The Foreign Corrupt Practices Act (FCPA) was adopted by the US Congress in 1977 after the outgrowth of the Watergate Scandal and a series of other situations in the period. The statute was implemented to deter bribery of foreign officials in connection to business deals and activities (Deming 3). The statute uses to principles in carrying out its purpose. The first principle is the general prohibition concerning the payment of foreign officials that applies to U.S. nationals and corporations under the U.S. laws or their main place of business is within the U.S. the principle also governs corporations that enter the U.S. capital markets. The second principle requires corporations especially the public- held corporations to have accounting and record-keeping mechanisms of their domestic and foreign operations. The above principles or mechanisms are different from each other. The first mechanism is proscriptive in orientation and the second mechanism is usually prescriptive. Apart from their orientation difference, the above mechanisms also differ in terms of their scope and application. One can be found guilty or violation of the FCPA regulation with the consideration of the anti-bribery provisions, the accounting and record-keeping provision or both. As much as these provisions have to be considered separately, none should be considered alone. The two provisions complement each other as they were meant to work together (Deming 3).
It is important to understand that the anti-bribery provisions are based on two principles; nationality or territoriality or both (Deming 8). These provisions have three parallel sets of prohibitions that are both essentially identical. All the three sets prohibit improper inducement of political candidates, officials, party officials and political parties of foreign countries. The difference between the sets is that each set covers its own inducer; they therefore affect inducers in different level per set of prohibition. The categories of inducers are issuers, domestic concerns and any entity or individual while within the boundaries of U.S.
An issuer is an entity required to register under Section 12 or to file reports under Section 15(d). These requirements are under the Securities Exchange Act. Public corporations that are traded on a national exchange in the U.S are considered as issuers (Deming 8). Entities in this scope include;
- Foreign and domestic entities that have listed their securities on a national exchange in the U. S. some of these exchange platforms include the National Association of Securities Dealers Automated Quotation System (NAS-DAQ). The scope also includes entities that are listed with ADRs on a national exchange.
- Foreign or domestic entities that are issuers of securities with $10 million or more in asset at the end of their most recent financial year with any class of securities held of record by 500 persons or more worldwide including 300 0r more in the US are included in the scope, unless it is otherwise stated.
- The financial year in which the registration statement for a class of securities under the securities Act of 1933becomnes effective or needs to be updated , entities within such a class of securities or 300 persons or more.
- Saving associations and banks that issue securities and are insured in accordance with the Federal Deposit Insurance Act.
If a director, employee, agent or an individual’s or entity’s status as an officer act on behalf of the issuer can be subject to the anti-bribery provisions. If the director, employee, agent or officer is not under the jurisdiction of United States, territorial jurisdiction must be established by proving that the individual used mails or other means of instrumentality of interstate commerce for improper inducement purposes.
Anti-bribery concerns extend to domestic concerns where domestic concerns refer to individuals or entities. Any individual that is a citizen, residence or national of the United States is a domestic concern. A national is any individual with United States citizenship or one who owes his/permanent allegiance to the United States. Juridical entities that are the law of a state of the United States or a territory, commonwealth or possession of the United States are also a domestic concern. These entities include non-profit organizations, partnerships, corporations, associations, business trusts, joint-stock companies, sole proprietorships or unincorporated organizations.
Any other person while in the U.S. Territory
Any individual or entity that is not a United States person and uses the mails or other means or instruments of interstate commerce or does any act that is in line with improper inducement is subject to the anti-bribery provisions as long as they are within the United States territory. Whether the individual is a domestic concern or an issuer, this will apply to them.
The anti-bribery prohibition contains five elements;
- An offer, payment, authorization or promise to pay money or anything of value through a third party or directly;
- The above applies to any foreign official, any foreign part or party official, any candidate for foreign political office, any official of a public international organization or any other person with the knowledge that the payment or promise to pay will be passed on to any of the persons above;
- Use of an instrument of interstate commerce such as telex, e-mail, or telephone by any person whether foreign or U.S. or an act outside the U.S. by a domestic concern or U.S. person, or an act in the U.S. by a foreign person in furtherance of the offer, promise to pay or payment.
- For the corrupt purpose of influencing an official act or decision of that person, inducing that person to omit doing any act in violation of his or her lawful duty, securing an improper advantage or inducing that person to use his influence with a foreign government to influence or affect any government decision or act
- In order to assist the company in obtaining or retaining business with or for or directing business to any person.
