The Foreign Corrupt Practices Act (FCPA)

What is the FCPA?

Enacted in 1977, the FCPA aims to combat bribery in international transactions and promote fair competition for US businesses abroad. It has two main provisions:

• Anti-Bribery: This provision prohibits offering, promising, authorising, or giving anything of value to a foreign official to influence their actions or decisions to secure an improper advantage in obtaining or retaining business. “Foreign official” includes government employees, political party officials, and those working for public enterprises.

Accounting Provisions: The FCPA mandates companies to maintain accurate books and records that fairly reflect all transactions and disposition of assets. It also requires internal controls to be implemented to prevent and detect bribery.

Who Does the FCPA Apply To?

The FCPA applies broadly to:

• US Companies and Businesses: Any company incorporated under US law, regardless of its physical location, is subject to the FCPA. This includes subsidiaries of US parent companies operating overseas.
• US Citizens and Residents: US citizens and residents working for US companies or any company doing business in the US can be held liable for FCPA violations.
• Foreign Companies and Individuals: The FCPA can apply to foreign companies and individuals under certain circumstances, such as when their conduct has a substantial effect on the US. This could include:
  • Bribing a foreign official to influence a decision that impacts a US company’s business.
  • Engaging in bribery while using US mail or other facilities of US interstate commerce.
  • Having a US subsidiary that violates the FCPA.

What are the Risks of Violating the FCPA?

Violating the FCPA can lead to severe consequences, including:

• Steep Fines: Companies, both US and foreign, can face hefty fines reaching millions of dollars.
• Criminal Charges: Individuals involved in bribery schemes can face imprisonment for up to 20 years.
• Reputational Damage: FCPA violations can significantly damage a company’s reputation, deterring potential investors and partners across the globe.
• Debarment: Companies found to be in violation may be debarred from participating in government contracts and projects, including those outside the US.

Understanding Key Concepts of the FCPA

• Foreign Official: The FCPA’s definition of “foreign official” is broad and can encompass not only government employees but also officials of state-owned or controlled enterprises and political party officials.
• Anything of Value: This includes anything that benefits the recipient, such as money, gifts, travel, entertainment, or promises of future benefits.
• Good Faith Defence: Companies can assert a good faith defence if they can demonstrate they took reasonable steps to prevent and detect FCPA violations, such as implementing a robust compliance program.
• Third-Party Liability: Companies can be held liable for the actions of third parties, such as agents, distributors, or consultants, who bribe foreign officials on their behalf. This applies to both US and foreign companies.

How to Mitigate FCPA Risks

Proactive measures can significantly reduce your company’s risk of FCPA violations, regardless of its origin. Here are some key steps:

• Develop a Comprehensive FCPA Compliance Program: This program should include:
  • Written Anti-Bribery Policy: Clearly outlining the company’s commitment to complying with the FCPA and prohibiting bribery in all forms.
  • Due Diligence Procedures: Implementing procedures to assess the risk of bribery associated with potential business partners, third parties, and foreign markets. This is crucial for both US and foreign companies operating internationally.
  • Training and Education: Providing employees with regular training on the FCPA, including identifying red flags and reporting procedures.
  • Internal Controls: Establishing internal controls to ensure accurate accounting records and prevent unauthorised payments.
  • Reporting Mechanisms: Creating anonymous reporting channels for employees to report suspected FCPA violations.
• Conduct Ongoing Risk Assessments: Regularly evaluate your company’s exposure to FCPA risks based on factors like the countries you operate in and the types of business partners you engage with.
• Monitor Third-Party Relationships: Implement due diligence procedures for third
• Seek Legal Advice: Consult with an FCPA lawyer to develop a compliance program tailored to your specific business operations and risk profile.