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What is the Foreign Corrupt Practices Act?

Foreign Corrupt Practices Act

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Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) is a United States federal law enacted in 1977 that prohibits U.S. citizens and entities (businesses, companies, corporations, etc.) from bribing foreign government officials to obtain or retain business. The law applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm.

The FCPA has two main provisions:

  • Anti-bribery Provisions: This makes it unlawful to offer, pay, promise to pay, or authorize the payment of money, or offer, give, promise to give, or authorize the giving of anything of value to any foreign official for the purpose of obtaining or retaining business. The anti-bribery provisions apply to conduct both inside and outside the United States.
  • Accounting Provisions: This component requires corporations to make and keep accurate books and records and to devise and maintain an adequate system of internal accounting controls. The accounting provisions apply to companies that are registered with the U.S. Securities and Exchange Commission (SEC).

The Department of Justice (DOJ) is primarily responsible for criminal enforcement of the FCPA, while the Securities and Exchange Commission (SEC) is responsible for civil enforcement. Violations of the FCPA can result in significant fines and penalties, both for companies and for individuals.

In essence, the FCPA was enacted to prevent corruption in international business, to enforce good governance, and to promote ethical business practices.

Example of the Foreign Corrupt Practices Act

Here’s a hypothetical example to illustrate how the Foreign Corrupt Practices Act (FCPA) might come into play:

Imagine a U.S.-based construction company named “BuildPro, Inc.” is bidding for a major infrastructure project in a foreign country. The competition is intense, with several other companies from around the world also submitting bids. The CEO of BuildPro, Inc., eager to secure the lucrative contract, decides to “grease the wheels” a bit.

He contacts an official in the foreign government’s department that is responsible for awarding the contract. He offers this official a “gift” of $50,000 to ensure that BuildPro, Inc. is awarded the project. The foreign official accepts the bribe and BuildPro, Inc. gets the contract.

However, a whistleblower within BuildPro, Inc. learns of this transaction and reports it to the U.S. Department of Justice (DOJ). An investigation is launched, and the CEO’s actions are discovered. This is a clear violation of the FCPA’s anti-bribery provisions, which prohibit U.S. businesses from bribing foreign officials to obtain or retain business.

As a result, both the CEO and BuildPro, Inc. are prosecuted. The CEO could face jail time, and the company could face hefty fines, potentially in the millions of dollars. Additionally, the SEC could take civil action against the company, which could result in further penalties. The contract in the foreign country would likely be lost, and the company’s reputation would be significantly damaged.

This example underscores the potential consequences of violating the FCPA and highlights the importance for companies and their executives to engage in ethical business practices both at home and abroad.

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