Definition
The Foreign Corrupt Practices Act (FCPA) is a U.S. law that was established in 1977 to combat bribery and corruption in international business practices. The Act prohibits U.S. companies and individuals from making corrupt payments to foreign officials for the purpose of obtaining or retaining business. In 1998, the FCPA was amended by the International Anti-Bribery and Fair Competition Act to apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such corrupt payment to take place within the territory of the U.S.
Key Components of FCPA:
- Anti-Bribery Provisions: Prohibit the bribing of foreign government officials to obtain or retain business.
- Accounting Provisions: Require corporations to maintain accurate books and records and to have a system of internal controls in place.
Examples
- Aerospace Sector: A U.S. aerospace company bribes officials in a foreign country to win a lucrative contract to supply aircraft. Under the FCPA, this action is illegal and the company could face severe penalties.
- Technology Industry: A tech firm based in the U.S. makes an illicit payment to a foreign government official to bypass export regulations. This is a violation of the FCPA’s anti-bribery provisions.
- Healthcare: An American pharmaceutical company offers “incentives” to foreign health ministry officials to fast-track drug approvals. The FCPA prohibits such actions.
Frequently Asked Questions
What does the FCPA prohibit?
The FCPA prohibits U.S. companies and individuals from bribing foreign government officials to benefit their business interests.
Who needs to comply with the FCPA?
All U.S. persons and entities, including companies that are publicly traded on U.S. stock exchanges, must comply with the FCPA. The law also applies to foreign firms and persons who take any act in furtherance of such corrupt practices while in the U.S.
What are the penalties for violating the FCPA?
Penalties for violating the FCPA can include both criminal and civil sanctions, such as hefty fines for corporations and imprisonment for individuals.
Does the FCPA only apply to large bribery acts?
No, the FCPA covers all forms of bribery, regardless of the amount. Even small payments intended to influence a foreign official can lead to severe penalties.
Are there any exceptions under the FCPA?
The FCPA does allow for certain exceptions, such as facilitating payments made to expedite routine governmental actions, but these exceptions are narrowly defined and subject to strict interpretation.
- Bribery: The act of giving or receiving something of value in exchange for influence or action in an official capacity.
- Corruption: Dishonest or fraudulent conduct by those in power, typically involving bribery.
- Internal Controls: Processes and procedures implemented by an organization to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.
- Compliance: Adherence to laws, regulations, guidelines, and specifications relevant to an organization’s business.
Online References
Suggested Books for Further Studies
- “The Foreign Corrupt Practices Act: A Practical Resource for Managers and Executives” by Michael Volkov
- “The Foreign Corrupt Practices Act in a New Era” by Mike Koehler
- “Corruption, Asset Recovery, and the Protection of Property in Public International Law: The Human Rights of Bad Guys” by Radha Ivory
Accounting Basics: “Foreign Corrupt Practices Act (FCPA)” Fundamentals Quiz
### What is the primary focus of the FCPA?
- [x] To prevent bribery and corruption by U.S. companies in their international operations.
- [ ] To regulate foreign business acquisitions by U.S. companies.
- [ ] To establish tariffs between the U.S. and foreign countries.
- [ ] To control the quality of imported goods.
> **Explanation:** The primary focus of the FCPA is to prevent bribery and corruption by U.S. companies and individuals in their international business operations.
### When was the FCPA enacted?
- [ ] 1965
- [ ] 1985
- [x] 1977
- [ ] 1992
> **Explanation:** The FCPA was enacted in 1977 to address corruption and bribery in international business transactions.
### What significant change was made to the FCPA in 1998?
- [ ] It added more severe penalties for non-compliance.
- [ ] It expanded the jurisdiction within the U.S.
- [x] It extended the scope to include actions by foreign citizens and companies while on U.S. soil.
- [ ] It removed some of the record-keeping requirements for U.S. companies.
> **Explanation:** The 1998 amendment of the FCPA extended its scope to include actions by foreign citizens and companies while on U.S. territory.
### Which type of payments does the FCPA explicitly prohibit?
- [ ] Donations to foreign charities.
- [ ] Payments for international shipping.
- [x] Payments made to foreign officials to influence their decisions.
- [ ] Fees for foreign patent applications.
> **Explanation:** The FCPA explicitly prohibits making payments to foreign officials to influence their decisions for business gains.
### Which body enforces the anti-bribery provisions of the FCPA along with the Department of Justice?
- [ ] Federal Trade Commission (FTC)
- [x] Securities and Exchange Commission (SEC)
- [ ] Consumer Financial Protection Bureau (CFPB)
- [ ] Internal Revenue Service (IRS)
> **Explanation:** The Securities and Exchange Commission (SEC) enforces the anti-bribery provisions of the FCPA alongside the Department of Justice.
### What must U.S. companies ensure to comply with the accounting provisions of the FCPA?
- [ ] They maintain personal financial records of their employees.
- [ ] They maintain accurate books and records related to international business transactions.
- [x] They maintain accurate books and records and have a system of internal controls in place.
- [ ] They use only U.S.-based banks for transactions.
> **Explanation:** To comply with the accounting provisions of the FCPA, U.S. companies must maintain accurate books and records and have internal controls in place.
### What types of penalties can corporations face for violating the FCPA?
- [ ] Community service requirements
- [ ] Only civil penalties
- [x] Both criminal and civil penalties
- [ ] International trade restrictions
> **Explanation:** Corporations that violate the FCPA can face both criminal and civil penalties, which can include hefty fines and other sanctions.
### Which of the following actions could be considered a FCPA violation?
- [ ] Filing inaccurate tax returns
- [ ] Overpricing goods in the U.S.
- [x] Paying a foreign official to secure a business contract
- [ ] Donating to foreign nonprofits
> **Explanation:** Paying a foreign official to secure a business contract is a violation of the FCPA.
### How does the FCPA affect foreign companies?
- [ ] Only if they operate within the state of New York.
- [ ] Only if they employ U.S. citizens.
- [x] It can apply if they commit acts of bribery or corruption within U.S. territory.
- [ ] It does not affect foreign companies.
> **Explanation:** The FCPA can apply to foreign companies if they commit acts of bribery or corruption within U.S. territory.
### What kind of business activities does the FCPA aim to regulate?
- [ ] Domestic trade agreements
- [ ] Creation of monopoly power
- [ ] Price control measures
- [x] International business activities, specifically those involving bribery and corruption
> **Explanation:** The FCPA aims to regulate international business activities, specifically to prevent bribery and corruption in foreign operations.
Thank you for exploring the intricacies of the Foreign Corrupt Practices Act (FCPA) and enhancing your knowledge base. Keep honing your expertise in this vital area of international business compliance!
