An Introduction to the Foreign Corrupt Practices Act

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An Introduction to
the Foreign Corrupt
Practices Act
ACURUS Business Consulting

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Legislative history of the Foreign Corrupt
Practices Act
▪ Late Edward William Proxmire (1915 – 2005)
▪ US Senator from Wisconsin – Democrat
▪ Author of The Foreign Corrupt Practices Act of 1977 (FCPA)
▪ Introduced in the Senate by William Proxmire on January 18,
1977.
▪ Passed Senate Review on May 5, 1977.
▪ Signed by the Senate on December 6, 1977.
▪ Agreed to by the House of Representatives on December 7,
1977.
▪ Signed as Law by President Jimmy Carter on December 19,
1977.
▪ Amended in 1998 making the FCPA applicable to Foreign
Nationals or Businesses.

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FACTS
“A U.S. law that prohibits companies engaged in business in foreign jurisdictions from payments to
foreign governmental representatives.”
What is the
FCPA?
In the 1970s a study by the Securities and Exchange Commission of the United States of America
(SEC) noted that over 400 U.S. companies admitted making questionable or illegal payments (in
excess of $300 million or $1.6 billion in 2019 dollars) to foreign government officials, politicians and
political parties. For example, “Chiquita Brands” (think Bananas) admitted paying the President of
Honduras to lower taxes – also known as the banana gate scandal.
The FCPA was enacted to bring a halt to the bribery of foreign governmental representatives and
to restore public confidence in the integrity of the American business system.
Why was it
introduced?

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There are
TWO main
components
of the FCPA:
Bribery
Prohibition
Accounting
Provisions

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Details
(Bribery
Prohibition)
Bribery Prohibition
Who is potentially liable?
Issuer – A corporation that has issued securities (equity and
debt) that have been registered in the U.S. or who is required
to file periodic reports with the SEC.
Domestic Concern – An individual who is a citizen, national,
or resident of the U.S., or any corporation or any form of
business which has its principal place of business in the U.S.
OR which is organized under the laws of a State of the U.S., or
a territory (Puerto Rico), possession, or commonwealth of the
United States.
Foreign National or Business – A foreign company or person
is now subject to the FCPA if it causes, directly or through
agents, an act promoting corrupt payment(s) to take place with
the territory of the U.S. (i.e. foreign diplomats, visiting
businessmen, heads of state).

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Details
(Bribery
Prohibition -
Continued)
Bribery Prohibition
What constitutes improper/illegal/disallowed payments?
The FCPA prohibits the following:
1. Any payment or offering or promising to pay (or authorizing to
pay or offer) money or anything of value (gifts, loans, tickets
etc.). There is no concept of materiality!
2. Payments made in order to assist a company in obtaining or
retaining business with or directing business towards any
person.
3. Any payment intended to influence any act or decision of a
foreign official in his official capacity.
4. Any payment to induce the official to do or omit any act in
violation of his lawful duty.
5. Any payment to obtain any unfair advantage.
6. Any payment to induce a foreign official to use his influence
improperly to affect any act or decision.

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Details
(Bribery
Prohibition -
Continued)
Bribery Prohibition
What is Exempted/Allowed:
Facilitating payments for “routine governmental action” are exempted
such as:
1. Payments to obtain permits, licenses, or other official documents
to qualify a person to do business in a foreign country.
2. Payments for processing governmental papers such as visa’s
and work orders.
3. Payments for providing police protection, mail pick-up and
delivery.
4. Payments for providing phone service, power, water supply,
loading and unloading cargo, or protecting perishable products
or commodities from deterioration.
5. Payments for actions of similar nature.

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Details
(Bribery
Prohibition -
Continued)
Bribery Prohibition
Who was the RECEPIENT of
the payment?
The FCPA applies to payments
to any public official, regardless
of rank or position.
Cannot make prohibited
payments to foreign officials,
foreign political party or party
official, or any candidate for
foreign political office.
Foreign official means any
officer or employee of a foreign
government, a public
international organization (e.g.
Doctors without borders), or
any department or agency.
Officials of state owned
business enterprises.

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Details
(Accounting
Provisions)
Accounting Provisions
Keep books, records, and accounts, which, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
assets.
Devise and maintain a system of internal accounting controls
sufficient to provide reasonable assurance that:
1. Transactions are executed in accordance with managements
general or specific authorization;
2. Transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain
accountability of assets;
3. Access to assets is permitted only in accordance with
managements general or specific authorization;
4. Recorded assets are compared to existing assets at reasonable
intervals and appropriate follow-up action is taken.
The only exemption to the above can be directed by the President of
the U.S. for matters of National Security of the U.S.

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Current State
Why does the Department of Justice (DOJ) take this seriously?
On the nature of corruption and why the fight against it is important – other than
for the fines levied, in their own words:
“For let there be no doubt that corruption is not a victimless offense. Corruption is
not a gentlemen’s agreement where no one gets hurt. People do get hurt. And
the people who are hurt the worst are often residents of the poorest countries on
the face of the earth, especially where it occurs in the context of government
infrastructure projects, contracts in which crucial development decisions are
made, in which a country will live by those decisions where those decisions are
made using precious and scarce national resources.”

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Risk Mitigation Strategies
Have a written policy that
expressly states what is
prohibited
Training and testing of
management and sales
staff
Sign-off by management
on statement of
compliance and
commitments
Review of contracts with
distributors, agents and
manufacturer
representatives
Align bonus structure to
prevent motivation to
enter into risky business
Consultants (most often
act as agents to make
payments) should be
scrutinized regularly
Test controls over
completeness of
recording expenditures
Have foreign subsidiary
management certify their
knowledge and
compliance to the FCPA
Expenses should be
controlled through strict
limit approvals
Have an independent
party perform a periodic
audit of the company’s
self-policing

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An Introduction to the Foreign Corrupt Practices Act

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