Criminalizing the Second Oldest Profession:
Foreign Corrupt Practices Act (FCPA)
Article researched and written by Arkady Bukh and Nick Wooldridge of LV Criminal
Defense, 520 S 4th Street, Las Vegas, NV 89101, 702-623-6362. Read more about
FCPA - http://www.lvcriminaldefense.com/federal-crimes/fcpa/
I.
Introduction
The demand for bribes from politicians and the attendant temptation to succumb
to those demands has been an ever-present reality for businesses since antiquity. As
observed by former President Ronald Reagan: “It has been said that politics is the second
oldest profession.” For centuries, bribing public officials has been a curse on
governments and businesses alike.
In response, many countries began enacting anti-corruptions laws in the late
1970s and 1980s. In 1977, the United States Congress passed the Foreign Corrupt
Practices Act (“FCPA”) following a series of corruption scandals highlighted by the
Watergate investigation and the resulting resignation of President Richard Nixon1 While
Watergate highlighted political corruption, as noted by many commentators, the
investigation also shed light on corporate corruption and bribery in America. 2 The
Watergate investigation uncovered more than 400 American companies engaged in
making bribes and other corrupt payments to officials in foreign governments around the
world.3 The first few decades of the FCPA existence saw very few enforcement actions;
however, the post-financial-crisis period has seen a significant increase in both political
and regulatory expectations, resulting in a growing number of enforcement actions by
regulatory agencies.
This post-crisis environment has caused many companies all over the world to reassess their policies, programs and procedures for evaluating risks and establishing
effective risk management parameters. The risk oversight function of the board of
directors continues to take center stage in this re-assessment, and investor and public
expectations for board engagement and mitigation of risk continues to be high; the
reputational damage to boards of companies that fail to properly manage risk is a major
threat.
Among the many changes in the legal and business landscape in the wake of the
Enron scandal and Sarbanes-Oxley Act 2002 there has been a dramatic increase in the
1
See John Ashcroft & John Ratcliffe, The Recent and Unusual Evolution of An
Expanding FCPA, 26 Notre Dame J.L. Ethics & Pub. Pol’y 25 (2012); and Carolyn
Lindsey, More Than You Bargained For: Successor Liability Under the U.S. Foreign
Corrupt Practices Act, 35 Ohio N.U. L. Rev. 959, 961 (2009).
2
Id.
3
Id. See also U.S. Dep’t of Justice, Criminal Division & U.S. Sec. & Exchange Comm’n,
Enforcement Div., A Resource Guide to the U.S. Foreign Corrupt Practices Act (2012), available
at <http://www.justice.gov/ criminal/fraud/fcpa/guide.pdf.> (last accessed August 3, 2015).
number of enforcement actions brought under the FCPA. Enforcement officials at the
Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice
(“DOJ”) are pursuing more and more cases and securing settlements that include criminal
fines and penalties, disgorgement of ill-gotten gains, prison terms for individual
wrongdoers, and ongoing compliance monitoring obligations. Further, while the DOJ
and SEC enforce the FCPA, section 162(c) of the Internal Revenue Code, which predates
the FCPA, also prohibits the deduction of bribes, including payments that violate the
FCPA, as business expenses.
In the post-Enron and post-financial crisis era, anti-corruption compliance
programs have been a key focus for boards of directors, audit committees and senior
management of many multi-national companies. Recent FCPA cases have been closely
followed in the press, boardrooms, and sales meetings, and prompted many companies to
redouble their anti-corruption compliance efforts. This trend of increased enforcement of
the U.S. FCPA that began five years ago has continued in the U.S.
There have also been increased enforcement efforts in Europe and in the UK,
where the UK Bribery Act of 2010 was recently passed. 4 With the weakened global
economy and increasing competition in emerging economies, the risk to companies
continues to grow. Consequently, U.S. public companies and issuers subject to the
FCPA’s books and records provisions remain particularly at risk given the ease of
prosecution for any small payment, regardless of materiality, and the broad interpretation
of the statute by regulators to include any type of improper payment, including
commercial bribery.
