The Foreign Corrupt Practices Act Featured

7:00pm EDT December 26, 2007

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 tsandifur@sommerbarnard.com.