The Foreign Corrupt Practices Act - Research Paper Example

?THE FOREIGN CORRUPT PRACTICES ACT (EMAIL ADDRESS) The FCPA is a law which was established as a means to make illegalthe bribery of foreign officials and to prevent issues in accounting practices. It was passed in the midst of a US proliferation of illegal corporate practices. This law was passed in order to provide criminal and civil sanctions to these corporations and involved entities. Throughout the years, this act has successfully prevented and managed these illegal practices and in the process has helped maintain the credibility of corporate America I. INTRODUCTION This paper shall discuss the Foreign Corrupt Practices Act of 1977 (FCPA), which is a United States federal law passed mainly to ensure accounting transparency as mandated by the Securities Exchange Act of 1934. It also includes provisions meant to address the bribery of foreign officials. This paper shall discuss the act, including its pertinent details and essential provisions, as well as its reasons for passage and application. II. BODY The Foreign Corrupt Practices Act is a law which includes specific provisions on accounting and prohibitions on bribery (Cook and Connor, p. 2). The accounting provisions of the law are meant to prohibit illegal accounting practices which are often carried out to conceal corrupt practices. The provisions are also meant to guarantee that company shareholders, including the Securities and Exchange Commission are given an accurate picture of corporate status and finances (Cook and Connor, 2010). This law covers two groups of corporate personalities, first are “those with formal ties to the United States and those who take action in furtherance of a violation while in the United States” (Cook and Connor, 2010, P. 2). The US issuers and domestic concerns are required to heed the provisions of the FCPA, regardless of their actions being within or outside the US territories. Issuers are companies with securities in the US or those which are legally called for to regularly report with the US SEC (Cook and Connor, 2010). On the other hand, those under domestic concerns have a wider coverage, and include individuals or residents of the US. Corporations, partnerships, business trusts, sole proprietorships, and like entities are also covered under domestic concerns, for as long as their main place of business is in the US or their governing provisions are under the US laws (Cook and Connor, 2010). This act holds corporations and other entities legally liable for bribing foreign officials even if such act was carried out beyond American shores and throughout the years, various violators have been prosecuted under these provisions. The basic provisions of this law hold the following practices as illegal: “1) a payment, offer, authorization, or promise to pay money or anything of value; 2) to a foreign government official (including a party official of manager of a state owned concern), or to any other person knowing that the payment of promise will be passed on to a foreign official; 3) with a corrupt motive; 4) for the purpose of (a) influencing any act or decision of that person, (b) inducing such person to do or omit any action in violation of his lawful duty, (c) securing an improper advantage, or (d) inducing such person to use his influence to affect an official act or decision; 5) in order to assist in obtaining or retaining business for or with, or directing any business to, any person” (FCPA, in Cook and Connor, 2010, p. 2). Individuals and corporate entities violating the provisions of this law can be held criminally liable and may be imprisoned and/or fined for their actions (Biegelman and Biegelman, 2010). The law also provides a generalized definition for what is to be qualified as ‘payment’ punishable under the FCPA. The FCPA defines these payments to cover any benefits (monetary or otherwise) given or gifted to a foreign official in order to curry favorable treatment in business activities with the involved foreign official (Cook and Connor, 2010). The DOJ has also specified that those who are in the employ of state-owned businesses are covered as foreign officials under the definition of the FCPA. The law also does not specify the amount of money or bribery involved in order to render coverage under the FCPA; small or large amounts are considered under the provisions as bribery (Cook and Connor, 2010). Moreover, these bribes do not have to be accepted or paid in order to be considered as bribes punishable under the FCPA because the mere act of offering, authorizing or promising the bribe is already qualified as bribery under the FCPA (Cook and Connor, 2010). Payments which are given with malicious and corrupt reasons are condemned by the FCPA, because they are usually meant to influence the person bribed to act in a way favorable to the person or corporation perpetuating the bribery (Russin, 2003). The FCPA allows for legally proven innocent mistakes. For the courts to truly deem an act punishable under the FCPA, the payment given must be motivated by the need to influence the recipient’s decision regarding an action which