Foreign Corrupt Practices Act Research Paper

  • Length: 5 pages
  • Sources: 5
  • Subject: Business
  • Type: Research Paper
  • Paper: #3612520

Excerpt from Research Paper :

Foreign Corrupt Practices Act: What it Is and What it Does

The Foreign Corrupt Practices Act of 1977 as amended was passed in response to the discovery of numerous corporate misdeeds, including accounting irregularities, by Northrop, Lockheed, Gulf Oil by the Watergate special prosecutor and a subsequent investigation by the Securities and Exchange Commission that found these practices were prevalent in American business, including nearly a quarter of the Fortune 500 companies. This paper provides a review of the relevant literature to determine the rationale in support of the passage of the Foreign Corrupt Practices Act and what it prohibits. An analysis concerning the impact that the Act has had on American business at the national and international level is followed by a discussion concerning penalties for violations of the Act. An assessment of the impact on U.S. commerce is followed by a discussion concerning enforcement responsibility for the Act as well as other interesting issues identified during the research process. Finally, a summary of the research and important findings are presented in the conclusion.

Review and Discussion

The Rationale for the Act

The rationale in support of the passage of the Foreign Corrupt Practices Act of 1977 (hereinafter alternatively "FCPA" or "the Act") was based on the discovery that a number of major U.S. corporation had engaged in questionable practices in their international dealings during the 1970s (Culp & Niskanen, 2003). In fact, once the surface was scratched, the discovery of questionable practices by some American corporations snowballed and hundreds of other corporate wrongdoings were discovered. In this regard, Culp and Niskanen (2003) report that, "In 1973, the Watergate special prosecutor announced that Lockheed, Northrop, Gulf Oil, and other prominent corporations may have used corporate funds to make illegal domestic political contributions" (p. 50). Likewise, Boedecker (2011) reports that, "Originally passed in 1977, the FCPA arose out of an SEC investigation launched in the wake of the Watergate hearings. Publicly traded American corporations had concealed a variety of illicit payments in deliberately mislabeled accounts, from illegal domestic political campaign contributions to bribes paid to foreign government officials" (p. 73).

In response to these initial discoveries by Lockheed and others, the Securities and Exchange Commission (SEC) also launched an investigation that found that these practices were far more widespread than just among the major corporations initially identified. According to Culp and Niskanen, "Scores of American corporations had violated U.S. election laws and hundreds more had made payments abroad in circumstances suggesting indifference, or worse, to domestic and foreign laws prohibiting bribery and other questionable methods of securing business" (2003, p. 50). By the time the investigation was completed, the SEC found that more than 500 publicly held U.S. companies, including nearly a quarter (117) of the Fortune 500 companies, had been charged or had confessed to using "phony subsidiaries and off-book accounts to channel millions of dollars to government officials and others to influence the purchase of goods and the awarding of lucrative contracts" (Culp & Niskanen, 2003, p. 50). In response to the SEC findings, Congress passed the Act in 1977 which mandated that publicly traded corporations must maintain accurate books and records as well as an effective system of internal controls to ensure their books and records are accurate, together with specific prohibitions against bribery (Boedecker, 2011). According to the U.S. Department of Justice (2012), the FCPA "was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business" (FCPA overview, 2012, para. 1). These general prohibitions were codified in the Act as discussed further below.

Acts Prohibited by the Act

According to the U.S. Department of Justice (2012), the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any other means of instrumentality of interstate commerce to corruptly:

1. In furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or,

2. To secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person (FCPA overview, 2012, para. 2).

The Impact of the Act on Business

National Level. The impact of the FCPA on business at the national level depends on the degree to which a company's operations are internationalized (Jain, 2001). Companies that must comply with the provisions of the FCPA may be at a competitive disadvantage to their domestic counterparts that do not (Jain, 2001).

International Level. Multinationals must navigate a hazardous business course in their dealings with foreign nations. In this regard, Boedecker emphasizes that, "What would otherwise be routine marketing and promotion activities aimed at wooing private sector domestic customers present a legal minefield for American businesses attempting to obtain business from foreign companies" (2011, p. 74). Because bribery represents just a small percentage of corrupt activities by American companies abroad, controlling bribery may be ineffective without additional political support for fighting corruption (Jain, 2001).

Penalties for Violations of the Act

Violations of the FCPA can result in either civil and/or criminal penalties, including substantial fines in the former cases and prison terms in the latter (Boedecker, 2011). Violations do not even need to be substantiated to have an adverse effect on the suspected entity. Indeed, Boedecker emphasizes that, "Indictment alone may cause the individual or firm to be barred from doing business with the federal government. An FCPA conviction may lead to denial of export licenses, a ban from the securities business and debarment from participation in the Overseas Private Investment Program" (2011, p. 74). Violations of the Act can cost American companies a great deal. For instance, Marberg (2012) reports that, "In fiscal year 2010, the Criminal Division of the DOJ imposed $1 billion in penalties as a result of violations of the FCPA, the largest in FCPA enforcement history" (p. 558).

Impact of the Act on U.S. Commerce

Following the passage of the FCPA, there was growing concern among American policymakers and business owners alike that forcing U.S. companies to comply with stricter rules and regulations compared to their international counterparts would adversely affect U.S. commerce. In this regard, Boedecker reports that, "Worried that American firms would suffer a competitive disadvantage relative to those in other industrialized countries that did not adhere to the FCPA bribery standards, the United States sought an agreement from those nations to pass similar legislation" (p. 75). In response to this call for international cooperation, the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Government Officials was created in 1997 and by early 2009, 38 other countries had signed this agreement (Boedecker, 2011).

Enforcement Responsibility

The SEC was assigned the exclusive right to enforce the provisions of the Act in either civil or criminal proceedings (Boedecker, 2011).

Other Issues of Interest

The U.S. Congress recognized the realities of the business world that exists beyond the borders of the United States a decade following the initial passage of the act. For instance, Boedecker reports that, "In 1988, Congressional amendments legalized 'facilitating payments,' also referred to as 'grease payments,' to hasten the performance of ministerial functions, i.e., administrative actions, such as an expedited issuance of permits or similar, non-magisterial actions to which the corporation was entitled under host country law" (2011, p. 74). These payments are specifically distinguished from bribes under the provisions of the FCPA (Boedecker, 2011).



Cite This Research Paper:

"Foreign Corrupt Practices Act" (2012, November 07) Retrieved January 19, 2017, from

"Foreign Corrupt Practices Act" 07 November 2012. Web.19 January. 2017. <>

"Foreign Corrupt Practices Act", 07 November 2012, Accessed.19 January. 2017,