The Foreign Corrupt Practices Act of 1977, also called the FCPA, is a Unites States federal law that addresses two main issues:
- implementing the transparency requirements as stated in the Securities Exchange Act that was passed in 1934
- tackling bribery and corruption of foreign officials
It was revised in 1988. The main purpose of the act is to enforce anti-bribery, making it unlawful for any U.S. citizen to offer a bribe to a foreign official for the purpose of influencing a foreign official to further their personal interests or business. The act also requires that companies that have their securities registered in the U.S. stock exchanges, maintain proper records and implement adequate internal controls to facilitate transparency. The FCPA prohibits paying, offering or promising to pay cash or non–cash items as a bribe to a foreign official.
Amendment Made to FCPA in 1988
These amendments were made to broaden the scope and relevance of the FCPA in the concerned areas. Here are some of the amendments made in 1988:
- to expand the jurisdictional reach of the FCPA statute to include all U.S. nationals or U.S. Companies; in particular, the issuers and domestic concerns
- to extend the FCPA liability to foreign nationals and foreign businesses that are connected in any way with the U.S market, either directly or indirectly
- to take action against any criminal violations coming under the act. Especially for those foreign nationals employed by, or acting as agents of, U.S. businesses
Who does the FCPA apply to?
The FCPA applies to any U.S. individual, firms, officer, director, employee, or agent of the firm and any stockholder acting on behalf of the firm. Individuals face heavy penalties for violations of the FCPA, and they maybe imprisoned for up to five years, and also face criminal charges of up to $100,000 per violation, and civil penalties of up to $10,000 per violation. Companies face criminal liabilities as well, if certain laws are violated under the FCPA. Companies charged with FCPA violations will need to face shareholder suits under the Securities Laws Act and other similar penalties.
Two Provisions of FCPA
While talking about the FCPA, we need to understand that it can be divided into two main provisions namely:
- anti-bribery provisions
- accounting and record-keeping provisions
The anti-bribery provision of the FCPA is enforced by the Department of Justice. It strictly prohibits U.S. citizens from making any kind of payment in cash or kind, to a foreign official / candidate for a political party / foreign political party to further, obtain or retain business. In other words, U.S. citizens cannot make a payment to a foreign official in order to influence him or instigate him to violate his official duties.
Anyone who violates the provision can face severe penalties. Depending on whether the violation has been committed by an individual or a U.S. company, the penalties can vary. The person / company under scrutiny needs to prove that the payment was made in a legitimate manner and was made without violating the law. In case of violation, the punishments can range from a fine of $2 million to even imprisonment for up to five years. Sometimes, both payment of fine and imprisonment may be implemented.Civil penalties may also be imposed apart from these punishments.
Accounting and Record-Keeping Provisions
All companies which are publicly traded in the U.S. are required to maintain an accounting system which exercises tight control and has all the accurate details of the dispositions of the company’s assets. The provision’s aim is to counter the misappropriation of funds, mislabeling of payments and the misrepresentation of funds. The term “Records” includes any form of business documentation, such as accounts, correspondence, catalog, discs, papers, books and other related documents. The accounting and record-keeping provisions of the FCPA is enforced by the Securities Exchange Commission or the SEC. So, any kind of misrepresentation, modification and omission of records is illegal and will be penalized and strict action will be taken.
Violation of the accounting and record-keeping provisions will be punished with the same penalties imposed on most other violations of the security laws. However, these penalties do not include criminal penalties and are usually monetary fines.
The United States has been very keen with regard to this Act and its implementation. The serious steps taken by the FCPA to discourage the bribery of foreign government officials has been rewarding in many cases. With corruption, bribery and related malpractices increasing in the market, the FCPA has been a reminder of the serious allegations, charges and consequences they will need to face upon violation of the law. As FCPA has broadened its horizon and is regulating the foreign markets, the amendments have helped the Act in several ways. While certain payments or reimbursements are permitted under the FCPA, they must not be misused to indulge in bribery.