would be favorable to the person or entity offering the bribe (Cook and Connor, 2003). Following the unfavorable implications which the Watergate scandal caused various businesses and corporations in America, the FCPA was initially passed in 1977 in a bid to improve the credibility of these corporations and business entities in the domestic and the international scene (Kress, 2009). Before the passage of the law, hearings were carried out by the Senate Committee on Banking, Housing, and Urban Affairs in order to confer about the illegal payments made by corporations to foreign officials and to establish what the government was going to do about this deplorable practice (Kress, 2009). A report from the Questionable and Illegal Corporate Payments and Practices was presented before the committee in 1976 and this report revealed a significant amount of illegal payments made by American corporations to foreign government officials. About $300 million was allegedly paid by close to 400 corporations in order to gain favors from foreign officials (Kress, 2009). These acts were subsequently condemned by the committee as it went against American principles and values. The committee then went on to seek passage of the FCPA as a means of addressing the issues unveiled by the report. As was mentioned previously, this act covers provisions for anti-bribery and for compliance with accounting requirements. For FCPA evaluations, it is crucial to adequately establish whether the anti-bribery or the accounting provisions have been violated. Each violation must be assessed as individual violations; however, the enforcers have to acknowledge the fact that the violation of one provision may lead to violations of the other (Kress, 2009). Anti-bribery provisions of the FCPA specify that any payment or benefit given to a foreign official in order for the latter carry out a contract, to renew business arrangements, or secure a preferred status in any business undertaking is considered as bribery under the FCPA (Kress, 2009). These provisions also consider payments through intermediaries as bribery punishable under the FCPA. There are however exceptions to the above provisions. These provisions permit corporations and other business entities or individuals to pay fees in order to speed up transactions which are already part of the functions of the government official (Kress, 2009). These acts however must be non-discretionary acts, meaning they are already part of the responsibilities of the government official. In these instances, no bribery is needed or no discretionary authority is placed on the official to perform these functions. Any payments made in order for the official to expedite these transactions may not be considered as violations of the FCPA. However, much care and caution is however required of these companies considering this exception; they must adequately evaluate whether the act would be considered as an exception by the governing bodies (DOJ and SEC) (Kress, 2009). There is also a risk for companies in making inappropriate and irregular payments for their single facilitating payment to later lead to more payments which may be judged as bribery. Moreover, even if facilitating payments would not be considered as bribery by the FCPA, when these are not adequately accounted for, they may later be construed under accounting provisions as illegal payments (Howard and Wiygul, 2010). In instances when such facilitating payments are paid to officials in a foreign country, and that country considers the act as bribery, then the act would be deemed punishable under their laws. In relation to provisions on accounting and record-keeping, the FCPA highlights the fact that keeping accurate records is an essential element in maintaining corporate responsibility. As such, corporations must secure adequate control measures within their company, as well as monitoring activities must be established in order to ensure compliance with the FCPA regulations (Kress, 2009). In effect, the FCPA strictly punishes fraudulent accounting activities and calls on all corporations to issue accurate reports and reports, as well as to maintain protected internal accounting systems. Reasonable details must therefore be included in the accounts, and these are details which would satisfy government officials reviewing their financial records and activities (Kress, 2009). Furthermore, all accounts must specify all payments made to suppliers, including all financial transactions, even those which are not borne out of traditional business dealings. This would include small payments that may collectively amount to larger amounts, which if not reported, would mean a violation of the FCPA. The FCPA provision details penalties which may be handed out by the DOJ and the SEC. Criminal and civil claims under this act have a five year statute of limitations (Kress, 2009). Firstly, it is the function of the Department of Justice to carry out investigations in relation to the criminal liabilities of corporations under the anti-bribery provisions of the FCPA (Kress, 2009). These violations can face fines up to $25 million; and the determination