The Foreign Corrupt Practices Act: Taking a Bite out of Bribery in International Business Transactions

Article excerpt

ABSTRACT

Enforcement of the Foreign Corrupt Practices Act ("FCPA") has reached an all-time high. FCPA violations can result in many significant costs, both monetary and non-monetary. FCPA compliance has become a top corporate governance issue and has triggered shareholder litigation, tax investigations, and money laundering probes. While many corporate managers, financial officers, board members, internal and external auditors, and forensic accountants are aware of the FCPA's basic objectives and mandates, many may not do an adequate job of protecting their firms and/or clients from the dangerous consequences that can result from FCPA non-compliance. The purposes of this paper are to: (1) analyze and describe bribery and FCPA case filings, sanctions, payments (bribes), and value of business to be obtained; (2) describe and analyze the important provisions of the FCPA; and (3) make recommendations to help firms improve their compliance with the FCPA.

INTRODUCTION

In February 2010, BAE Systems reached settlements with the U.S. Department of Justice ("DOJ") and the United Kingdom Serious Fraud Office totaling $450 million.1 The settlements involved an alleged violation of the Foreign Corrupt Practices Act ("FCPA")2 in connection with the sale of a radar system to Tanzania.3 In January 2010, the DOJ arrested 22 employees and executives of firms in the military products industry.4 They were indicted on charges of bribing government officials in an African country to obtain a presidential guard business.5 In April of 2010, Charles Jumet of Virginia was "sentenced to 87 months in prison for paying bribes to former Panamanian government officials to secure maritime contracts."6 In May of 201 1, "a jury convicted Lindsey Manufacturing Co., two of its executives, and a Mexican sales agent in a bribery case."7 This marked the first time a company has been convicted at trial for violations of the FCPA.8

In 2000, there was one FCPA case pursued by the federal government. In 2009, there were 67 cases filed by the DOJ and the Securities and Exchange Commission ("SEC") (see Table 1). These facts highlight the growing priority given to FCPA enforcement by the DOJ and the SEC. The Assistant Attorney General Lanny A. Breuer, insists that aggressive prosecution of the FCPA "should make clear to every corporate executive, every board member, and every sales agent that [the DOJ] will seek to hold you personally accountable for FCPA violations."9 "The increase in FCPA prosecutions over the past several years can be attributed to an increase in voluntary reporting by corporations . . . increased international law enforcement cooperation, . . . a renewed focus on internal controls, the Sarbanes-Oxley requirement of executive certifications," proactive law enforcement investigations, and the global anti-fraud climate.10

U.S. firms competing for international business need to pay close attention to several trends. First, the number of FCPA cases and the severity of penalties will increase as the DOJ and SEC emphasize enforcement. Second, FCPA compliance will become a top corporate governance issue leading to more rigorous compliance. Third, international harmonization of antifraud and anticorruption regulation will lead to more parallel investigations and increased penalties. Fourth, "FCPA investigations may trigger other actions such as shareholder litigation, tax investigations, and money-laundering probes."11 While many corporate managers, financial officers, general counsels, compliance officers, and internal and external auditors are aware of the FCPA, "companies could benefit considerably from both increasing their knowledge and awareness of the FCPA and improving their capabilities to mitigate the risk of bribery and corruption."12

This Article provides a close look at the requirements imposed on U.S. and some foreign firms by the FCPA in the context of the emerging trends noted above. The purposes of this article are to: (1) analyze and describe bribery and FCPA case filings, sanctions, payments (bribes), and value of business to be obtained; (2) describe and analyze the important provisions of the FCPA; (3) analyze vicarious liability under the FCPA; and (4) make recommendations to help firms improve their compliance with the FCPA. …

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