The FCPA and UK Bribery Act are generally the most expansive in terms of
proscribed activities and jurisdictional reach. The FCPA is also the most aggressively
enforced by several orders of magnitude and, therefore, these are the laws that most
global companies use as the standards for their anti-corruption compliance programs.
This note is divided into three sections. Part II builds on the introduction and
provides a brief overview of the FCPA. It provides a broad overview of the FCPA’s
individual provisions and outlines the potential penalties. Part III examines ways in
which FCPA exposure may be limited. Part IV underscores the need for corporations and
corporate officers to examine their current compliance programs and implement an
effective FCPA compliance and ethics program.
II.
Brief Overview of the FCPA
There are restrictions on U.S. firms doing business abroad that disallows
payments to foreign government officials for getting business from their governments.5
The FCPA is a federal criminal statute that applies to businesses whose principal offices
4
See UK Bribery Act 2010.
David P. Twomey & Marrianne Moody Jennings, Business Law Principles for Today’s
Commercial Environment (Thomson West, 2008).
5
are in the United States; it is an anti-bribery and anti-corruption statute covering these
companies’ international operations.6
The FCPA has two principal parts: the anti-bribery provisions and the accounting
provisions. The anti-bribery provisions prohibit the authorization, offer, promise to pay,
or payment of anything of value to a foreign official for a corrupt purpose. The elements
of an anti-bribery violation are:
6

an act by a covered person (including U.S. and foreign issuers of U.S. securities,
non-public U.S. companies and U.S. residents, and some foreign non-residents);7

in furtherance of an offer, payment, promise to pay, or authorization of payment
of anything of value;8

directly or indirectly;

to a foreign official;9

corruptly;10
15 U.S.C. § 78dd-1 et seq. For U.S. domestic bribery laws see 18 U.S.C. § 201.
To qualify as an issuer under the FCPA an entity must be required to file reports with the SEC
under section 15(d) of the Exchange Act of 1934 or must have securities registered with the SEC
under section 12(g) of the Exchange Act.
8
The FCPA does not define the term "anything of value," nor is there any legislative history or
case law that defines exactly what this term means. However, as noted in the FCPA Resource
Guide, courts have interpreted the phrase broadly and look at the subjective value the defendant
placed on the payment. See e.g. Complaint, SEC v. RAE Sys. Inc., No. 10-cv-2093 (D.D.C. Dec.
10 2010) (ECF No. 1) (Complaint) (noting fur coat); SEC v. Daimler AG, No. 10-cv-473 (D.D.C.
Apr. 1, 2010), ECF No. 1 (armored Mercedes Benz worth 300,000).
9
As noted in the FCPA Resource Guide, foreign officials under the FCPA include officers or
employees of a department, agency, or instrumentality of a foreign government. The FCPA
broadly applies to corrupt payments to “any” officer or employee of a foreign government and to
those acting on the foreign government’s behalf. Moreover, the FCPA covers corrupt payments to
low-ranking employees and high-level officials alike. The term “instrumentality” is broad and can
include state-owned or state-controlled entities. Whether a particular entity constitutes an
“instrumentality” under the FCPA requires a fact-specific analysis of an entity’s ownership,
control, status, and function. See FCPA Resource Guide n.3 at 20.
10
FCPA anti-bribery provisions differ from most other fraud statutes in that they require that the
intent be corrupt. See e.g., United States v. Kozeny, 582 F. Supp. 2d 535, 541 (S.D.N.Y. 2008)
(citing S. REP. No. 114, 9th Cong., 1st Sess. 10(1977), reprinted in 1977 U.S.C.C.A.N. 4098). For
a leading case on the definition of “corrupt” see United States v. Liebo, 923 F.2d 1308 (8th Cir.
1991) (“The offer, promise to pay, payment, or authorization of payment, must be intended to
induce the recipient to misuse his official position or to influence someone to do so and that an
act is “corruptly” done if done voluntarily and intentionally, and with a bad purpose of
accomplishing either an unlawful end or result, or lawful end or result by some unlawful method
or means.”); see also Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003).
