The Foreign Corrupt Practices Act (FCPA) was enacted in 1977 and substantially revised in 1988. The provisions of the FCPA prohibit the bribery of foreign government officials by U.S. persons and prescribe accounting and record-keeping practices. In discussing the FCPA, therefore, it is necessary to divide the discussion into a discussion of the law's anti-bribery provisions and a discussion of the law's accounting and record-keeping provisions.
Anti-Bribery Provisions
The anti-bribery provisions of the FCPA apply to any U.S. person and make it illegal for U.S. persons to bribe a foreign government official for the purpose of obtaining or retaining business. The wording of the FCPA is quite interesting and makes its scope rather clear. The fact that the FCPA deals only with bribes made to foreign government officials acts to exclude from the FCPA's ambit payments to foreign persons who are not governmental officials. Additionally, the fact that the FCPA deals only with bribes that are intended for the purpose of obtaining or retaining business acts to exclude grease or facilitating payments from the scope of the FCPA. A grease or facilitating payment is a payment made to expedite or secure the performance of a routine government action. Routine government actions include obtaining permits or licenses, processing official papers, clearing goods through Customs, loading and unloading cargo and providing police protection. The quid pro quo requirement of the FCPA makes inadvertent violations of the FCPA unlikely.
The anti-bribery provisions of the FCPA are enforced by the Department of Justice (DOJ). U.S. persons who are accused of violating the FCPA can defend their actions by showing that the payment they made is lawful in accordance with the written laws of the recipient's country or that the payment they made is a reasonable expenditure directly related to the U.S. person's promotional activities in the recipient's country.
Penalties
U.S. persons who are unable to defend their actions in light of the FCPA's anti-bribery provisions face severe penalties. Penalties for violating the anti-bribery provisions of the FCPA vary based on whether the violator is a U.S. company or a U.S. individual. U.S. companies can be fined up to $2 million while U.S. individuals (including officers and directors of companies that have willfully violated the FCPA) can be fined up to $100,000 and imprisoned for up to five years, or both. In addition, civil penalties may be imposed.
The accounting and record-keeping provisions of the FCPA apply to companies which are publicly traded in the U.S.. These provisions make it a requirement for such companies to devise and maintain an accounting system which tightly controls and accurately records all dispositions of company assets. These provisions are intended to prohibit the existence of "slush funds", i.e. accounts that are frequently used to make illegal payments. They are also intended to prohibit the mislabeling of payments and the misrepresentation of expenses. The accounting and record-keeping provisions of the FCPA are essentially a re-enactment of established accounting procedures for publicly traded companies. As such the accounting and record-keeping provisions of the FCPA are enforced by the Securities Exchange Commission (SEC). Penalties for violating the accounting and record-keeping provisions of the FCPA are the same penalties that apply to most other violations of the securities laws. These penalties include monetary fines but no criminal penalties.
New International Rules
The U.S. has stood alone for many years in its legislation against the bribery of foreign government officials. The U.S. position in this regard was in fact perceived by many U.S. persons to be a competitive disadvantage to doing business in foreign markets. Not only were foreign competitors permitted to offer bribes to foreign government officials, they were also allowed to deduct these payments as business expenses on their income tax returns. The U.S. complained for many years against these practices. Recently, these complaints have started to bear fruit. In early 1996, the International Chamber of Commerce (ICC) adopted new "Rules of Conduct to Combat Extortion and Bribery" and in so doing encouraged companies worldwide to adopt the conduct rules and incorporate them into their employee guidelines. Additionally, in December 1996, the General Assembly of the United Nations adopted a "Declaration against Corruption and Bribery in International Commercial Transactions." In this Declaration, United Nation member states pledged to:
- deny the tax deductibility of bribes paid to government officials of another country;
- criminalize the bribery of foreign government officials in an effective and coordinated manner; and
- establish jurisdiction over bribery of foreign government officials in a manner consistent with the principles of international law.
Lastly, at its May 29, 1997 meeting, the Organization for Economic Cooperation and Development (OECD) adopted a resolution that calls on its 29 members to submit legislation to their respective parliaments by April 1998 banning the bribery of foreign government officials.
These developments are encouraging and should give U.S. persons competing in foreign markets some hope. After all, "being more virtuous than thou" is an honorable, albeit non-effective long-term business strategy.