The Foreign Corrupt Practices Act - Essay Example

The Foreign Corrupt Practices Act al Affiliation The Foreign Corrupt Practices Act Introduction. The introduction of the Foreign Corrupt Practices Act carried out in 1977 was an initial step taken by the US government to deal with the increasing realization of the rising degrees of improper payments done abroad by its companies. This the Americans did in order to shape its international interest. This act consists of two types of provisions; 1) The Anti-bribery provisions; these provisions apply to both issuers, “domestic concerns” and foreign businesses or nationals and their agents. The act describes the domestic concerns as citizens, nationals, residents of the United States and/or any company which has its core place of business in the US or has its operations organized and constituted in the laws of any of its state (Cassin, 2008). The Anti-Bribery provisions stipulate most of the violations that this acts prohibits. The five elements contained within the FCPA that would validate guilt would include: Making a payment, offer, getting the authorization, or promise to make payments in monetary form or anything of value If the payment offered is given to a foreign government official, any foreign political party or party official or to any other person with the knowledge that the offer or payment would be passed to the people mentioned The offer or payment is made with a corrupt motive of influencing official actions or the decisions of the persons involved; inducing such persons to do or omit acts in violation of their lawful duties; securing improper business advantages and/or inducing these persons to make use of the influences they’ve with the foreign governments to affect government actions or decisions. The payments or offers are made to assist the companies’ in obtaining, retaining and/or directing their businesses. 2) The Recordkeeping and internal controls provisions; these provisions gives a requirement for companies to follow generally accepted accounting principles while conducting their business practices, ensuring that whatever they have on paper reflects the reality of their businesses. This recordkeeping provisions as stipulated in the act requires issuers to make and keep their books, records and accounts accurately and that these should reflect on the transactions and dispositions of their assets. The internal controls provisions on the other hand requires issuers to be able to devise and maintain systems of internal accounting controls that are sufficient to provide reasonable assurances with regard to the various transactions being carried out and the movements of assets. The provisions requires transactions to be carried out in accordance with the managements’ general and/or specific authorizations, and recorded as necessary so that the financial statements conforming to the prerequisite accounting principles can be prepared and presented to the relevant authorities. Such transactions should also be able to maintain the accountability for the companies’ assets so that any irregularities in their movements can be recorded and appropriate actions taken (Tarun, 2010). The act however comes with it particular exceptions and affirmative defenses too in certain circumstances; some of which include: Facilitating proper payments for daily Government operations Payments permitted by written local laws Having Bona Fide and reasonable business expenditures such as travel and lodging expenses Penalties imposed for violation of the act Civil and Criminal Fines and Sentences; when both individuals and entities violate the FCPA, stiff civil and criminal fines and penalties can result. Such fines and penalties would include: A criminal fine of up to $2 million per violation for an entity that violates the anti-bribery provisions A five years in prison sentence, a fine of $250,000, or both for individuals who violate the same provisions. Criminal fines of up to $25 million for an entity that violates the recordkeeping and internal controls provisions A sentence of up to twenty years in prison, fines of up to $5 million, or both for individuals found to have violated the recordkeeping provisions. A penalty of $10,000 for civil actions brought against individuals and entities by the DOJ under the FCPA The calculation of these penalties is usually based on factors stipulated in the advisory United States Federal Sentencing Guidelines that are used to determine the culpability of an individual or entity. Other factors including the history of prior violations and the steps taken by the particular entities to prevent the violations are particularly significant to the FCPA compliance programs of the affected entities (Biegelman et al, 2010). Loss of Government Contracts; apart from fines, there are also other penalties that result from the violations of the FCPA by entities. When the Government enforces this act on specific entities and firms, by indictment process or non-prosecution agreement or through a deferred prosecution agreement, there could result other significant collateral costs. These consequences could include: Suspension and debarment from the securities industry Suspension and/or debarment from contracting with the government; a company could lose the ability of doing business with the government through an indictment. For those companies that rely heavily on such government contracts, the effects could be of immense effects. This is the tool employed by the US government to protect it from involving itself with unscrupulous and negligent outfits. Another possible consequence would be the suspension or disbarment in foreign countries. Businesses have to therefore comply with the FCPA. They have to streamline their operations both