Foreign Corrupt Practices Act. The Rationale behind the Implementation of the FCPA

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1 Surname 1 Name: Instructor: Course: Date: Foreign Corrupt Practices Act The Rationale behind the Implementation of the FCPA The foreign corrupt practices act, or FCPA for short, was enacted in During the signing of the act, the then United States president, Jimmy Carter, emphasized on the importance of weeding out corporate corruption. The president stated that corporate bribery is ethically repugnant (Weissman 616). What was the motivation behind implementation of the act? In the year 1977 and a few years before this time, the United States department of justice and Service Exchange Securities recorded a long list of corporate crimes. Precisely, the government institutions recorded over 400 overseas and domestic bribery scandals involving corporations that were thought to be reputable. With these records, Carter s administration found it necessary to introduce a law that would curb these vices, and introduce accountability and transparency in the corporate sector (Murphy 44). The 94 th and 95 th US congress received information revealing that US businesses were making payments to foreign governments officials and political parties. The payments added up to more than $300 million. The payments were a source of embarrassment to the state simply because they were made to secure favorable or lenient action by foreign states or clerical duties. The more than 400 companies culpable represent a wide range of sectors; airlines and air services, oil and gas, healthcare and chemicals among others (Girasa 6).

2 Surname 2 What the FCPA Prohibits FCPA has two major provisions: anti-bribery and account or book keeping provision. Since the enactment of the FCPA, several amendments have been made. Currently, the antibribery provision applies to three categories of persons, which are: domestic concerns, issuers and third parties. Issuers refers to business entities whose stocks are listed in any stock exchange within the United States, or which are required to comply with Securities and Exchange s (SEC) reporting standards (Cragg 98). Conversely, domestic concerns refers to real persons who are residents of the United States and any corporate persons (partnerships, business trust, Joint Stock Company, associations, or sole proprietorship) that have their primary place of business in the US, which is incorporated under the US laws, or commonwealth of the United States (Cragg 98). The act also covers bribery actions committed by any persons, their citizenship notwithstanding (Atkinson 445). In addition to the anti-bribery provision, the act also has a provision that addresses books and records and internal controls. These provisions only apply to issuers. The provision requires issuers to keep books and records in reasonable detail to truthfully and fairly reflect transactions and nature of assets. Secondly, the accounting provision requires issuers to put in place a credible system of internal controls (Girasa 10). The anti-bribery act is concerned with the prohibition aspect of the FCPA while the accounting provision addresses the issues of standards that all SEC regulated institutions are required to abide by (Murphy 50). The latter addresses all business entities (SEC regulated or otherwise). The provision controls corporate corruption in three ways: first, the provision prohibits all firms from bribing foreign government officials, or political parties or party officials

3 Surname 3 (directly or indirectly) with an aim of securing favorable condition to obtain or retain business (Weissman 620). Secondly, the provision prohibits any business entity or person from using mail or interstate commerce to offer a payment of money or anything of value to an official in a foreign country. Anything of value represents a bribe in any other forms, but not cash or cash equivalent. The anything of value category may include promise of employment, loans, sports equipment, and college scholarships among others (Weissman 621). Thirdly, the provision prohibits the promising or giving of anything of value to foreign government officials, political party, or political party official, to influence any business deals within his or her official position, or to induce these foreign officials to violate their domestic legal process (Atkinson et al 449). There are three categories of payments that do not result to FCPA liability. The payments are: bona fide business costs, grease payments and payments permitted by domestic laws. How the Act Impacts On Business in National and International Levels The current state of FCPA affects a wide range of businesses. Initially, the act was not concerned about non residents doing business in the United States. Presently, the act has a wide fishing net, even corporate persons whose headquarters are outside the US, but whose stocks are listed in any of the US s stock exchange are a target of the act. Precisely, any business incorporated in the US, or doing business in the US is required to abide by the provisions (especially the anti-bribery provisions) of the FCPA. This means that both national and international business has to follow business ethics as stipulated in the act. Internal controls (for companies subject to SEC regulations) are a must, while all business with operations in the US must abide by the anti-bribery provisions (Murphy 25). FCPA becomes part and parcel of

