the FCPA was updated to address questions surrounding the local law defense and bona fide payments.
And in 1998, the FCPA was amended to expand its scope and conform to the requirements of the Anti-Bribery Convention.
Since 2010, whistleblowers have been covered under the FCPA.
The Foreign Corrupt Practices Act is extremely broad in scope and applicable worldwide. It extends to issuers and their subsidiaries and personnel, as well as foreign entities and agents.
An issuer is a U.S. or foreign public company listed on stock exchanges in the United States or companies that are required to file periodic reports with the U.S. Securities and Exchange Commission.
In the Securities and Exchange Commission (SEC) Resource Guide, the SEC deems a company an “issuer” if:
- The company is listed on the national securities exchange in the United States (either stock or American Depository Receipts); or
- The company’s stock trades in the over-the-counter market in the United States and the company is required to file SEC reports.
- To see if your company files reports, go to SEC’s website at https://www.sec.gov/edgar.shtml
Under the FCPA, the term "foreign officials" is defined broadly and can include any officer or employee of a foreign government agency, department, or public institution acting on behalf of the government. Foreign officials also include foreign political parties, candidates of foreign political parties, and members of a foreign military in charge of employees, officials, and contracts of government-owned or government-controlled entities.
The FCPA prohibits the payment of bribes to gain a business advantage. The U.S. Department of Justice and the U.S. Securities and Exchange Commission's Resource Guide lists the following actions as examples of when corporations are often induced to pay bribes to foreign officials:
1. "winning a contract"
2. "influencing the procurement process"
3. violating "rules for importation of products"
4. "gaining access to non-public tender information"
5. "obtaining exceptions to regulations"
6. "avoiding contract termination"
The FCPA also prohibits "indirect bribes" or bribes made to any person who knows a portion of a payment will be used, directly or indirectly, to bribe foreign officials. Therefore, persons or companies that aid or abet in a bribery scheme are guilty under the FCPA to the same degree as those who pay the bribe.
The anti-bribery provisions of the FCPA prohibits offerings of payments or anything of value to foreign government officials with the intent to influence any act or decision to assist in obtaining or retaining business. The term “anything of value” includes items such as cash, computer equipment, expensive clothing, medical supplies, vehicles, etc.
Small gifts or paying something of nominal value, such as paying for a taxi ride, will not be actionable. However, the more extravagant the gift, the more likely it is being used to bribe a foreign official.
Under the FCPA, issuers are required to have strong internal controls to prevent off-book accounting. Criminal liability can be imposed on companies and individuals for failing to comply with the books and records or internal controls provisions of the FCPA, provided they acted “willfully”.
The U.S. Department of Justice and the U.S. Securities and Exchange Commission's Resource Guide lists the following actions as examples of violations:
1. Failure to implement internal controls
2. Failure to keep accurate books and records
3. Failure to implement sufficient anti-bribery compliance policies
4. Failure to maintain sufficient systems for the selection and approval of consultants
5. Failure to conduct appropriate audits of payments
Even if the U.S. government cannot prove a bribe has taken place, companies can still be held liable for improper payments that were not accurately recorded.
In order for an individual to be criminally liable under the FCPA, they must act “willfully”. The FCPA does not define the term, but courts have construed this generally to mean an act committed voluntarily and purposefully, and with a bad purpose.
However, the FCPA does not require the government to prove a defendant was specifically aware of the FCPA or knew their conduct violated the FCPA.
The U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) are both enforcers of the FCPA and generally work in cooperation together.
The SEC is responsible for civil enforcement of the FCPA and ensures fair play between various issuers and their shareholders. The SEC investigates and prosecutes FCPA violations specifically for company’s subject to the SEC’s regulation.
The DOJ has both civil and criminal enforcement responsibilities over domestic concerns regarding the FCPA’s anti-bribery provisions. This includes U.S. citizens, nationals, residents and U.S businesses acting on the domestic concerns as well as certain foreign persons and businesses in violation of the FCPA while on United States territory. The DOJ also has criminal enforcement authority over “issuers” and their officers, directors, employees, etc.
In a broad sense, the SEC handles civil enforcement of FCPA violations related to accounting provisions and the DOJ handles criminal and civil penalties related to the act of bribery. The difference between civil and criminal enforcement is civil cases do not carry the threat of prison time whereas criminal cases do. However, the burden of proof is lower for civil cases.
Other agencies such as the Federal Bureau of Investigation (FBI) and the U.S. Department of Homeland Security (DHS) work with both the SEC and DOJ to assist in the prosecution of FCPA violations if needed. The FBI’s International Corruption Unit is the primary agency responsible for investigating international corruption and fraud.
The Foreign Corrupt Practices Act (FCPA) and the False Claims Act (FCA) are both laws concerning fraud with global whistleblower provisions; however, they have key differences. That said, it is possible for certain conducts to violate both.
One of the main differences between the FCPA and the FCA is the materiality requirement. The materiality requirement means having a “natural tendency to influence, or be capable of influencing” the government’s decision to pay a claim. 31 U.S.C. § 3729(a)(4). In other words, does the violation affect a reasonable government’s funding decision? If yes, then this is a violation of the FCA. The FCA is also not limited to situations dealing with bribery or foreign governments, but rather applies to a scheme to defraud the government.
However, FCPA violations can potentially lead to separate violations under the FCA based on the “implied certification” theory of liability. This refers to a situation where a company might not have explicitly broken the terms of its contract with the government, but rather falsely certified that it had complied with federal regulations and laws in order to receive payment from the government.
Whistleblowers who know of possible securities law violations can be among the most powerful weapons in the law enforcement arsenal. By blowing the whistle, the U.S. Securities and Exchange Commission and U.S. Department of Justice can identify and prosecute violators earlier than would have been possible otherwise, minimizing the harm to investors and U.S. capital markets.
Yes, under the Sarbanes-Oxley Act and the Dodd-Frank Act, whistleblowers are protected from employer retaliation. Should the whistleblower be retaliated against by their employer, they can report this violation and could be eligible to receive reinstatement, back pay, and other compensation.
Persons with knowledge of companies violating the FCPA are eligible for an award when they voluntarily provide the U.S. Securities and Exchange Commission (SEC) with actionable information. A whistleblower can receive between 10 and 30 percent of the total recovery from the defendant when monetary sanctions exceed $1 million.
However, if the whistleblower would like to remain anonymous and be considered for a reward under the SEC, a whistleblower attorney must represent them and submit information on their behalf.
Yes, anyone can report FCPA violations.
The FCPA has been extremely successful. In 2019 alone, a record $2.6 billion in corporate fines was levied, and there were 54 enforcement actions brought by the FCPA units of the Department of Justice (DOJ) and Securities and Exchange Commission (SEC).
To read SEC FCPA enforcement actions, click here.
To read DOJ FCPA enforcement actions, click here.
You can read our popular PDF Foreign Corrupt Practices Act: How the Whistleblower Reward Provisions Have Worked. Readers will find how FCPA is an effective tool to stop and catch illegal activity. For international whistleblowers, translations in over a dozen languages of the FCPA pager by NWC are available to download here.
If you need help finding an attorney, visit Resources for Locating an Attorney.
For additional information on the Foreign Corrupt Practices Act, please read Rules 1, 3, 9, International Toolkit, and Checklists 7-8 published in The New Whistleblower's Handbook: A Step-by-Step Guide to Doing What's Right and Protecting Yourself (Lyons Press, 2017).
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