FCPA: Purpose and Penalties
The Foreign Corrupt Practices Act of 1977 (FCPA) is a federal law of the United State that has provisions for addressing transparency in the accounting requirements that fall under the Securities Exchange Act of 1934 and the scope of bribery of any foreign official. The act has been subjected to amendments in 1988 and 1998 (Fox, 2013). Over the years, there have been congressional concerns in terms of its potential impacts on US companies with an interest in external markets (Luthans, 2017).
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The primary aim of the FCPA is to prohibit individual officers and companies from directly or indirectly influencing any foreign official through the use of rewards or personal payments. This means that anyone found guilty of these activities is liable to jail time (Ryder & Harrison, 2013). The protective principle of the FCPA covers the deeds of foreign legal or neutral persons within the US borders. Moreover, this act is proactive in governing direct and indirect payments made to companies, individuals, and parties that are motivated by the intention of influencing. According to this act, the payments are expanded beyond monetary forms and may also include any item of value (territoriality principle).
The main penalties that individuals and businesses are found guilty of violating the FCPA act are fine, possible suspension, dismissal, and prison sentence. Depending on the magnitude of violation, each violation case is reviewed by the Securities and Exchange Commission.
Bribes, Gifts, and Facilitation Payments
A facilitation payment involves giving monetary and nonmonetary payments to foreign officials to influence business or other private interests. This means that facilitation payments are meant to queue jump or speed up the processing of interest by using the office of a person of authority. According to the FCPA act, bribery is a monetary and nonmonetary gift to an individual or parties to influence their behavior in order to perform an interest beyond the legal authorization channel (Luthans, 2017). On the other hand, a gift is a monetary or nonmonetary object of value handed over to another party without any expectation of special treatment. However, some gifts are known to attract ethical dilemmas, especially when given to an individual of authority by an interested party in the same office.
Major Cases since 2008 to Understand How Law Is Being Applied and Enforced
Several successful convictions have been made over the years under the FCPA act. In 2008, Siemens AG was fined $450 million for FCPA violation (U.S. Securities and Exchange Commission, 2018). In 2009, William Jefferson, who was a former Representative under the Democratic Party, was subjected to a lengthy court case over bribery accusations. Mr. Jefferson was accused of violating the FCPA act following allegations of bribing some African governments and state officials with an intention of influencing them to award him business interests.
The federal court jury found Jefferson guilty of 11 counts outs of 16 accusations labeled against him including money laundering, racketeering, and bribery (U.S. Securities and Exchange Commission, 2018). Although Jefferson was not found guilty of FCPA violation, this trial exposed the former Representative as a corrupt person and his jail sentence was set at 13 years.
Another charge involved Hewlett Packard Company (HP) in 2010. The SEC and DOJ subjected HP to a prolonged investigation following allegations of bribery to a tune of $10 million by its top executives to the Prosecutor General of Russia in order to win a $50 million computer supplies tender from the Russian government. The HP branch in Russia pleaded guilty before Judge Jensen on September 11, 2014. Specifically, HP Russia agreed before the court that it was involved in substantive violations and conspiracy to bribe against the FCPA act. HP Russia was fined $58,772,250 by the court (U.S. Securities and Exchange Commission, 2018).
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In 2011, the DOJ launched another inquiry on the international phone hacking syndicate that disabled the News of the World newspaper. Through an international corporation with the UK’s Serious Fraud Office, the DOJ found the News Corporation guilty of bribing a number of police officers in Britain. Nine senior British police officers were convicted. Another interesting case was in 2012 against Walmart de Mexico accused of paying bribes to the government officers in Mexico to influence access to construction certification and permits. The investigators established that the mother company in the US covered these allegations (U.S. Securities and Exchange Commission, 2018).
In 2012, Marubeni Corporation paid a $56.6 million fine for violating the FCPA guidelines. In the same year, Smith & Nephew was fined $22.2 million while Bizjet International paid $51 million following bribery convictions. In 2014, ALCOA had to pay a fine of $175 million for a bribery conviction. In 2015, the Goodyear Tire and Rubber Company were fined $16 million after pleading guilty to bribery charges (U.S. Securities and Exchange Commission, 2018).
