Foreign Corrupt Practices Act
- 1. Introduction Foreign Corrupt Practices Act 1977 (FCPA) is US federal law, which prohibits any payout to foreign officials of “anything of value” with an intention to acquire or retain business. FCPA is the result of corrupt financial practices and widespread illegal payout. FCPA is administered jointly by the Department of Justice and the Securities and Exchange Commission (U.S.). To avoid unnecessary stringency FCPA amended in 1998 and inserted two affirmative defenses : the local law defense; the reasonable and bona fide promotional expense. Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 2. Purpose of the Act To combat against bribery in Business Transactions, To prohibit illegal payouts or corrupt payments to foreign officials . To win faith of share holders and borrowers To create honest businesses environment and to restore public confidence in business transaction. To create awareness against anti-bribery and benefits correct financial reporting. To avoid legal action by law enforcing agencies To lay down effective control systems & Practices To ensure continuity of business smoothly Create credibility of the organization To protect brand from any disrepute Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 3. Applicability of the Act US persons and businesses Any person in the US territory or beyond, acting as agent / officer / director of the US company or company registered in US. Employees of US company or companies require to comply under Security and exchange Commission US and foreign public companies listed on stock exchanges in the United States Companies which are required to file periodic reports with the Securities and Exchange Commission. Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 4. What does a corrupt practice mean under FCPA? Corrupt practices mean to offer, to promise, to authorise payment to government official with an intention to wrongfully influence to acquire and retain business. Its not only actual payment, but promise to pay bribe is equally prohibited and violation of FCPA, If its in due knowledge of the organization that improper payments are being made through or by third party. If organization consciously and deliberately ignore the acts of illegal payment by third party. Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 5. Prohibition under FCPA offering to pay promise to pay, Authorizing the payment of illegal money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business. What does mean to “Anything of value” Any unfare benefits, either directly or indirectly through cash, gift, travel ticket, IPL ticket, extra ordinary concession, means of entertain etc offered or paid to any official with a view to influence his discretion and decision. Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 6. Defense / allowable transaction under FCPA Local Law. Lawful expenses expressly permitted under any law Expenses on gifts, if law /Custom /Usage expressly permits. Reasonable and bona fide business expenditure. Expenses directly incurred on : Promotion/demonstration/development of products. Reasonable business travel expenses Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 7. Who are governed under the Anti-Bribery Provisions? The FCPA’s anti-bribery provisions apply broadly to three categories of persons and entities:- “issuers” and their officers, directors, employees, agents, and shareholders; “domestic concerns” and their officers, directors, employees, agents, and shareholders; Certain persons and entities like agent, consultant etc either in US or beyond US territory. Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 8. Consequences of violation of FCPA & Anti bribery violation Violation of anti- bribery provision against organization : Can be fined up to $ 2 million for each violation of anti bribery provision. Violation of accounting provision against organization : Can be fined up to $ 25 Million for each violation of accounting provision. ALTERNATIVELY, ANY FINE MAY BE INCREASED TO DOUBLE THE BENEFIT THE DEFENDANT SOUGHT TO GAIN THROUGH THE ILLEGAL CONDUCT. Violation of anti- bribery provision against individual i.e. Officer, director, agent : Can be fined up to $ $250,000 and imprisonment up to five years, or both. Violation of accounting provision against individual i.e. Officer, director, agent : Can be fined up to $5,000,000 and imprisonment up to twenty five years Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 9. Employees / Manager / director / CFO should know It is illegal to give or authorize to give bribes. It is illegal to offer; promise to pay or to get into arrangement to compensate with “anything of value” to government officers, with an intention to influence his discretion. It is illegal to acquiesce demand of government officials or politician to donate in charity or political party fund, which are not constituted under law of the land. It is illegal to hide / manipulate any payments made to third party that have or may have or likely to be used for bribe to government officer. It is illegal to ignore, if quantum of work and remuneration thereof do not commensurate. Accounting records are accurate and reflect true reasons for payments Internal accounting and compliance controls mechanism Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 10. Cost of Non- Compliance The cost of non-compliance with the FCPA can be significantly higher than the cost of implementing FCPA compliance program Legal action (civil / criminal or both) may be initiated against the company and official . Heavy penalty and imprisonment to official Disruption of business Disrepute to brand Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 11. Action by employer to shield the organization from corrupt practices Check antecedent and perform due diligence of third parties. Check if internal stake holders have any interest in grant of contract to third parties. Set the organization expectation with third parties in advance and share that organization is FCPA compliant. Enter into FCPA compliance covenant. Verify that quantum of work and consultancy fees commensuration. Regular training to employees and third parties on anti bribery concept. No ambiguous expenses in the form of mislaneous expense. Book every specific expense in the books of accounts. Get advance approval for any travel/entertainment/customary gift expenses. Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)
- 12. Support in creating a culture of ethics and morale Thank You Welcome the world of ethics Ethics is great tool for growth, make it a part of core business strategy 2/5/2014 Jai Karan Nagwan (BA, LLM, MBA)