The Foreign Corrupt Practices Act: enforcement and compliance requirements

Edward Molet, Louis Armstrong, Ellen Talley

Kent Lauderdale

Weekly Reflection Team Bravo

"The federal Foreign Corrupt Practices Act (FCPA) in 1977 prohibits enterprises from obtaining business by paying bribes to foreign political figures and government officials" (Morley, Hadley, & Saulnier, p. 24-32, 2011). "The Act consists of two main provisions. (1) The Department of Justice enforces the anti-bribery provisions of The Act. (2) The Securities and Exchange Commission (SEC) enforces the accounting provisions of The Act. Under the act, the prohibition of improper payments occur for three entity types: Payment issuers, domestic concerns (the individuals), and foreign nationals/businesses.

Global non-compliance rates

Global FCPA non-compliance rates are on the rise simultaneously with enforcement action. Since 2004, prosecutions, and enforcement action are increasing fivefold. In 2008, SEC, and DOJ penalties and fines for FCPA violations are roughly $2.8 billion and took place against 64 individuals and 36 corporations. A number of the actions against corporations are reaching blockbuster proportions as follows: (a) In December 2008, Siemens, AG, and three subsidiaries pay $1.6 billion in fines to the United and foreign authorities; (b) In February 2009, $402 million in criminal fines and $177 million in disgorged profits submits Kellogg, Brown, and Root for a Nigerian bribery scheme; (c) In February 2010, a ten-plus-year bribery ring in the Middle-East is visible, leaving BAE Systems PLC with $400 million in fines, and (d) In June 2010, Technip S.A. has a $240 million criminal penalty and $98 million in disgorged profits.

Vigilance with FCPA compliance is not simply a matter of looking for exchanges of cash or cash equivalents. The manner of things of value comes under FCPA regulations, and there is explicit language about what is a reasonable, directly related, and bona fide business expense. Explanation of Red flags in the FCPA regulations guide enterprises to consider and follow up on potential violations. A red flag does not, in itself, indicate that a violation has occurred -- or may occur -- any more than the absence of a red flag is an assurance that no violation of FCPA has taken place. Red flags serve to sensitize people as they prepare for and engage in business transactions. Advice to enterprises is attend to red flags that emerge during self-audits for FCPA compliance, as the growing enforcement trend shows signs of strengthening. Prosecution rates for FCPA violations rose from 16 individuals in 2008 to 46 individuals in 2009" (Volkov, 2012).