Introduction
The Foreign Corrupt Practices Act (FCPA) holds a significant position as the primary Anti-Bribery legislation in the United States. Enacted in 1977, the FCPA carries extensive global implications, reaching entities and individuals outside the US through its extra-territorial jurisdiction. This article delves into the historical background, amendments, objectives, provisions, entities covered, and the enforcement agencies responsible for upholding the integrity of the FCPA.
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Historical Background of the FCPA
The FCPA came into effect on December 19, 1977, in the aftermath of the Watergate scandal. This scandal, involving widespread corruption and abuse of power, led to the resignation of President Richard M. Nixon in 1974. Recognizing the need for comprehensive legislation to combat corruption, the FCPA was born.
Amendments to the FCPA
Over the years, the FCPA has undergone crucial amendments to strengthen its effectiveness. In 1988, two affirmative defenses were added to the Act: the local law defense and the reasonable and bona fide promotional expense defense. In 1998, further amendments were made to align with the requirements of the OECD Anti-Bribery Convention. These amendments expanded the scope of the FCPA, covering payments made to secure “any improper advantage,” reaching certain foreign individuals committing acts in furtherance of bribery within the United States, and applying criminal penalties to foreign nationals employed by or acting as agents of U.S. companies.
Objectives of the FCPA
The FCPA was enacted with the following objectives in mind:
1. Prohibit corrupt payments to foreign officials in exchange for obtaining or retaining business.
2. Promote fair competition in international business.
3. Restore public trust in the integrity of the US business system.
Provisions of the FCPA
The FCPA consists of two primary provisions:
1. Anti-Bribery Provisions: These provisions prohibit corrupt payments to foreign officials, including facilitation payments.
2. Accounting Provisions: The FCPA mandates accurate books and records, as well as the establishment of robust internal controls to prevent and detect corrupt practices.
Entities Covered by the FCPA
The FCPA’s ambit extends to the following entities and individuals:
1. Issuers: Companies, whether U.S. or foreign, that have securities listed on U.S. stock exchanges or are required to file reports with the Securities and Exchange Commission (SEC).
2. Domestic Concerns: U.S. citizens or residents and businesses organized in the US or having their principal place of business in the US.
3. Foreign nationals or entities engaging in acts in furtherance of corrupt payments while within the US territory (extra-territorial jurisdiction).
4. Officers, directors, employees, agents, or stockholders acting on behalf of the above entities.
Conditions to Trigger the FCPA
For the FCPA to be applicable, three conditions must be met:
1. Corrupt Purpose: There must be intent to influence a decision, obtain or retain business, which is widely interpreted.
2. Use of Mails, Wires, or Interstate Commerce: The use of these means or instrumentality is necessary for FCPA violations.
3. Willfulness: The defendant must act “willfully” to be subject to FCPA penalties.
Definition of a Foreign Official
The term “foreign official” encompasses a broad range of individuals. It includes employees of a foreign government, irrespective of their rank. Additionally, it covers employees of an “instrumentality” of a foreign government, which may include state-owned or state-controlled enterprises. The definition also encompasses foreign political parties, candidates, and officers or employees of public international organizations like the World Bank.
Exceptions/Affirmative Defenses under the FCPA
The FCPA provides three exceptions/affirmative defenses:
1. Facilitation/Expediting/Grease Payments: These are payments made for routine government actions and are not considered corrupt.
2. Local Law Defense: Compliance with local laws that require the payment can serve as a defense.
3. Reasonable and Bona Fide Expenses: Travel and entertainment expenses that are reasonable and bona fide are exempted.
Enforcement Agencies under the FCPA
The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are the primary enforcement agencies for the FCPA. The SEC enforces civil violations by issuers, while the DOJ handles criminal violations by issuers, as well as civil and criminal violations by domestic concerns and foreign persons or businesses involved in FCPA violations within the United States.
Conclusion
The Foreign Corrupt Practices Act (FCPA) stands as a vital legislation in the fight against bribery and corruption, both in the United States and globally. Understanding the FCPA’s historical context, objectives, provisions, entities covered, and exceptions is crucial for businesses operating on an international scale. With the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) as the enforcement agencies, compliance with the FCPA is essential to promote fair competition and restore public trust in the integrity of the US business system.
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