Complying with the Amended Foreign Corrupt Practices Act

By Morehead, Jere W.; Gustavson, Sandra G. | Risk Management, April 1990 | Go to article overview

Complying with the Amended Foreign Corrupt Practices Act


Morehead, Jere W., Gustavson, Sandra G., Risk Management


The Foreign Corrupt Practices Act FCPA) was enacted in 1977 as a response to widely published improprieties involving corporate bribery, kickbacks, payoffs, political contributions and other questionable payments to foreign officials in exchange for international business. The FCPA endowed the U.S. government with the legal authority to eliminate corrupt practices of U.S. multinationals by imposing strict accounting standards and anti-bribery proscriptions. As discussed in an article in the August 1980 issue of Risk Management, the FCPA introduced many new loss exposures that risk managers needed to recognize and confront.

From the moment the FCPA was enacted, however, it was criticized. Opponents of the law argued that its language was vague and raised questions as to the extent exporters were personally liable for unauthorized acts of their agents. Business leaders argued that the FCPA represented an overbearing attempt by the United States to impose unilaterally its moral agenda on foreign nations. They claimed that any dynamic approach to the problem of foreign bribery had to be done within the framework of a multilateral agreement by which foreign nations would not resent the enforcement of U.S. law and would cooperate in an international effort to eliminate the problem of commercial bribery.

Following 11 years of debate and controversy over what constituted acceptable foreign business practices, the Omnibus Trade and Competitiveness Act of 1988 was put into law. It amended the FCPA to narrow its scope and established specific standards for the business community in determining what is permissible conduct under the act. At the same time, the amendments significantly increased the statutory penalties associated with FCPA violations. In light of these changes, corporate risk managers must familiarize themselves with the amendments so they can implement loss control procedures to reduce the possibility that the company or its employees will suffer the sanctions associated with FCPA violations.

While, overall, the FCPA amendments have enhanced the potential for greater competition among U.S. companies in foreign markets, it is now up to the risk manager to inspire management to follow the more structured and carefully delineated rules set forth in the new law. The risk manager should lead management in acquiring an understanding of the FCPA amendments and an appreciation of the steps necessary to reduce exposure in the future.

Historical Perspective

The FCPA grew out of the Watergate probe that uncovered illegal campaign gifts distributed by American corporations to foreign businesses. According to officials at the Securities and Exchange Commission, these substantial contributions came from secret slush funds kept by corporations. The SEC's investigation revealed that only a small portion of the funds were used for campaign contributions. Most of the money was used by foreign agents to procure or preserve foreign business. Approximately 435 corporations told the SEC that they had given a total of $800 million in bribes or other questionable payments to foreign officials.

By 1977, Congress had determined that these practices tarnished the overseas image of the U.S. government and adversely affected public confidence in the integrity of the business community. These disclosures had a powerful impact abroad, leading to the downfall of government leaders in Japan, Korea and the Netherlands. In addition, the power gained by the Italian Communist Party in 1976 parliamentary elections was credited, in part, to political exploitation by the left of the payments made by American firms to Italian officials. In the House-Senate Conference Report, Congress also expressed concern about the unhealthy environment created by corporate bribery, by which business decisions and the sale of products were based on factors other than price, quality and service.

Although U.S. …

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