What Is the Foreign Corrupt Practices Act (FCPA)?
Key takeaways
– The FCPA (1977) is U.S. federal law that prohibits bribing foreign officials to obtain or retain business and requires certain companies to keep accurate books and internal controls.
– The law has two core components: (1) anti‑bribery provisions that bar corrupt payments to foreign officials and (2) books, records, and internal controls provisions that require accurate accounting and controls for U.S.-listed companies.
– The FCPA applies broadly and extraterritorially—to U.S. persons and issuers, and to foreign persons and entities who act in furtherance of a violation while in the United States.
– Enforcement is led by the U.S. Department of Justice (DOJ) (criminal) and the Securities and Exchange Commission (SEC) (civil for issuers). Violations can trigger large fines, disgorgement, corporate monitorship, and jail time for individuals.
– Effective compliance requires clear policies, risk‑based due diligence of agents and JVs, accounting controls, training, and timely investigation and remediation of suspected violations.
Understanding the Foreign Corrupt Practices Act
– Purpose: To deter international bribery and promote transparent accounting practices for companies with U.S. securities.
– Scope: The FCPA targets corrupt payments to “foreign officials” (a broad term that includes government employees, employees of state‑owned enterprises, and often persons acting in an official capacity). It covers direct payments and payments made through third parties (agents, consultants, joint‑venture partners) if they are intended to influence a foreign official.
– Who is covered:
– U.S. persons and domestic concerns (companies and individuals).
– Issuers (companies with securities listed in U.S. exchanges or that file reports with the SEC).
– Any person (including foreign companies or nationals) who commits an act in furtherance of a corrupt payment while in the territory of the United States.
– Extraterritorial reach: If any part of the corrupt conduct occurs inside the U.S., or involves U.S. issuers/territories/persons, the FCPA can apply.
Anti‑Bribery provisions
– Prohibited conduct: Offering, promising, paying, or authorizing payment of anything of value to a foreign official to influence an official act or to secure an improper advantage in obtaining or retaining business.
– Third‑party liability: Liability attaches not only to direct bribes but to payments made through intermediaries where the payer knows (or is reckless/Willfully blind) that the payment will be used to bribe a foreign official.
– Facilitating (expediting) payments: The FCPA historically has a narrow exemption for bona fide facilitating payments for routine governmental actions (e.g., processing permits). This exception is limited, risky, and many companies prohibit these payments in their policies because they can be difficult to justify and may violate local laws or other anti‑corruption regimes.
– “Anything of value”: Very broad—cash, gifts, travel, charitable donations, employment offers, or other benefits.
Books, records, and internal control provisions
– Books and records: Issuers must keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets. This makes it harder to conceal corrupt payments by mischaracterizing them in the ledger.
– Internal controls: Issuers must devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed and recorded according to management’s authorization and that assets are properly safeguarded.
– Purpose: These provisions target the accounting side of corruption—misclassification of payments, off‑book accounts, or weak controls that permit bribery.
Violating the FCPA
– Enforcement authorities:
– DOJ enforces the criminal provisions.
– SEC enforces civil provisions against issuers and related entities/individuals.
– Types of penalties and remedies:
– Criminal fines and forfeiture against companies; imprisonment and fines for individuals.
– Civil penalties, disgorgement of profits, injunctions.
– Corporate monitorship or independent compliance consultant appointment as part of resolution.
– Remediation requirements: enhanced compliance programs, training, and reporting.
– Consequences beyond fines: reputational damage, debarment from public contracts, collateral regulatory actions, and shareholder lawsuits.
– Practical note: Prompt internal investigation, self‑disclosure to DOJ/SEC in appropriate cases, and remedial action can mitigate penalties.
SEC sample rulings and enforcement practice
– The SEC publishes FCPA enforcement actions and press releases describing cases against issuers, officers, and other parties. These summaries can illustrate typical violations (e.g., improper payments routed through consultants, failure to maintain accurate books and records, inadequate internal controls) and the kinds of remedies imposed.
– The DOJ and SEC coordinate enforcement; the DOJ handles criminal prosecutions, and the SEC handles civil enforcement for issuers. Both agencies consider voluntary self‑disclosure, cooperation, and remediation when deciding sanctions.
Practical compliance steps—how companies and individuals should act
1. Executive commitment and governance
– Secure explicit, documented commitment from the board and senior management to anti‑corruption compliance.
– Designate a senior compliance officer and a clear escalation path for suspected violations.
2. Risk assessment
– Conduct a periodic, documented FCPA risk assessment covering countries, business lines, third‑party relationships, M&A targets, and interaction types with governments.
– Prioritize high‑risk areas (e.g., sales to SOEs, customs, permit processes, procurement, high‑value contracts).