US FCPA Compared to Similar Laws Enacted by Other Countries
The US FCPA has a more or less similar guideline to similar laws by other countries such as the Bribery Act of the UK. For instance, the FCPA and the Bribery Act declare bribery as an offense. However, the foreign public official who benefits from the bribery is defined narrowly by the Bribery Act than by the FCPA (Koehler, 2014). Moreover, unlike the Bribery Act of the UK, the US FCPA is silent on bribery at the individual or private level.
The US FCPA covers active bribery while the Bribery Act of the UK addresses both the passive and active bribes (Robinson, Deming, & Butler, 2013). Unlike the US FCPA, the Bribery Act of the UK has a strict liability policy that covers failure to prevent an act of bribery. Another difference is the scope of intent, which must be proven under the US FCPA. This is not the case with a similar law in the UK (Comer & Stephens, 2016).
The Bribery Act does not provide an exemption for a facilitation payment, which is accommodated by the US FCPA guidelines. In terms of penalties, the Bribery Act indicates that a company or individual guilty of these offenses is liable to an unlimited fine in addition to a 10-year jail time (Koehler, 2014). The US FCPA limits the fine to an individual violator at $250,000 per offense in addition to 5 years imprisonment. At the corporate level, a company guilty of these violations is liable to a maximum fine of $2 million per count (Koehler, 2014).
Buyer Payer Bribery Index (2017): Ten Most and Least Corrupt Counties
Table 1. Buyer payer bribery index (2017).
|Least Corrupt (2017)||Most Corrupt (2017)|
|Position||Country||Corruption perception Index||Position||Country||Corruption perception Index|
|1||New Zealand||89||171||Equatorial Guinea||17|
Impact of FCPA and How It Has Changed Company Policies and Practices
Since its inception in 1977, more than 500 companies have paid fines following bribery convictions or other offenses as defined by the US FCPA. Since these convictions attract hefty fines, it has acted as deterrence to would-be offenders, especially the US-based companies. For instance, since 1998, after the second amendment, the number of successful convictions has dropped by 25% as more companies embrace the Anti-Bribery/Anti-Corruption (ABAC) guidelines (Ryder & Harrison, 2013). This law has positively changed company practices and policies through risk reduction by proactively managing any third-party engagement (Comer & Stephens, 2016).
How Individuals and Firms Can Protect Themselves
Since most businesses and individuals have focused core competencies, there is constant interaction with third parties that facilitate significant functions or interests. Unfortunately, these individuals and businesses cannot directly control these third-party activities, thus, subjecting them to constant exposure to the reputational and regulatory risks of the FCPA. This means that individuals and businesses with interests in the high Corruption Perception Index countries have higher levels of exposure to the FCPA violations.
In order to protect their interests, these businesses and individuals should adopt the Anti-Bribery/Anti-Corruption (ABAC) guidelines to combat any potential risks in addition to safeguarding these entities from exorbitant fines or reputational damages. These guidelines manage third-party engagement and monitor the ongoing activities within the regulation of the FCPA (Comer & Stephens, 2016).
Comer, M. J., & Stephens, T. E. (2016). Bribery and corruption: How to be an impeccable and profitable corporate citizen. London, UK: Routledge.
Fox, T. (2013). Best practices under the FCPA and Bribery Act: How to create a first class compliance program. New York, NY: CreateSpace Independent Publishing Platform.
Luthans, F. (2017). International management culture, strategy, and behavior (9th ed.). New York, NY: McGraw-Hill Education.
Koehler, M. (2014). The Foreign Corrupt Practices Act in a new era. New York, NY: Edward Elgar Publishing.
Robinson, V., Deming, S. H., & Butler, T. K. (2013). The FCPA and U.K. Bribery Act: A ready reference for business and lawyers. New York, NY: ABA Section of International Law.
Ryder, N., & Harrison, K. (2013). The Law relating to financial crime in the United Kingdom. London, UK: Ashgate Publishing, Ltd.
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Transparency International. (2018). Corruption perception index 2017. Web.
U.S. Securities and Exchange Commission. (2018). SEC enforcement actions: FCPA cases. Web.