within the borders of the United States and outside, to conform to the requirements and provisions of this act. In most cases, in order to be able to do this successfully, it becomes important for the businesses to establish an FCPA compliance program. This would help corporations deal effectively with such issues of compliance. The Federal Sentencing Guidelines too accepts and gives cognizance for the existence of such a program and offers reduced penalties in cases of Act violations in such circumstances (Twomey, Jennings, Fox & Anderson, 2008). A properly designed compliance program should be able to address both the internal and external actions of a company and this should be issued to all its officers, directors and employees. The program should clearly highlight the provisions of the FCPA, the organizations’ corporate policies with regard to payments made to foreign officials and due diligence on procedures involving impropriety. Sufficient and periodic training should also be accorded to the employees of the organization especially on the issues surrounding FCPA compliance. While recruiting, it is also advisable for companies to include in their employment agreements covenants of the new recruits to comply with the FCPA (Twomey, Jennings, Fox & Anderson, 2008). In order to attain an effective FCPA compliance, businesses should consider having in their ranks internal FCPA compliance officers to help in managing their compliance programs and to conduct periodic compliance audits. Against a claim of the violation of the Act, the existence of such a program could be used by an organization as a demonstration of its good faith (United States, 1981). In the International business practice, it is a necessity for companies within the US to vet their foreign partners before hiring consultants and/or forming joint ventures with them to minimize the risks of violating the FCPA. Such companies who are interested in expanding their territories into foreign markets should ensure that the business partners they intend to involve are in compliance with the FCPA. These companies should be able to conduct due diligence to ascertain the FCPA compliance of their potential business partners before making the decision of entering into business relationships. This is because once there exist a violation of the act; the company would be liable for the acts of such partners (Adeyeye, 2012). The act in essence has had a real impact on the US Commerce industry and in other business organizations and several outfits have in turn questioned the broadness within which it can be applied. In other circumstances, it has hampered the American businesses due to this fact. Such companies such as the Las Vegas Sands Corporation and Kimco Realty Corporation are currently facing the violations of the Recordkeeping and internal controls provisions and the Anti-bribery provisions respectively and have received more intense scrutiny from SEC. The act has not gone down well with most American businesses and they have in turn tried to voice their frustrations with this especially with regard to the foreign bribery statute which for a long time has remained questionable (Twomey, Jennings, Fox & Anderson, 2008). Enforcement of the FCPA The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are usually jointly responsible for enforcing this act. The SEC, according to the violations of this act, majorly investigates and brings enforcement actions against the publicly held companies. It has the authority to enforce both the FCPA act provisions. This could either be by bringing civil charges against companies that are deemed to have violated the act or against its officials (Koehler, 2013). The DOJ on the other hand has jurisdiction over both publicly and privately operated companies. Their enforcement powers are more expansive as compared to that of the SEC’s. They can enforce both the recordkeeping and internal control provisions and the anti-bribery provisions by instigating criminal charges against culprits. Over time, the Department of Justice has enforced the anti-bribery provisions, but has increasingly been involved in the cases involving recordkeeping and internal provisions flaws. Just like the SEC, the DOJ criminally prosecutes issuers and their officers, direc­tors and their respective employees as well as foreign persons carrying out operations within the U.S. The department also has civil anti-bribery enforcement authority over non-issuers subject to the FCPA. Firms and big Businesses should also take into consideration that that these violations of the FCPA act could also constitute viola­tions of other federal securities laws and criminal laws hence can be liable of other related offenses (Koehler, 2013). Reference Cassin, R. L. (2008). Bribery abroad: Lessons from the Foreign Corrupt Practices Act. Morrisville, N.C: Lulu.com. Tarun, R. W. (2010). The Foreign Corrupt Practices Act handbook: A practical guide for multinational general counsel, transactional lawyers and white collar criminal practitioners. Chicago, Ill: American Bar Association. Biegelman, M. T., & Biegelman, D. R. (2010). Overview of the Foreign Corrupt Practices Act. Hoboken: Wiley. Twomey, D. P., Jennings, M., Fox, I., & Anderson, R. A. (2008). Andersons business law and the legal environment: Standard volume. Mason, Ohio: Thomson/South-Western. United States. (1981). Impact of Foreign Corrupt Practices Act on U.S. business: Report to the Congress. Washington, D.C: U.S. General Accounting Office. Koehler, M. (2013). The Foreign Corrupt Practices Act in a new era. Adeyeye, A. (2012). Corporate social responsibility of multinational corporations in developing countries: Perspectives on anti-corruption. Cambridge: Cambridge University Press. Read More