3. Written policy and code of conduct
– Adopt a clear anti‑bribery policy and code of conduct that prohibits bribery (including through third parties), describes the facilitation payments stance, and sets requirements for gifts, hospitality, political contributions, and charitable donations.
– Require acknowledgment of the policy by employees and relevant third parties.
4. Third‑party due diligence and management
– Require enhanced due diligence for agents, consultants, sales intermediaries, JV partners, and others who interact with foreign officials.
– Perform background checks, verify reputations, check ownership (PEP screening), and obtain references.
– Include anti‑bribery contractual clauses, audit rights, termination rights, and representations/warranties.
– Monitor and re‑assess third parties periodically and maintain records of diligence.
5. Financial controls and accounting
– Require that all payments are supported by legitimate invoices and documented approvals.
– Implement segregation of duties, payment controls, and review procedures for unusual payments or third‑party invoices.
– Ensure books and records accurately reflect the nature of transactions; prohibit off‑book accounts.
6. Training and communication
– Provide role‑based training (e.g., sales, procurement, finance, legal) on FCPA risks and policies, with refresher training at regular intervals.
– Use real‑world scenarios tailored to country and function risk profiles.
7. Investigation, reporting, and remediation
– Establish confidential reporting mechanisms (hotlines) and protections against retaliation.
– Investigate reports promptly, document findings, and take disciplinary or remedial action as appropriate.
– When violations are discovered, consider whether voluntary self‑disclosure to DOJ/SEC is appropriate; timely, complete disclosure and full cooperation often mitigate penalties.
8. Mergers & acquisitions (M&A) and integration
– Conduct FCPA due diligence in any M&A target, including historic interaction with foreign officials and third‑party advisers.
– After acquisition, integrate target’s policies, controls, and training quickly and assess legacy risks.
9. Recordkeeping and monitoring
– Retain documentation of risk assessments, due diligence, approvals, and remediation steps.
– Use periodic audits (internal and/or external) to test controls, third‑party payments, and compliance program effectiveness.
10. Engage external counsel and specialists
– In complex matters—cross‑border investigations, potential enforcement exposure, or when language/cultural issues arise—retain experienced FCPA counsel and forensic accountants as needed.
Checklist for a compliance starter kit
– Board‑approved anti‑bribery policy and code of conduct.
– Named Chief Compliance Officer and escalation pathway.
– Written third‑party due diligence process and standard contract clauses.
– Accounting controls and payment‑approval matrix.
– Training program and attendance tracking.
– Whistleblower hotline and investigation protocol.
– Periodic risk assessment and audit schedule.
– Document retention policy for compliance records.
When you uncover a potential violation: immediate steps
1. Preserve evidence and limit deletion of records (implement a legal hold).
2. Conduct a prompt, documented internal investigation using trained personnel or outside counsel.
3. If the investigation indicates a violation, evaluate self‑disclosure to DOJ/SEC, considering cooperation and remediation measures.
4. Implement corrective actions (discipline, controls, training) and document them.
5. If necessary, retain counsel experienced with FCPA matters to navigate negotiations with enforcement agencies.
Where to read the law and official guidance
– U.S. Securities and Exchange Commission — Foreign Corrupt Practices Act (FCPA) overview and enforcement actions: https://www.sec.gov/spotlight/fcpa.shtml
– U.S. Department of Justice — FCPA guidance and resources: (DOJ FCPA Unit pages)
– Organisation for Economic Co‑operation and Development (OECD) — Convention on Combating Bribery of Foreign Public Officials in International Business Transactions: https://www.oecd.org/corruption/oecdantibriberyconvention.htm
– U.S. International Trade Administration — U.S. Foreign Corrupt Practices Act overview: https://www.trade.gov/us-foreign-corrupt-practices-act
– U.S. statutes (codified): 15 U.S.C. §78m (reports and accounting) and 15 U.S.C. §78dd (anti‑bribery provisions); criminal sentencing statute 18 U.S.C. §3571: https://www.law.cornell.edu
Selected explanatory sources
– Investopedia — “Foreign Corrupt Practices Act (FCPA)”: https://www.investopedia.com/terms/f/foreign-corrupt-practices-act.asp
– SEC — Enforcement Actions: FCPA Cases: https://www.sec.gov/spotlight/fcpa.shtml
Final note
The FCPA is complex and enforcement practices evolve. A robust, risk‑based compliance program that combines prevention, detection, and rapid remediation is the best practical protection for companies operating internationally. For significant compliance or enforcement questions, seek counsel experienced in FCPA matters and coordinate legal, finance, and operational teams.
If you’d like, I can:
– Draft a sample anti‑bribery policy or third‑party due diligence checklist tailored to your industry and jurisdictions.
– Outline a training module for sales or procurement teams.
– Summarize recent SEC/DOJ FCPA enforcement actions as illustrative case studies.