Foreign Corrupt Practices Act
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA) of 1977, as amended, has been the recent focus of U.S. Department of Justice (DOJ) and SEC Enforcement and has resulted in significant risk and penalty/violation costs to companies, not to mention the exposure of directors to personal liability. The FCPA generally prohibits the practice of paying or offering to pay (directly or indirectly) money or anything of value to a foreign official to obtain or retain business. Violations under the FCPA can be broad-reaching and may result in significant fines and penalties with respect to anti-bribery provisions as well as to requirements for the maintenance of accurate books and records and the implementation of internal controls designed to prevent corrupt payments. For example, violations can result from:1
- Improper payments made by U.S. companies and citizens that take place either within the U.S. OR wholly outside of the U.S.
- “Payments” made in cash or anything of value (e.g., discounts, gifts, use of materials, facilities and equipment, entertainment, benefits, etc.)
- Application of the FCPA’s anti-bribery provisions not only to issuers but to “domestic concerns” (i.e., any corporation, partnership, association, joint-stock company, business trust, unincorporated organization or sole proprietorship with a principal place of business in the U.S. or organized under U.S. law) as well
- Making improper payments to obtain government licenses, registrations, special tax or custom treatment which allow a company to do business in a foreign country (i.e., broad application – not just limited to those activities that directly influence the acquisition or retention of government contracts)
- Inappropriate activities conducted by third parties acting on behalf of the company that the company may be deemed to have (or deemed as should have had) knowledge of
- False characterization of improper payments on a company’s books and records – this includes books or records ultimately consolidated for financial reporting purposes
Note: The DOJ has predicated jurisdiction and, thus, FCPA may apply to non-U.S. companies or concerns, including foreign corporations and foreign nationals, who commit any act in furtherance of a prohibited payment while in the territory of the U.S.
Best practices include the establishment of an FCPA compliance program which includes:
- Understanding and complying with applicable anti-corruption laws and regulations
- Performing due diligence on business relationships (individuals and entities)
- Communicating a consistent “top-down, zero-tolerance” message on creating and maintaining a corruption-free business environment throughout the organization
- Creating a comprehensive training program on anti-corruption policies and procedures to include:
- Regular reporting by management to the audit committee about the company’s compliance program
- Documented assessment of an organization’s compliance program to demonstrate that the audit committee is fulfilling its fiduciary responsibility
- Monitoring and regular updates to the program, as necessary
- Responding to allegations of corrupt activities and investigating them in a timely and comprehensive manner
GO BACK: Effective Audit Committee Guide
(1) Refer to the Foreign Corrupt Practices Act (FCPA) – Enforcement document “The FCPA Explained” available at http://www.fcpaenforcement.com/explained/explianed.asp.