The Foreign Corrupt Practices Act (FCPA), 15 U.S.C. §§ 78dd-1, was enacted in 1977 in response to widespread bribery of foreign officials by U.S. companies. The FCPA was intended to stop those practices, create a level playing field for honest business, and restore public confidence in the integrity of the marketplace.
The statute addresses the problem of international corruption in two key ways:
- the anti-bribery provisions prohibit individuals and businesses from bribing foreign government officials to obtain or retain business, and
- the accounting provisions impose certain record keeping and internal control requirements and prohibit falsifying company books and records. Violations of the FCPA can lead to civil and criminal penalties, sanctions, and remedies, including fines, disgorgement, and/or imprisonment.
The FCPA covers three categories of individuals and entities:
- It covers U.S. issuers and their officers, directors, employees, agents, and shareholders. This includes companies listed on a national securities exchange in the United States, as well as those who file SEC reports because their stocks are traded in the over-the counter market. Thus, the statute reaches foreign companies.
- The statute also covers “domestic concerns” including any U.S. citizen, national, or resident, or any U.S. corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship.
- Finally, the statute covers foreign nationals and companies that, while in the U.S., engage in any act in furtherance of a corrupt payment.
The FCPA broadly applies to any payment intended to induce or influence a foreign official to use his or her position to assist a company in obtaining, retaining, or securing any kind of business advantage. For example, the FCPA covers bribes:
- To avoid contract termination.
- To secure favorable tax treatment.
- To evade taxes or penalties.
- To reduce or eliminate customs duties.
- To obtain government action to prevent competitors from entering a market.
- To circumvent a licensing or permit requirement.
- To obtain exceptions to regulations.
- To influence the adjudication of lawsuits or enforcement actions.
The FCPA covers actual bribes as well as offers and promises to bribe. Bribery takes the form of money—often disguised as “consulting fees” or “commissions” given through intermediaries—as well as virtually any form of consideration or thing of value, including gifts, meals, travel, and entertainment.
The SEC has recognized whistleblowers as among the most “powerful weapons” in rooting out fraud:
Assistance and information from whistleblower can be among the most powerful weapons in the law enforcement arsenal . . . [and] can help SEC and DOJ identify potential violations much earlier than might otherwise have been possible, thus allowing SEC and DOJ to minimize the harm to investors, better preserve the integrity of the U.S. capital markets, and more swiftly hold accountable those responsible for unlawful conduct.
The Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 offer protections for whistleblowers reporting FCPA violations. Additionally, Dodd-Frank offers whistleblower rewards of up to 30% of any FCPA-related government recovery.
For more information on the scope and application of the FCPA, see the joint DOJ/SEC Resource Guide on the statute. See our SEC Enforcement Actions and DOJ Fraud Settlements pages for a review of recent SEC and DOJ FCPA enforcement actions.
To find out more about whether a particular type of fraud is covered by the Foreign Corrupt Practices Act, contact us today.