The Foreign Corrupt Practices Act: An Overview

• Author: Theodore Edelman and Jason de Bretteville
• Pages: 293-330

293

CHAPTER 19

The Foreign Corrupt Practices

Act: An O vervi ew

Theodore Edelman and Jason de Bretteville1

First enacted i n 977, the United States Foreign Cor rupt Practices Act (FCPA) pro-

hibits corrupt pay ments to foreign off icials and requires the maintenance of

accurate record-keeping and ef fective compliance controls by corporat ions sub-

ject to the statute.2 Since approximately 2005, the FCPA has been the subject of

vigorous enforcement. A number of countries recently have enacted similar leg-

islation and, becau se internationa l anticorrupt ion conventions modeled on the

FCPA have seen widespread adoption, question s of foreign antibr ibery compli-

ance can no longer be viewed solely f rom the perspective of the FCPA. Nonethe-

less, the FCPA remains fa r and away the most frequently enforced ant icorruption

law in the world, and for that re ason alone it merits particul ar attention.

The FCPA consists of two dist inct sets of provisions, one proscriptive and

the other prescript ive. The first imposes both c ivil and crim inal penalties agai nst

any U.S. or foreign ent ity that makes a corrupt payme nt to any non–U.S. govern-

ment official, directly or indirectly, in order to obtain or retain business, pro-

vided certai n jurisdictional requirements are met. The second set of provision s

requires adherence to certain broad accou nting and inter nal control standards

applicable to the worldwide operation s of issuers of securit ies registered in t he

United States, and it is not limited to record-keeping and controls relati ng to

corrupt payments.

. The authors g ratefully ack nowledge the partic ipation and valuable assi stance of

Nathaniel L . Green in the preparation of t his chapter.

2. Foreig n Corrupt Practices Act of  977, Pub. L. No. 95-23, 9 Stat. 494 (codified as

amended at 5 U.S.C. §§ 78, 78dd -, 78ff (2009).

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294 CHAPTER 9

Notwithstanding an atypical spike in FCPA litigation in recent years, the

provisions of the FCPA rarely have been the subject of judicial review, in part

because the vast majorit y of civil and crimina l enforcement actions have been

resolved through prel itigation sett lements. Nonetheless, common understand-

ings and interpretations of the FCPA have emerged, princ ipally based upon the

public statements and enforcement precedents created by the two agencies

responsible for enforcement of the FCPA, the United States Depart ment of Jus-

tice (DOJ) and the Un ited States Securit ies and Exchange Com mission (SEC). In

November 202, the Crim inal Division of the DOJ and Enforcement Division of

the SEC jointly issued g uidance on the scope and application of the FCPA, titled

A Resource Guide to the U.S. Foreig n Corrupt Practices Act, whic h is available on the

agencies’ websites.3 That guide provides a usefu l compilation of the DOJ’s and

SEC’s views on various aspect s of the FCPA and antibribery complia nce, and pro-

vides a valuable resource to a nyone seeking to learn about or apply the FCPA. It

does not, however, constitute binding law. Because of the rarity of actual litiga-

tion involving t he FCPA, the common understand ings referenced above are not

defin itive, and open questions remain regard ing the scope and con struction of

the statute.

This chapter pr ovides: () a general overview of the basic provi sions of the

FCPA, (2) a brief analysis of certain r ecurring issues rel ating to the interpretation

and enforcement of the FCPA, and (3) a basic description of the core elements of

an FCPA compliance policy and an appropriate response to a reported violation.

The application of the FCPA to any particular sit uation or transac tion is high ly

fact-dependent and can be extremely tech nical and complex. A s a result, thi s

chapter provides only a generalized introduction to the requirements and inter-

pretations of the FCPA and, hopefu lly, a predicate for heightened sensitivity to

the statute’s relevance and sig nificance to the conducting of i nternational busi-

ness activities.

