Foreign Corrupt Practices Act – Background, Provisions and Sanctions

  • By: Staff Editor
  • Date: July 22, 2010
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In the mid-1970s the Securities and Exchange Commission (SEC) conducted a series of investigations into the practice by American companies of making questionable or illegal payments to foreign officials in order to secure their cooperation. More than 400 US companies admitted to making these payments. As a result of this, the Foreign Corrupt Practices Act (FCPA) was enacted by Congress in order to put a stop to these abuses.

In 1998 the act was further amended to include the International Bribery Act that contained provisions formulated by the Organization of Economic Cooperation and Development (OECD).

The FCPA also includes provisions aimed at increasing transparency in accounting processes of US companies or companies whose securities are listed in the US.

Anti-Bribery Provisions:

Basic Prohibitions

For an action to be considered a violation of the FCPA, it has to meet the definition of the following five elements:

  • US Citizens and residents
  • US corporations and organizations
  • Foreign companies or nationals acting within the United States
Corrupt Intent
  • The person making or authorizing the payment must have a corrupt intent
  • The payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person.
Payment The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value.
  • The prohibition extends only to corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office.
  • A "foreign official" means any officer or employee of a foreign government, a public international organization, or any department or agency thereof, or any person acting in an official capacity.
Business Purpose Test The FCPA prohibits payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person.


Third Party Payments

Corrupt payments made through intermediaries are expressly forbidden by the FCPA. The act makes it unlawful to make such a payment to a third party while knowing that all or part of it will go directly or indirectly to a foreign official. An intermediary may include joint venture partners or agents.

Permissible Payments and Affirmative Defenses

The FCPA, unlike the UK Bribery Act, does not consider facilitation payments bribes. A facilitation payment is money paid to facilitate or expedite routine government actions such as:

  • Obtaining permits, licenses or other official documents
  • Processing governmental papers such as visas and work orders
  • Providing police protection, mail pick-up and delivery
  • Providing phone service, power and water supply, loading and unloading cargo or protecting perishable products
  • Scheduling inspections associated with contract performance or goods transit

Under the FCPA, the following defenses are considered affirmative defenses:

  • That the payment was lawful under the written laws of the foreign country
  • The money was spent in demonstrating a product or performing a contractual obligation

The defendant will be required to show that the payments met the above requirements.

Sanctions Against Bribery

Type Highlights
Criminal The following are the penalties for violations of the Anti-Bribery provisions of the FCPA:        
  • Corporations and other business entities are subject to a fine of up to $2,000,000
  • Officers, directors, stockholders, employees, and agents are subject to a fine of up to $100,000 and imprisonment for up to five years.
  • Under the Alternative Fines Act, these fines may be increased
  • The Attorney General or the SEC may bring a civil action for a fine of up to $10,000 against any firm or its associates for violations.
  • The court may impose an additional fine not to exceed the greater of (i) the gross amount of the pecuniary gain to the defendant as a result of the violation, or (ii) a specified dollar limitation.
Other Governmental Action FCPA violations may result in:
  • Being barred from doing business with the Federal government.
  • Being ineligible to receive export licenses
  • Being suspended or barred by SEC the securities business and fined through civil actions.
  • Being suspended or disbarred by the Commodity Futures Trading Commission and the Overseas Private Investment Corporation from participating in agency business
Private Cause of Action Violations may give rise to a private cause of action for treble damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), or to actions under other federal or state laws


Accounting Provisions:

The FCPA’s accounting provisions were formulated to be used along with the anit-bribery requirements. These provisions require corporations to:

  • Make and keep accurate books and records of the corporation’s transactions
  • Devise and maintain robust internal accounting controls

Additional Resources:

To know more about the Foreign Corrupt Practices Act, read the full act here.

Learn more about the FCPA and complying with its requirements in these ComplianceOnline webinars:
Federal Corrupt Practices Act - How Your Institution Can Comply
Foreign Corrupt Practices Act (FCPA) Webinar


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