7

for the purposes of influencing official action or decision, inducing an unlawful
act, inducing official influence over government action, or securing any improper
advantage;11 and

in order to obtain or retain or redirect business.12
These prohibitions also apply to payments or gifts designed to influence official acts of
foreign officials, parties, party officials, candidates for office, non-governmental
organizations (“NGOs”), or any person who transmits the gift or money to these types of
persons.13 A criminal conviction under the FCPA requires that the defendant have acted
willfully.14
The FCPA further requires U.S. and non-U.S. companies with securities listed in
the U.S. (i.e. issuers) to meet its accounting provisions.15 These accounting provisions,
which were designed to operate in tandem with the anti-bribery provisions of the FCPA,
require issuers to make and keep detailed books and records that accurately and fairly
reflect the transactions of the corporation and to devise and maintain an adequate system
of internal accounting controls. In practice, these accounting provisions have been
interpreted very broadly to include false accounting or record keeping for any illegal act,
including but not necessarily limited to, commercial bribes paid both within and outside
the U.S. 16 The FCPA does not apply to payments made to low-level officials for
expediting the performance of routine government work.17
11
For a discussion of improper advantage, see United States v. Kay, 359 F.3d 738, 754-55 (5th
Cir. 2004).
12
15 U.S.C. § 78dd-1 et seq. As for corrupt intent, it is important to recognize that FCPA antibribery provisions differ from most other fraud statutes in that they require that the intent be
corrupt. See e.g., United States v. Kozeny, 582 F. Supp. 2d 535, 541 (S.D.N.Y. 2008) (citing S.
REP. No. 114, 9th Cong., 1st Sess. 10(1977), reprinted in 1977 U.S.C.C.A.N. 4098). For a leading
case on the definition of “corrupt” see United States v. Liebo, 923 F.2d 1308 (8th Cir. 1991) (“The
offer, promise to pay, payment, or authorization of payment, must be intended to induce the
recipient to misuse his official position or to influence someone to do so and that an act is
“corruptly” done if done voluntarily and intentionally, and with a bad purpose of accomplishing
either an unlawful end or result, or lawful end or result by some unlawful method or means.”).
13
See FCPA Resource Guide, n.2 at 1,14 and 19.
14
Id. at 1 and 14 (citing 15 U.S.C. §§§ 78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A)). For a
definition of willful in the criminal context, see Bryan v. United States, 524 U.S. 184, 191-192
(1998) (construing ‘willful’ in the context of 18 U.S.C. § 924(a)(1)(A)) (“a willful act is one
undertaken with a ‘bad purpose.’ In other words, in order to establish a ‘willful’ violation of a
statute, ‘the Government must prove that the defendant acted with knowledge that his conduct
was unlawful.”); and United States v. Kay, 513 F.3d 432 (5th Cir. 2007) (defining corruptly and
willfully).
15
15 U.S.C. § 78m(b)(2) (2002) (applying accounting provisions to “[e]very issuer which has a
class of securities registered pursuant to section 78l of this title and every issuer which is required
to file reports pursuant to section 78o(d) of this title.”)
16
See FCPA Resource Guide, n.3 at 41.
17
id.
The FCPA does not prohibit grease or facilitation payments.18 These are payments
made only to get officials to perform their normal duties or to perform then in a timely
manner. Facilitation payments are those made to: (1) secure a permit or a license, (2)
obtain paper processing, (3) secure police protection, (4) provide phone, water, or power
services, or (5) obtain any other similar action. 19 The FCPA’s anti-bribery provisions
provide two affirmative defenses: (1) that the payment was lawful under the written laws
of the foreign country, or (2) that the payment was a reasonable and bona fide
expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign
official, and directly related to the demonstration or explanation of a product or service or
performance of a contract with a government agency.20 Additionally, the Act includes an
exception in cases of extortion.21
Violations of the FCPA carry significant penalties, including criminal liability
(including terms of imprisonment for individual officers, directors, or stockholders), civil
fines, substantial loss of goodwill, and other meaningful consequences, including the
potential loss of government licenses. Moreover, the individuals involved may be
responsible for damages as a result of civil actions brought by competitors under federal
and state anti-racketeering acts.22
III.
