Complying with the Foreign Corrupt Practices Act
Thomas W. Hartmann
The Hartmann Law Firm LLC
908 769 6888/203 451 6919; [email protected]
Do you have operations or sales in a foreign country or are you contemplating such action? Then you should understand the Foreign Corrupt Practices Act (“FCPA”) and have a compliance program that insures your company meets the spirit and letter of the law. Violations can expose the company to millions of dollars in fines and damages and its leaders and employees, to jail.
In general, the FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or retaining business. The FCPA also includes certain accounting provisions that require covered corporations to keep books that accurately and fairly reflect corporate transactions, consistent with a system of internal accounting controls.
Who is Covered? The FCPA applies to U.S. persons, certain foreign issuers of securities, and foreign persons and firms that act in furtherance of such corrupt payments while in the U.S. The FCPA can apply to any individual, firm, officer, director, employee, agent or stockholder acting on behalf of the company. The affected companies are those that have issued registered securities in the U.S. or are a “domestic concern,” such as a corporation, partnership or LLC with a principal place of business in the U.S. or that are organized under U.S. or state laws. The FCPA prohibits corrupt payments through intermediaries, knowing that the payment will make its way to a foreign official for an improper purpose.
What is a Violation of the FCPA?
- Intent. The person making the payment must have a corrupt intent. The payment must be intended to induce the recipient to misuse his official position to wrongfully direct business to the payer or a third party. Note that an offer or promise of corrupt payment is enough to violate the statute. The FCPA prohibits payments intended to influence or induce a foreign official to violate the law or use influence to achieve an improper purpose. It is not necessary that the improper purpose – the passage of business to the briber – occur.
- Payment. The FCPA prohibits the payment, the offer to pay or the promise to pay.
- What Foreign Officials are Covered? These include: an officer or employee of a foreign government, public international organization or any person acting in an official capacity. Foreign official also includes foreign political parties and their officials and a candidate for foreign political office.
- The Purpose. The FCPA prohibits payments whose purpose is to assist the company in obtaining or retaining business or directing business to a third party.
What is Not a Violation of the FCPA?
- Routine Governmental Action. Payments made to obtain “routine governmental action” do not violate the anti-bribery provisions of the FCPA. The following are examples: obtaining permits, licenses or other official documents; processing governmental papers such as visas or work orders; providing police protection, mail service, phone service, power and water supplies; loading or unloading cargo or protecting perishable products; or scheduling inspections related to contract performance or transit of goods. But it would not be “routine governmental action” for a foreign official to award new or continuing business to a paying party.
- Lawful in the Foreign Country. Depending on the circumstances, it is possible to try to defend a payment by asserting that it was lawful under the written laws of the foreign country or that the money was spent to demonstrate the product or to meet some other contractual provision.
What Should You Do as Company Leader?
A proactive compliance program is critical. It should include a written policy, regular training, discussions at senior levels, consistent follow up, a resource for questions, and clear consequences for those who run afoul of the policy. If a violation occurs, you will be able to demonstrate a strong intent – backed by action – to avoid these violations.
This is a complex area of law with immense consequences for missteps. Moreover, many foreign countries have their own versions of the FCPA, creating even more complexity. Thus, careful and preemptive policy development is both legally and financially prudent.