Business has become increasingly international and, because of that, U.S. businesses have become exposed to laws that govern overseas business.
One of those laws is the Foreign Corrupt
Practices Act (FCPA), which prohibits the
bribery of foreign government officials. The
penalties for violating this act can be harsh,
according to Trent Sandifur, member of
Sommer Barnard’s Intellectual Property and
Litigation Practice Groups.
Smart Business spoke with Sandifur about
the specifics of the FCPA and what businesses need to do to stay in compliance.
What is the FCPA?
The FCPA prohibits the bribery of foreign
government officials for the purpose of influencing an official act or decision to obtain or
retain business. Passed by Congress in 1977
to combat the rising tide of bribery of foreign
government officials by U.S. businesses, the
FCPA has become progressively relevant to
U.S. companies as commerce has become an
increasingly international enterprise.
U.S. companies establishing operations in
foreign countries, particularly in the developing world, often discover an environment
where bribery of government officials is a traditional and socially acceptable cost of doing
business. Unfortunately, many of these same
companies subsequently fail to adhere to the
FCPA and, as a result, find themselves as targets of Department of Justice investigations.
What activity does the FCPA prohibit?
The FCPA applies to three broad groups:
issuers of U.S. securities; U.S. businesses, citizens and residents; and foreign companies
and nationals. Together, these groups comprise nearly every entity that could conceivably engage in business in a foreign country.
While the FCPA applies somewhat differently to each group, the principles behind the
application of the FCPA are the same.
Fundamentally, the FCPA prohibits the
offering of a bribe or the bribing of foreign
government officials to obtain or retain business. Direct payments to government officials are illegal, as are indirect payments
made by third parties. Therefore, businesses
must ensure that their agents, especially in foreign countries, comply with the FCPA.
However, a limited exception to the anti-bribery provisions of the FCPA concerns
facilitating payments made in furtherance of
routine governmental action. Routine government actions identified in the FCPA
include obtaining permits, licenses, or other
official documents; processing governmental
papers, such as visas and work orders; providing police protection, mail pick-up and
delivery; providing phone service, power and
water supply, cargo handling, or protection of
perishable products; and scheduling inspections associated with contract performance
or transit of goods across country.
The FCPA also includes provisions that
require issuers of U.S. securities to make and
keep records that accurately and fairly reflect
the transactions and dispositions of the
issuer’s assets. While an issuer of U.S. securities must strictly comply with this record-keeping requirement, the federal government
is not as likely to prosecute innocent violations of the requirement as it is willful violations. In fact, the penalties for willful violations are even more severe than the penalties
for violations of anti-bribery provisions.
Who enforces the FCPA?
The Department of Justice enforces all
criminal provisions of the FCPA as well as some civil provisions. The Securities and
Exchange Commission is responsible for
pursuing civil enforcement of the FCPA
against issuers of securities. Criminal prosecutions and civil enforcement of the FCPA
have increased significantly in recent years.
What are potential penalties for violations?
Criminal and civil penalties for FCPA violations are severe. Businesses may be fined up
to $2 million (or more, if sentenced pursuant
to 18 U.S.C. § 3571(d)), forced to forfeit
assets, subjected to injunctions and prohibited from engaging in business with the federal government. Harsh regulatory sanctions
may also be imposed. Individuals, often
employees of businesses that have violated
the FCPA, may be fined up to $100,000 (or
more, if sentenced pursuant to 18 U.S.C. §
3571(d)). Employers are prohibited from
paying fines on behalf of employees.
Individuals also may be imprisoned for up to
five years and face possible asset forfeiture,
as well as serious regulatory sanctions. The
FCPA identifies two affirmative defenses that
are available to a defendant charged with an
FCPA violation. A defendant may assert that
an alleged bribe was lawful under the written
laws of the foreign country in which the
FCPA violation is alleged to have occurred. A
defendant may also assert that the alleged
bribe actually was a legitimate expense
directly related to demonstrating a product
or performing a contractual obligation.
How can companies stay in compliance?
To protect itself and its employees from
FCPA exposure, any business that interacts
with foreign governments or officials must
have a strong corporate compliance program
in place with internal controls and training
that squarely address the FCPA. While a business’s leadership certainly should possess a
fundamental working knowledge of the
FCPA, the complexities are best addressed
by legal professionals that can assist with the
creation, evaluation and refinement of an
effective FCPA compliance program.
TRENT SANDIFUR is a member of Sommer Barnard’s
Intellectual Property and Litigation Practice Groups. Reach him at
(317) 713-3500 or [email protected].