Issuers, Materiality and Extraterritorial Application of the FCPA
1.
Where A Company Is Not An Issuer
A company may potentially limit its FCPA related exposure if it is exempt from
registration under section 12(g) of the Exchange Act. For instance, a company who has
sold ADRs in the United States Over the Counter (“OTC”), and not on any national
securities exchanges such as the NYSE, which would require registration with the SEC
may be exempt.23 A company may also be exempt under section 15(d) of the Exchange
Act.24 However, even where a potential defendant is not an issuer within the meaning of
the Exchange Act, the definition of “issuers” is sufficiently broad and the risks to
potential defendants, including their reputation, too great to ignore FCPA compliance.
Instead, it is imperative that all businesses, including their individual officers and
directors, institute an FCPA compliance program. Moreover, even where defendants
prevail on this particular issue, the DOJ often proceeds under multiple theories of
liability, including without limitation, conspiracy, agent liability, and aiding and abetting
where more than one company or individual was involved and a U.S. based issuer played
even a tangential role.
18
19
20
id.
id.
id. at 23.
id. at 27.
22
PL 95-213, 94 Stat 1494, 15 U.S.C. § 78a nt.
23
To obtain such an exemption a company must provide information to the SEC on a
yearly basis by completing Form F-6. See Rule 12g3-2.
24
See 17 C.F.R. § 240-15d-3.
21
2.
Materiality Is Irrelevant
Unlike section 404 of SOX, which requires SEC registrants to establish an
adequate internal control structure and procedures for financial reporting to assist in
detecting material misstatements, in the event the SEC or the DOJ where to ever
investigate or bring charges, the FCPA has no materiality threshold because there is no
financial threshold for compliance with laws.
3.
Extraterritorial Application of the FCPA
In the wake of recent decisions by the US Supreme Court, some defendants may
be able to argue that they are beyond the extra-territorial reach of the FCPA. The reasons,
issues, and analysis of these decisions are substantial and complex and are beyond the
scope of this brief note. Nevertheless, it bears mentioning that this is a complex issue,
would be fiercely contested in the event of SEC or DOJ related litigation, and would not
necessarily protect a corporate or individual defendant from other business risks, such as
reputational risks.
In Morrison v. National Australia Bank Ltd. 25 the Supreme Court issued a
landmark ruling applying the presumption against extraterritoriality to the Exchange Act,
holding that Section 10(b) of the Exchange Act does not apply extraterritorially. Under
the presumption against extraterritoriality, “[w]hen a statute gives no clear indication of
an extraterritorial application, it has none.”26 The presumption is rebutted only when the
statute’s “text, history, and purposes . . . evince a ‘clear indication of
extraterritoriality.’”27 Courts have held that generic terms like “any” or “every” do not
rebut the presumption against extraterritoriality, nor do “fleeting reference[s]” to possible
international ramifications of an otherwise domestic statute.28 In Morrison, the Supreme
Court limited Rule 10(b)’s application to two types of transactions: “(1) transactions
involving ‘the purchase or sale of a security listed on an American stock exchange,’ and
(2) transactions involving ‘the purchase or sale of any other security in the United
States.’”29 The Supreme Court subsequently issued another important decision, in Kiobel
25
561 U.S. 247 (2010).
Kiobel, 133 S. Ct. at 1664 (quoting Morrison, 561 U.S. at 255) (alteration omitted).
27 Id. at 1665 (quoting Morrison, 561 U.S. at 265).
28 Morrison, 561 U.S. at 263. But see United States v. Georgiou, Nos. 10-4774, 11-4587,
12-2077, ___F.3d___, 2015 WL 241438 (3d Cir. Jan. 20, 2015) (determining that wire
fraud statute has extraterritorial application and holding that whether a transaction is
domestic does not depend on “the place where the deception originated, but [the place
where] purchases and sales of securities’ occurred.” Id. at * 5) (quoting Morrison, 561
U.S. at 266).
29 Id.
26
v. Royal Dutch Petroleum Co. 30 holding that the Alien Tort Statute does not apply
extraterritorially.