of the amount of fines is guided by the Federal Sentencing Guidelines. These guidelines are further determined after assessing previous violations of the offender, financial profits which the company was able to gain, as well as the “steps applied by the offender to prevent violations” (Kress, 2009). The court often issues higher and harsher punishments for organizations and corporations found guilty of issuing bribes, and those attempting to, or conspiring to bribe to public officials. Parent corporations are also liable for ordering or allowing their foreign branches to issue illegal payments to foreign officials. The liability also extends to directors, stockholders, employees, and company agents for their participation in violations of the FCPA (Krakoff, et.al., 2008). The SEC imposes the civil liabilities for violations for the FCPA and corporations may be held liable for up to $10 thousand in relation to civil liabilities under the FCPA (Krakoff, et.al., 2008). These corporations can also be held civilly liable and ordered to pay fines for their violations of the Act. Other sanctions may be handed down to corporations, depending on the determination of the DOJ and the SEC. Probation is usually given to corporations who have more than 50 employees and who have had previous violations within five years from the current charges (Krakoff, et.al., 2008). These corporations may also be punished under the provisions of the Organization of Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Kress, 2009). This convention also criminally sanctions the bribery of foreign officials by corporations and other entities. No prescriptive period on the filing of charges is indicated for violations of these convention provisions. Violations of federal criminal laws may also be forthcoming where the court deems it necessary to impose higher fines, in instances when financial benefits were gained from the crime (Krakoff, et.al., 2008). Corporations found liable under the FCPA are also banned from carrying out any business with the government. They may also be barred from receiving their export licenses. Moreover, these bribes are also not considered business expenses, deductible under US tax laws. A suspension of the membership with the Commodities Future Trading Commission and the Overseas Private Investment Corporation may also be forthcoming for their FCPA violations (Kress, 2009). The improved implementation of the FCPA has prompted companies to improve their compliance of its provisions. Many CEOs have reviewed their efforts towards complying with the FCPA requirements and most of these companies were able to benefit from their improved understanding of the law and its provisions (Kress, 2009). These companies have also been compelled to promote compliance programs and to implement a company-wide compliance with the written provisions of the FCPA. The DOJ has various elements which it includes as crucial for compliance with the FCPA. For companies who are found to reasonably comply with the provisions of the FCPA, the burden of proof would be on the DOJ to prove fault or unethical motives on the part of the company accused (Kress, 2009). Due diligence is nevertheless required of all corporations and business entities in order to meet with the requirements of the FCPA; moreover, their compliance measures with the provisions must also be adequately documented. III. CONCLUSION Based on the above discussion, it can be established that the FCPA is law which seeks to legally sanction bribery of foreign officials and discrepancies in accounting requirements. It was initially meant to be a law which would improve the reputation of corporations and other business entities in the US in the wake of the Watergate scandal and other allegations of corporate wrongdoing, especially bribery in America. This law has been enacted in order to provide criminal and civil sanctions for violators, ensuring strict compliance with its provisions among corporations and other business entities. In the business world, too many possible legal violations and unconscionable practices have been seen throughout the years, the FCPA is one of the laws which help prevent and manage these illegal practices, thereby ensuring the credibility of the business world. REFERENCES Biegelman, M. & Biegelman, D. 2010. Overview of the Foreign Corrupt Practices Act. Global Finance. (accessed 24 November 2011) Cook, C. & Connor, S. 2010. The Foreign Corrupt Practices Act: An Overview.’ Jones Day. (accessed 23 November 2011) Howard, D. & Wiygul, E. 2010. FCPA Compliance: The Vanishing “Facilitating Payments” Exception? Dechert LLP. (accessed 24 November 2011) Krakoff, D., Akowuah, K., Balsanek, K. & Galgay, C. 2008. FCPA: Handling Increased Global Anti-Corruption Enforcement. Mayer Brown (accessed 23 November 2011) Kress, L. 2009. How the Sarbanes-Oxley act has knocked the “sox” off the DOJ and SEC and kept the FCPA on its feet, Pittsburgh Journal of Technology Law & Policy. (accessed 24 November 2011) Russin, R. 2003. The Foreign Corrupt Practices Act: What Every Business Person Needs to Know. Journal of Contract Management, pp. 19-26. Read More