Bribery, Billions, and Bureaucrats: The FCPA and its Global Application
An international construction company with a multibillion dollar oil contract finds itself under investigation by the United States Department of Justice (DOJ) for bribing Nigeria’s ruling cabal. A Saudi Prince allegedly takes $2 billion in bribes from a British aerospace company and uses political leverage to bury an investigation by the UK Serious Fraud Office. These aren’t storylines for Academy-Award winning films, but newspaper headlines from the last few weeks. In 1977, the Federal Corrupt Practices Act (FCPA) was drafted as a response to a series of corporate bribery scandals involving foreign government officials. At that time, Congress became concerned that corrupt corporate practices seriously undermined public confidence in the business community and tarnished America’s image abroad. Following inquiries by the United States Senate and the Securities and Exchange Commission (SEC), Congress responded by enacting the FCPA. We have now come full circle and are once again witnessing another wave of corruption scandals involving high-profile government officials and powerful global corporations. As illustrated by the Halliburton and British Aerospace Systems (BAE) scandals, the US government has become increasingly vigilant in enforcing the FCPA and penalizing companies that fall afoul of its provisions.
Although the FCPA focuses on two (2) areas—accounting and anti-bribery—this article will cover those FCPA provisions relating to anti-bribery. The anti-bribery provisions apply to all entities that have securities registered with the SEC and “domestic concerns.” The term “domestic concern” can be somewhat misleading and should be clarified to corporate clients. Although the FCPA applies to United States citizens and corporate/business entities with their principal place of business in the United States or organized under its laws, the Act also applies to foreign companies and nationals in US territory. If a company has any business presence in the United States, it may be subject to the FCPA.
Specifically, the anti-bribery provisions of the FCPA prohibit the bribing of foreign government officials for the purpose of obtaining or retaining business, directing business to another person or securing any improper advantage. Moreover, the FCPA prohibits individuals and businesses from offering, promising, or authorizing (either directly or indirectly) the payment of anything of value to any foreign official, government employee, officer of a public international organization, foreign political party or political candidate, or any person acting on behalf of any of these entities.
A violation of the anti-bribery provisions of the FCPA contains the following five (5) elements: (1) any “domestic concern” or United States entity who either uses an instrument of interstate commerce or performs an act outside the United States to further (2) a payment or an offer to pay something of value (3) to a foreign official, political party, or political candidate (4) for the corrupt purpose of inducing the official to act or refrain from acting (5) to assist the company in obtaining, retaining, or directing business or securing an improper advantage.
Additionally, the FCPA bans payments made to third parties “while knowing” that a portion or all of the payments will be used by the third party as bribes or for purposes contrary to the intent of the Act. The “knowing” standard encompasses “conscious disregard” or “willful blindness” and is intended to cover those instances when companies and officials fail to take action when there are reasonable signs of an FCPA violation. Thus, if anyone acting on behalf of a U.S. entity facilitates or acquiesces to the bribery of a foreign government official through its foreign subsidiary, then both the individual and the US corporation will have violated the FCPA.
It should be noted that the FCPA does provide an exemption for payments to government officials/entities to facilitate “routine government action.” However, the scope and availability of this exemption is open to interpretation. As such, the DOJ has established a FCPA Opinion Procedure by which the opinion of the Attorney General can be requested as to whether certain specified, prospective—not hypothetical—conduct conforms with the Department’s present enforcement policy regarding the FCPA’s anti-bribery provisions.
The FCPA provides for severe penalties for corporations and individuals acting on behalf of such corporations that have violated its anti-bribery provisions. The penalties imposed may be criminal or civil in nature. The maximum penalty for willful violations of the FCPA anti-bribery provisions is $2,000,000 for corporations, while an officer, director, employee, or agent may face a fine of up to $100,000 and imprisonment for up to five (5) years. In addition to criminal punishment, the FCPA provides for civil penalties of up to $10,000 for bribery violations. It should be noted that in order to maximize the effectiveness of the penalties, companies are prevented from indemnifying their officers and employees against liability under the Act.
In light of the severity of the potential penalties, companies conducting business in the United States should consider the adoption of the following preventative policies/procedures:
Forbidding payments to foreign officials (direct or indirect);
- Forbidding illegal political contributions;
- Forbidding the false entries in books and records;
- Conducting background checks on foreign sales representatives/agents; and
- Obtaining written confirmation from overseas agents/representatives that they will comply with the provisions of the FCPA.
Attorneys advising corporations with any presence in the United States should inform themselves and their clients about the restrictions and penalties of the FCPA. The DOJ seems to be increasing its enforcement activity even among companies with headquarters outside the United States. In a sprawling global economy, international corporations with a complex network of subsidiaries, sales representatives and agents must establish governing protocols to assure compliance with the FCPA – or risk significant liability.