HTHE ANTIBRIBERY PROVISIONS

The antibriber y provisions of the FCPA prohibit any promise, offer, or payment

of anythi ng of value to a foreign of ficial i n order to inf luence the official’s deci-

sions or actions as a me ans of securing or mai ntaining a busines s opportunity or

advantage. The scope of the FCPA, by its own ter ms and throug h its interpreta-

tion and application by regulators, is u nderstood to be extremely broad. As a

result, any prov ision of value to, or for the benefit of, any foreign of ficial, includ-

ing any employee of a government-owned or -controlled business, for the pur-

pose of influencing that individual’s conducting of his or her official duties or

activities, may be con sidered a violation of the antibriber y provisions.

3. See DOJ, Ci  D,  SEC, E  D , A R G

  U.S. F  C P  A (202) [hereinaf ter FCPA R G],

available at http://www.justice.gov/criminal/fraud/fcpa/guidance/.

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The Foreign Corr upt Practices Act: A n Overview 295

The antibriber y provisions potentially apply to: ()the worldwide operation s

of issuers of secur ities registered i n the United States; (2) off icers, director s,

employees, and agents workin g for such an issuer, wherever those ind ividuals or

entities are located ; (3) foreig n firms and persons t hat take any act in fur therance

of a corrupt payment whi le in the United States; and (4)U.S. entities and citize ns,

wherever located. These provisions also may extend to any wholly or partially

owned subsidiary of an issuer when the subsidiary acts as an agent or accomplice

of the issuer.

In addition, a ny payment that a company would be precluded f rom maki ng

direct ly may not be made indirect ly through an a gent or representative of that

company, or any other intermedi ary includ ing any dis tributor, sales agent, cu s-

toms broker, joint venture par tner, or other third pa rty. Notably, in the view of

U.S. authorities, a company need not author ize, direc t, or even acquiesce in such

a payment by an intermed iary in ord er to be found in violation of the FCPA.

Rather, U.S. regulators con strue the FCPA to prohibit any transf er to a third party

made with the k nowledge (or, according to the U.S. authorities, consc ious disre-

gard) of a high probability that some of the proceeds of that transfer will be cor-

ruptly di rected to or for the benefit of a governmenta l official. Thus, for e xample,

a company’s shipment of merchand ise to a foreign di stributor under ci rcum-

stances sug gesting illicit pay ments by the distributor may subject t he company to

liabilit y under the FCPA.

As discu ssed below, t he FCPA provid es jurisdic tional lim itations that, i n cer-

tain situ ations, require a territori al nexus with the United States. I f put to the test

in litigat ion, these limitations may prov ide for compelling juri sdictional defenses.

Nonetheless, the combinat ion of aggres sive jurisdict ional positions taken by U.S.

regul ators and the f requency with which c urrent telecommun ication, monetar y,

and bank ing systems gener ate ostensible territor ial contacts wit h the United

States severely lim its the practica l availabilit y of defenses based on a lack of

jurisd iction.

Crimin al violators of the FCPA’s antibriber y provisions face sti ff penalties.

Business ent ities are subject to stat utory fine s of up to $2 million for eac h viola-

tion. However, the penalties prescr ibed by the FCPA rarely provide the ma xi-

mum limits i n all situations. Rather, under the DOJ’s interpret ation of the federal

Alternative Fi nes Act,4 the actua l fine may be up to t wice the benefit t hat the

issuer sought to obtain by making the corrupt payment, in addition to disgorge-

ment of any pecuni ary gain actua lly secured by means of the un lawful payment.

In addition to a monetar y penalty, both the DOJ and SEC f requently seek and

obtain orders requiring the issuer to take remedial steps designed to reduce the

risk of fut ure violations, somet imes includi ng the retention of an i ndependent

monitor or consulta nt to audit the company’s compliance prog ram and/or mon i-

tor implementation of new policies a nd procedures, ty pically for a two- or t hree-

year term.

4. 8 U.S.C. § 357.

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