International business corruption is a common problem that businesses face, especially when operating abroad. The FCPA was enacted to hold American businesses accountable for contributing to corruption and to eliminate it. FCPA enforcement has increased substantially in recent years, causing it to be a hot button topic for any company that operates or contracts with any third party abroad. A Priori lawyer can help your business develop a full compliance program for the FCPA--including risk assessment, corporate policy, comprehensive internal procedures and communications to employees, due diligence checklists for new relationships, disciplinary standards and procedures and a reporting mechanism for violations, and also represent you if you are the subject of an SEC or DOJ investigation for FCPA violations.
About the Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA) was first signed into law in 1977 with the intent of cutting down corrupt actions of U.S. companies operating abroad.
The FCPA has two main provisions: anti-bribery and accounting provisions. Under the anti-bribery provisions, it is illegal to give bribes to foreign officials to obtain or retain business. Under the accounting provisions, companies are required to maintain accurate books and records of how money is used. They must additionally have a system of internal controls to ensure transactions are executed and accounted for in accordance with management's authorization. Together these provisions ensure that “slush fund” money is not used to pay bribes abroad.
The FCPA applies to officers, directors, employees, stockholders and agents of all companies registered or incorporated in the U.S., as well as any foreign companies traded on public exchanges in the U.S. This means that any agents working for or with such companies abroad are included, which has been defined broadly to include third party agents, consultants, distributors, joint-venture partners, subsidiaries, and just about anyone partnered with your company in foreign countries. In addition, the FCPA has been applied to foreign companies if the corrupt actions were carried out in any way on U.S. soil—even if it is simply as small as using email servers located in the U.S.
If you are tempted to write off the importance of the FCPA, thinking that some corruption is inevitable when doing business in certain countries, don’t. FCPA enforcement is both common and particularly harsh. The SEC even has a separate division dedicated solely to FCPA enforcement.
FCPA enforcement actions have substantial multi-million dollar civil penalties for companies. Criminal actions can also be take against issuers and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA. This can often lead to substantial fines but even can lead to jail time for key employees involved in these corruption schemes. FCPA enforcement has only gotten harsher in recent years and looks to continue, so companies should take FCPA compliance seriously.
Complying with the FCPA
Because the penalties for violating the FCPA are quite harsh, compliance is key for any company in any way operating abroad—even if only via suppliers. The following are four elements that you must consider when implementing an FCPA compliance strategy.
FCPA Compliance Policy
A standalone FCPA compliance policy should be written and signed by all employees and contractors. Having a few paragraphs about international corruption buried in your general Standards of Business Conduct contract is simply not enough to protect your company from risk. This compliance policy sets the tone of compliance expectations from the top down and informs each employee of FCPA expectations and requirements that could affect their jobs. Make sure to stress the importance of the document from the top down, placing higher expectations on the executive team and deeming a single employee ultimately responsible for FCPA obligations.
FCPA Risk Assessment
Conduct a thorough FCPA risk assessment every year to determine if there are any areas where your company is particularly at risk for enforcement. This includes checking in with third parties to ensure that nothing has changed in terms of enforcement on their end, as well. Part of this assessment must confirm that anonymous internal whistleblowing systems are set up and their use is encouraged. Where deficits are revealed, as system must be in place to fix them.
Train your board, management, employees, and any third parties who distribute your products on FCPA rules and obligations. Make sure to familiarize your managers and employees with the actual corruption risks in your industry, the countries where you do business and your business model. These employees should be able to recognize red flags for corruption and understand their reporting obligations.
Contracts and Due Diligence
Perhaps the most important part of FCPA compliance is a thorough due diligence process when contracting with any third party, especially those abroad. You need to consider what risks you will take on in terms of FCPA compliance issues in partnering with these companies and individuals and do what you can to minimize risks. In particular, all international contracts must contain clear FCPA terms that are non-negotiable. Hold these parties responsible for violations and make a breach of such terms a fundamental breach subject to termination. This sets the tone of the relationship and clarifies the importance of compliance.
The cost of developing a FCPA compliance program or representing you during an SEC or DOJ investigation can vary depending on your needs. Hourly rates for securities lawyers with FCPA experience start around $200 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and free price quote from one of our lawyers.
Who is considered a foreign government official under the FCPA?
The definition of a foreign official under the FCPA is incredibly broad. The statute defines a foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.” This has been interpreted to mean any official or employee in any way associated with the government, its departments, contractors and even in some cases, employees of state-owned enterprises. Generally, it is best to err on the side of caution when dealing with individuals abroad.
What is the facilitating payments exemption?
Under the facilitating payments exemption, the FCPA does not punish so-called facilitating payments or grease payments. Such payments are paid to a foreign official, political party, or party official to ensure that "routine governmental actions” that they are already obligated to perform happen in a timely manner. This includes actions such as processing papers, issuing permits, and other non-discretionary actions of an official. It's important to note that this is interpreted very narrowly. Also, such payments must be properly reported or your company risks a citation for violating the accounting provisions of the FCPA. Many companies, therefore, ban these outright.