The Second Circuit has also held that Morrison applies to both criminal and civil
federal statutes.31 Notwithstanding the foregoing, the DOJ and SEC have continued to
take an expansive view of the FCPA’s extraterritorial provisions and construed the
territorial provisions of the FCPA to only require the remotest of connections with the
US.32 Additionally, in other cases, the SEC and DOJ have applied agency principles, such
as conspiracy, to apply the FCPA to foreign entities with no connections at all to the US.
Id.
IV.
Concluding Thoughts: Why FCPA Compliance Is Crucial
On November 14, 2012, the DOJ and SEC issued “A Resource Guide to the U.S.
Foreign Corrupt Practices Act,” (the “FCPA Resource Guide”), a joint guidance aimed at
assisting companies with FCPA compliance. While there is no “one size fits all”
approach to designing or implementing an effective compliance or ethics program, the
FCPA Resource Guide sets forth in detail what it calls the “hallmarks” of an effective
compliance program, and it states quite clearly that implementation of such a program
will contribute significantly to DOJ’s and SEC’s determination of an appropriate
resolution, including potential declination of any enforcement action.
The stakes in today’s business environment are particularly high and a bad choice
about operational risk could be fatal. A robust compliance program and fully integrated
ethics program can limit the damage should a violation occur.33 There are two critical
measures that allow any company to protect and enhance its reputation in the face of a
corruption incident: a demonstrable commitment from management to doing ethical
business and the use of effective internal programs to detect and prevent corruption.
First, an FCPA compliance program can be a tangible means of fulfilling a
company’s obligation to prevent unlawful corrupt payments. Such evidence of good
business ethics can help a corporation avoid prosecution or reduce the penalty imposed.
In point of fact, the DOJ and the SEC have expressly identified the existence of a
corporate compliance program as a factor to be considered when deciding whether to
bring charges against a company.34 In the same vein, federal sentencing guidelines in the
United States provide for the imposition of lower fines on companies that have effective
compliance programs in place.35
30
133 S. Ct. 1659 (2013).
See United States v. Vilar, 729 F.3d 62 (2d Cir. 2013).
32 See FCPA Resource Guide, n.3 at 13-14.
31
33
Samuel Rubenfeld, SEC Official Touts Compliance to Limit Pharma FCPA Risk, March 3,
2015 Wall Street Journal, found at <http://blogs.wsj.com/riskandcompliance/2015/03/03/secofficial-touts-compliance-to-limit-pharma-fcpa-risk/> (last accessed July 30, 2015).
34
FCPA Resource Guide, n.3 at 52.
35
id.
Second, corporations and other business entities operating in the modern global
economy need to tether their compliance program to an easy to understand and
implementable ethics and values program. Why? There are two principal reasons for
doing so: first, it is the right thing to do from a business perspective and, second, it is an
essential thing to do from a legal and fiduciary perspective. A corporate culture that
permits its employees to corrupt public officials ends up corrupting itself. 36 The threat of
enforcement action or indictment against a company and/or its employees, including the
Board of Directors, poses grave existential risks.37
Finally, in the event that the program is unsuccessful in preventing a corrupt
payment, the existence of an adequate document trail will permit the corporation to
demonstrate its best efforts to comply with the law.
Disclaimer:
All materials have been prepared for general information purposes only to permit you to
learn more about our firm, our services and the experience of our attorneys. The
information presented is not legal advice, is not to be acted on as such, may not be
current and is subject to change without notice.
36
OECD, UNODC, The World Bank, Anti-Corruption Ethics and Compliance Handbook for
Business
(2013)
available
at
<
http://www.unodc.org/documents/corruption/Publications/2013/AntiCorruptionEthicsComplianceHandbook.pdf> (last accessed August 3, 2015).
37
See Andrea Bonime-Blanc. The Reputation Risk Handbook: Surviving and Thriving in the Age
of Hyper-Transparency. DŌ Sustainability, 2014; and see Amy Westbrook, Enthusiastic
Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act,
45 Ga. L. Rev. 489,531 (2011).