4 Surname 4 national and international businesses, and anyone who ignores this act does this at their own peril. Companies operating in high risky areas (areas where giving a bribe is considered to an accepted culture) like Russia, Brazil, China and most developing countries must be very cautious. Act enforcers conduct rigorous audits especially in places of high risk, and so to avoid paying hefty penalties, or facing criminal charges, the best thing to do is do the right thing: comply with FCPA requirements (Cragg 98). It is also worthwhile to note that the Obama administration has set 100 percent exports growth within the next five years. That being the case, FCPA and all other laws that address foreign business transactions will play a significant role. All business entities, big or small, must comply with the requirements of the act if they are to remain in business (Atkinson 450). Significance of the FCPA in United States Commerce It would be inaccurate to conclude that FCPA has no impact on the United States commerce. The law is significant and its importance has been felt in the last couple of years (Atkinson 450). A decade ago, FCPA prosecutions were rare. In the last couple of years, however, enforcers of the act has stepped up their efforts to ensure that the law serves the obligation is was meant to serve. In 2010 alone, more than 50 entrepreneurs were indicted, sentenced or were convicted and are now awaiting sentencing after violating the provisions of the FCPA (Murphy 63). Since 2008, government agencies charged with the role of enforcing the act has around 150 investigations relating to the FCPA violations. Each year, the US judiciary handles more than 40 cases directly linked to non compliance of the act. The cases brought to courts are 50 percent against real persons and 50 percent against corporate persons. It is true that FCPA had been neglected for some time. However, since 2008 enforcement of the act started in

5 Surname 5 earnest. Government agencies like the federal bureau of investigations (FBI), Securities Exchange Commission (SEC) and the department of justice work together to ensure that all those culpable of violating the act face the full wrath of the law. As a matter of fact, these institutions have been working diligently to prove to the business community that FCPA has teeth which it can use to bite. FCPA audits have been a common place especially in states with high corruption index (Girasa 40). Penalties for violating FCPA FCPA act demands that corporate persons should not pay fines for convicted real persons (Weissman 638). The act proposes fines for both real and corporate persons. This means that companies can be convicted and fined heavily. For instance, culpable corporations can be fined up to $2 million per infringement of the anti-bribery act. Individuals culpable of violating the same provision are charged a criminal fine of not less than $250,000 per violation. Intentional violation of books and records and internal controls requirements can result to a criminal penalty of $25 million for corporations and a criminal fine of $5 million and 20 years imprisonment for culpable individuals (Cragg 98). Who enforces the law? The Department of justice (DOJ) and the Securities and Exchange Commission are both charged with the role of enforcing the FCPA. The SEC is charged with the role of bringing civil charges against issuers, and all those who work in concert with them in violating the act. The DOJ is responsible for criminally prosecuting issuers, their officers, directors and anyone who collaborates with them in violating the act. Additionally, the DOJ has civil anti-bribery authority and can prosecute issuers and non-issuers who go against the requirements of the FCPA (Atkinson et al 445).

6 Surname 6 Works Cited Atkinson, Cameron, & James, Tillen. The Foreign Corrupt Practices Act: Compliance Issues in the Tax and Customs Arena. Tax Executive, 57.5 (2005): Print. Cragg, Wesley, & William, Woof. The U.S. Foreign Corrupt Practices Act: A Study of Its Effectiveness. Business & Society Review, (2002) 98. Print. Girasa, Roy. Crackdown on Corruption. Westchester County Business Journal, 49.40(2010) Print. Murphy, Aaron. Foreign Corrupt Practices Act: A Practical Resource for Managers and Executives. Hoboken, New Jersey: John Wiley and Sons, Weissman, Miriam.The Foreign Corrupt Practices Act: The Failure of the Self-Regulatory Model of Corporate Governance in the Global Business Environment. Journal of Business Ethics, 88.4 (2009): Print.