What Is the FCPA (Foreign Corrupt Practices Act)?
U.S. corporations and individuals are prohibited from bribing foreign officials to advance commercial negotiations under the Foreign Corrupt Practices Act (FCPA). The FCPA has two primary articles:
- The anti-bribery laws
- Bookkeeping and internal control provisions relate to accounting.
The FCPA prohibits worldwide activity for publicly listed and privately owned U.S. firms.
Understanding the FCPA
Foreign Corrupt Practices Act addresses bribery and corruption worldwide. In the 1970s, businesses worldwide paid foreign authorities to expedite legal processes or win contracts. Firms often deduct bribes as business costs in various nations on their tax forms. Expected behavior may not imply ethical or acceptable conduct.
American corporations supported the 1977 statute because they could not compete in bribery-accepted foreign markets. U.S. corporations have gained a fair playing field internationally through the FCPA’s anti-bribery framework and OECD accords.
The statute forbids foreign official bribery to combat corruption and power abuses globally. The FCPA regulates publicly listed firms, directors, executives, shareholders, agents, and employees. Using proxies to execute bribes through third parties, such as consultants and partners in a joint venture (JV), does not protect the corporation or individual from scrutiny.
Recordkeeping and Internal Control
This part of the legislation specifies accounting transparency principles to complement anti-bribery laws. U.S.-listed firms must comply with FCPA accounting requirements, prohibiting concealing illegal payments through asset recording.
Under the legislation, corporations must establish and maintain internal controls to ensure appropriate accounting of business activities for regulators.
The SEC and DOJ jointly enforce the Foreign Corrupt Practices Act. SEC developed a separate team in its enforcement division to handle FCPA issues.
Violating the legislation may face severe consequences, including criminal and civil charges. Bribery can result in fines up to double the desired gain. Corporate companies violating the legislation may require independent auditor monitoring for future compliance. Breaking this legislation can result in five years in jail.
SEC FCPA Sample Rulings
Current act violations and enforcement actions are posted on the SEC website in press release style. Additionally, the government provides a yearly overview of persons and organizations who violated the legislation.
A 2019 SEC judgment involved proceedings against:
- Ericsson (NASDAQ: ERIC), a multinational telecommunications company based in Stockholm, has settled charges of violating the FCPA by using sham consultants to funnel money to government officials in multiple countries secretly. The company has agreed to pay over $1 billion to the SEC and DOJ.
- To resolve SEC and criminal accusations relating to FCPA breaches in Hungary, Thailand, Saudi Arabia, and Turkey, Microsoft (NASDAQ: MSFT) paid over $24 million.
- Former Goldman Sachs executive Tim Leissner, who violated the FCPA by bribing government officials to secure lucrative contracts, has agreed to a settlement with the SEC, which includes a permanent bar from the securities industry.
- The SEC accused Walmart Inc. (NYSE: WMT) of breaching the FCPA’s books, records, and internal financial controls rules by not having an adequate anti-corruption program for over a decade during fast worldwide development. Walmart settled SEC and DOJ allegations for over $144 million and $138 million, respectively, for over $282 million.
- The FCPA forbids U.S. companies and people from bribing foreign authorities to advance commercial negotiations.
- The SEC and DOJ enforce the FCPA.
- The 1977 FCPA leveled the playing field for American corporations abroad.