The Accounting and Record keeping Provisions
The FCPA imposes accounting and record-keeping provisions on issuers, apart from the anti-bribery provisions discussed above. The provision requires public traded entities to keep accurate books and records and sound system of internal controls of the company (Tarun 18). Though the FCPA accounting provisions are enforced by the SEC, the DOJ can bring criminal charges of knowing circumvention of internal controls and falsification of records, books and accounts. Where the burden of proof is preponderance of the evidence and there are no science requirements, the SEC can enforce civil accounting provision. As much as the DOJ has exclusive jurisdiction to prosecute criminal violations of the FCPA, both the SEC and DOJ may obtain injunctive relief to prevent bribery and record-keeping violations of the Act (Tarun 18). The rationale behind the introduction of this provision is because firms that paid bribes overseas never recorded accurately the illicit transactions in their books. The company usually concealed the deals by falsely describing them as transactions. The provision applies to issuers, companies that have securities registered under the SEC or entities that are required to file reports with the SEC, pursuant to the Securities Exchange Act of 194, whether their operations are foreign or not.
FCPA require every issuer to make and keep records, books and accounts in reasonable detail, accurately, fairly reflect the transactions and dispositions of the assets. The Act has defined records to include correspondence, accounts, memorandums, tapes, papers, discs books or any other documents or transcribe information. The three offences in recordkeeping are records that fail to record improper transactions at all, falsified records to conceal aspects of improper transactions otherwise recorded correctly and records that correctly set forth the quantitative aspect of transactions but fail to record the qualitative aspects of the transactions, that can be used to reveal the illegality of the payments or the transactions. Some of the transactions that accounting records can fail to disclose accurately and adequately include; charitable contributions, income tax violations, extraordinary gifts, customs and currency violations, commercial bribes or kickbacks and political contributions among many others.
Internal accounting control provisions
The main purpose of this provision is to ensure that companies adopt the accepted methods of recording economic events, conforming transactions to management’s authorization and protects assets. The provision requires entities to devise and maintain a system of internal accounting controls sufficient to provide assurance that the transactions are executed in accordance with the management’s general authorization and transactions are recorded as necessary to allow the preparation of financial statements in conformity with the generally accepted accounting principles or any other criteria that is allowed. It also gives the assurance that the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action has been taken with respect to any differences and that access to the company’s assets is permitted only in accordance with the management’s general authorization. All the above assurance are supposed to enhance the corporation’s accountability and ensure that the officers, board of directors and the shareholders of the issuer are aware of the events and can prevent improper use of an issuers assets. Both provisions, the recordkeeping provision and the accounting provision, are not limited to material transactions or those that are above a specific dollar amount. The main purpose of an accounting control system is to ensure that entities adapt accepted methods of recording their transactions. There is no specific system of internal controls that is required as long as the system used by the entities reasonably meets the statutes specified objectives.
Penalties, fines, and other sanctions
Individuals that commit willful violations of the FCPA anti-bribery provisions maybe punished by up to $250,000 in fines or five years imprisonment or both. Those that violate the accounting provision may be fined up to $5,000,000 or imprisonment up to 20 years or both. For corporations, the fine may be up to $2,500,000 per violation of the accounting provision and $2,000,000 per anti-bribery for each provision. The FCPA allows up to $10,000 civil penalty against any firm that violates the anti0bribry provision and against any officer, agent, employee or director. In the U.S. entities that are also caught violating these provisions can be suspended or barred from federal programs such as the Defense Department procurement programs.
In the recent, the U.K has been upgrading their laws concerning bribery and corruption, though those in the U.S are much established than in the U.K. One of the solved cases in the U.K was the conviction of a managing director of the UK security company, the CBRN Team (Kochan and Goodyear 198). There was a plea bargain that resulted to a five-month suspended sentence. The managing director had paid £83,000 to two Ugandan officials so as to secure a £210, 000 contracts to cover a commonwealth event in Uganda. For the Ugandans, one of them served six months in remand before confessing and releasing £52,800 from his bank account to the City of London Police for restitution. The case shows that the laws in the UK are stronger than those of the FCPA as they were able to prosecute a foreigner.
Deming, Stuart H. Foreign Corrupt Practices Act and the new International norms. Chicago, Ill.:
Section of International Law and Practice, American Bar Association, 2010. Print.
Kochan, Nick, and Robin Goodyear. Corruption the new corporate challenge. London: Palgrave
Macmillan, 2011. Print.
Tarun, Robert W. The Foreign Corrupt Practices Act Handbook: a practical guide for
multinational general counsel, transactional lawyers and white collar criminal
practitioners. Chicago, Ill.: American Bar Association, 2010. Print.