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FCPA: A 1-Stop Guide to the Foreign Corrupt Practices Act

by | Jul 8, 2021 | Anti Money Laundering, Money Laundering (ML)

Bribery and corruption has more than just a moral and ethical impact on societies; the economic impact is hugely significant and displays how bribery and corruption undermines the systems within which they operate. 

The United Nations estimated that in 2018 the global cost of corruption accounts to a staggering $3.6 trillion – $1 trillion of which are in bribes alone. The overall damage that bribery and corruption causes is complex and deeply pervasive, causing harm to society at all levels and circumventing both justice and fairness.

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If someone is bribed, they accept money or valuable items in exchange for delivering service that perverts justice and perpetuates social inequalities. The FCPA is enforced by both the Securities and Exchange Commission (the SEC) and the Department of Justice (DOJ) in efforts to create a more fair, just and equal arena for American businesses of all levels to establish and thrive, thwarting inequality and injustice.

Key Takeaways

  • The FCPA was enacted in 1977 following $300m being paid illegally to foreign politicians and governments in exchange for favorable treatment.
  • The FCPA served as a way of Congress trying to re-instil public trust in US businesses
  • The two main legislative components of the FCPA are its Anti-Bribery provisions, accounting provisions and FCPA penalties.
  • Bribery is a two-way street and whether a bribe is solicited or not, the acceptance and non-reporting of it is a crime.
  • Bribery and corruption impacts on and perpetuates wealth inequality, gives rise to price and supply manipulations, erodes public trust, reduces public spending, causes health and safety risks and creates monopolies and corrupt regimes.

The FCPA: An Overview Of Provisions

The FCPA is a cohesive anti-corruption and anti-bribery mechanism that makes it illegal for individuals and corporations to pay and/or reward foreign government officials for either helping to secure or to retain business. The FCPA requires companies to maintain records that accurately represent the transactions and provisions of the organization involved as well as creating and maintaining internal systems of accounting controls.

The provisions within the FCPA extent to non-US persons who may work within the US capital markets and/or use financial services that are US-based. This, therefore, has international ramifications as international companies across a range of jurisdictions are required to comply even if they are beyond US borders.

There does not need to have been a specific instance of bribery in order for firms to be contravening the FCPA; violations can include a lack of accounts processes or records as well as an offer of payment being made, prior to any money or items of value being exchanged.

Penalties can be severe ranging from fines through to sentences of imprisonment based on the value and implications of the illegal act. Corporations can receive fines as high as $2 million per violation and individuals will receive a $250,000 fine per violation or may receive jail time of up to 5 years.

If an accounting provision has been breached, a $25 million file can be brought for firms and up to $5 million for individuals. Prison sentences may also be given of up to 20 years. In some cases, a combination of a fine and prison sentence is given. A recent example of a fine that was given to a corporation was a near-billion-dollar penalty, $457m of which was a disgorgement and the other half consisting of fines.

Risk Factors And Violations Of The FCPA

We can understand the importance of FCPA compliance from looking at the global implications that corruption and bribery has on societies – as well as by looking at the potential hefty fines and prison sentences that corporations can receive if they fail to comply. It is therefore paramount to invest in training of and compliance with the FCPA rules and regulations.

Some industries are at higher risk than others of having instances of bribery and corruption, which includes but is not limited to:

  • IT/technology sectors
  • Pharmaceutical sectors
  • Medical supplies and equipment sectors (particularly during the global pandemic – more on that another time!)
  • Construction
  • Oil, gas and mining as well as the generalised Energy sector
  • Aerospace and state defence

In terms of individuals who may have higher exposure, an example would be PEPs and activities through universities, government and law enforcement.

In order to mitigate these risks, companies and bodies can implement a tailored anti-bribery policy for their particular sector that caters to the generalized common risks associated with that sector. For example, in law, lawyers would not be allowed to accept gifts from clients and if anything was received, it would need to be declared shortly thereafter.

Due diligence through risk assessments, record keeping and PEP and sanctions screenings are also effective ways to combat bribery and corruption. Corporations, as well as individuals, must recognize and report red flags, even if they have no concrete evidence of bribes having been paid.

All countries are vulnerable to corrupt practices, although there are certain countries that may be more at risk of corruption than others. When doing business in a country that may have this reputation, enhanced security measures must be put into place as well as further monitoring of compliance and training efforts in order to successfully comply and operate on a global stage.

In the event that a company does find out that it is in breach of the FCPA, companies are now coming forward in increasing numbers to self-report activities of employees or partners in business that may have contravened the FCPA.

FCPA Rulings

A total of $2.89bn in fines and profit forfeiture were paid as a direct result of FCPA jurisdiction application in 2018. Another significant event in 2018 was when a company was prosecuted as a direct result of failing to prevent bribery, further enforcing the need for companies to employ robust anti-bribery and anti-corruption tactics and techniques. In 2019, the largest criminal enforcement within the scope of the FCPA was $966m.

FCPA Foreign Corrupt Practices Act (FCPA)

Summary

The FCPA does very well to help instil public trust in businesses within the US, as well as the wider corporate world. The far-reaching scope of the act, and the compliance needed to comply with it, help to enforce a fairer society that holds all levels of society acountable through a combination of anti-bribery and accounting provisions and penalties. We must accept our vulnerabilities to corruption and bribery as societies, and do what we can to counter it.

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