Corruption continues to pose a major legal and economic threat to businesses operating around the world, especially businesses that are in nations with developing or transitional economies. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are at the forefront of this international struggle to combat illegal activities conducted by businesses, thus raising the number of prosecutions for infractions of the Foreign Corrupt Practices Act.

The Foreign Corrupt Practices Act (FCPA) targets bribes provided by U.S. corporations or individuals to government officials, politicians, and bureaucrats in foreign countries. It is widely considered to be the world’s strongest and most effective international anti-corruption law. The FCPA is a United States federal law that bans U.S. citizens and entities from bribing officials of foreign governments in order to promote their own business interests.

The FCPA is applicable around the world and relates to publicly traded companies and their employees, including officers, directors, staff members, shareholders, and agents. Since it was amended in 1998, the Act now also applies to foreign companies and individuals who, either directly or through liaisons, assist in or provide corrupt personal payments or rewards to influence foreign officials within U.S. territory.

 

Why and When Was the FCPA Enacted?

In the wake of the Watergate scandal, research conducted by the SEC uncovered that over 400 U.S. companies admitted to making unethical or unlawful payments of more than $300 million to foreign government officials, politicians, and political parties. The bribes ranged from money given to high-level officials to obtain some type of favorable action by a foreign government to corrupt payments made to ensure that government bureaucrats performed specific ministerial or clerical tasks required by the companies.

In response to these widely publicized and shocking disclosures, the United States Congress enacted the FCPA to halt payoffs given to foreign officials and to re-establish public trust in the honesty of U.S. businesses operating abroad. The Act was signed into law by President Jimmy Carter in December of 1977. In 1988, the FCPA was updated to address questions surrounding local legal defense and bona fide payments.

In 1998, the FCPA was again amended to expand its scope and conform to the requirements of the Organization for Economic Co-operation and Development’s Anti-Bribery Convention, an anti-corruption treaty requiring signatory nations to prosecute acts of bribery involving foreign officials.

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How the FCPA Works

In line with its core objective of halting transnational bribery, the FCPA adds clout to the Securities Exchange Act of 1934 by requiring all businesses with securities listed in the U.S to meet specific accounting guidelines, such as ensuring accurate and visible financial records and maintaining internal accounting rules.

The FCPA is enforced by the DOJ in collaboration with the SEC, which deals with criminal and civil cases, respectively. Under the FCPA’s anti-bribery provision, individuals and businesses are banned from bribing foreign officials with offerings of payments or objects of value in order to maintain or acquire business.

These items of value may include cash, computers, tech equipment, high-priced clothing, jewelry, automobiles, and the like. Specific examples of proscribed bribery include paying foreign officials to obtain a contract, manipulate the procurement process, evade contract termination, or receive exemptions from government regulations.

The FCPA also prohibits “indirect bribes” or bribes made to any person who knows that a portion of the payment will be used, directly or indirectly, to bribe foreign officials. Thus, under the FCPA, individuals or companies that assist in carrying out a bribery plot are guilty to the same extent as those who actually pay the bribe.

The accounting provision of the FCPA requires U.S. and foreign public companies listed on stock exchanges in the United States and those required to file periodic reports with the SEC to generate and maintain books, records, and accounts to truthfully reflect their transactions. The companies are also banned from falsifying these records and must develop and maintain an acceptable system for controlling their internal accounting.

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Corporate Executives Need to Stay Ever Vigilant

Due to this intense enforcement activity, managers and directors of transnational businesses are constantly concerned about their efforts at compliance. In order to reduce the threats caused by foreign bribery, a corporation has to be aware of the practices prescribed by the FCPA and other related regulations, including U.S. rules prohibiting money laundering, conspiracy, and racketeering.

Managers and legal consultants must also keep up to date on changes in enforcement procedures. Finally, organizations need to have procedures in place to recognize “red flags” or conditions under which the threat of corrupt activity is high and when government authorities expect them to be especially watchful.

 

How Does the FCPA Relate to Whistleblowing and Fraud?

When such awareness of and commitment to lawful business practices are not present, an organization may be subject to the dangers of international corruption and fraud within its ranks. This is where the influence of whistleblowing enters the picture. The FCPA whistleblower provisions are specifically designed to protect non-U.S. citizens.

The confidentiality conditions contained in the whistleblower law allow non-U.S. citizens to expose bribery in their countries while increasing the possibility that the corrupt officials, politicians, or companies involved will not discover their identity. Since 2010, cases initiated by whistleblowers have played a major part in prosecuting violations of the FCPA.

The recent OECD Working Group Phase 4 Report states that, based on information obtained from the DOJ, within the past ten years, roughly 20% of its FCPA cases since Phase 3 have come through the help of whistleblowers. In one noteworthy instance from 2014, a foreign whistleblower was given $30 million for their assistance.

The SEC says that whistleblowers’ tips are among the most powerful law enforcement tools helping the U.S. government identify violations much earlier than would otherwise be possible, thus causing those who are responsible to be much more quickly held accountable.

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Seek Help from Whistleblower Info Center!

If you feel that you may have a whistleblowing case on your hands, whether it is related to the Foreign Corrupt Practices Act or otherwise, the team of attorneys that comprises Whistleblower Info Center has your back!

We are well-versed in all aspects of whistleblower law and cases and can provide you with direction, guidance, and answers to all of the questions you may have. Blowing the whistle can be nerve-wracking, but we are here to help you through it. If you have any inquiries, email us at support@whistleblowerinfocenter.com or give us a call at (888) 764-8645.