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What is the Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act (FCPA) of 1977 refers to legislation that outlaws all United States businesses and individuals from bribing foreign officials to obtain, maintain, or further business deals. The U.S. government passed the FCPA in order to prevent anti-competitive deals on the global stage and cronyism between kleptocrats.
Two main articles make up the FCPA:
- The anti-bribery provisions
- The books, records, and internal control provisions (i.e. regulations on accounting practices)
The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) share jointly responsibility in enforcing the FCPA. They have built up a considerable list of enforcement actions over the years.
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The Leadup to the Enactment of the FCPA
Before the enactment of the FCPA, international business looked—at least on the surface—much different. Paying or bribing foreign officials to further one’s international business interests was common practice throughout most of the 1970s. In some European countries, foreign bribes could be deducted from corporate tax returns just like any other expense.
That’s how you got ahead in a globalizing world, and it did not come with the criminality nor the negative stigma associated with it today.
DID YOU KNOW?
When you see cases of corporate crime, perpetrators sometimes won’t even think their actions are criminal or unethical because the employer has treated that behavior as common practice.
Talks of creating legislation to prohibit foreign bribes first came about in the wake of the Watergate scandal. Investigations into President Richard Nixon’s re-election campaign revealed a money trail: it had been financed through secret donations and slush funds owned by corporations and the wealthy.
These findings prompted further investigations, leading to an SEC report that uncovered what was likely hiding in plain sight. The following is an excerpt from the aforementioned report.
“The companies, most of them voluntarily, have reported paying out well in excess of $300 million in corporate funds to foreign government officials, politicians, and political parties. These corporations have included some of the largest and most widely held public companies in the United States; over 117 of them rank in the top Fortune 500 industries. The abuses disclosed run the gamut from bribery of high foreign officials in order to secure some type of favorable action by a foreign government to so-called facilitating payments that allegedly were made to ensure that government functionaries discharge certain ministrial [sic] or clerical duties. Sectors of industry typically involved are: drugs and health care; oil and gas production and services; food products; aerospace, airlines and air services; and chemicals.”
You can see bribery was happening across industries, and rent-seeking foreign officials made a pretty profit. These revelations all led to President Jimmy Carter signing off on the FCPA in 1977.
U.S. businesses, however, did not welcome the FCPA. They thought this gave them a disadvantage in overseas markets where companies from other countries could freely bribe officials. Even so, it wasn’t until twenty years later (1997), the Organisation for Economic Co-operation and Development (OECD) put forth the Anti-Bribery Convention, which required signatory countries to outlaw all financial crime. This effort, in conjunction with the FCPA, has leveled the playing field between U.S. and foreign businesses.
The FCPA’s Articles
As mentioned in the introduction, the FCPA has two main articles:
- The anti-bribery provisions
- The books, records, and internal control provisions
The anti-bribery provisions
The FCPA’s basic anti-bribery provision outlaws a company (including its executives, directors, employees, agent, or stockholder acting on its behalf) to offer, promise, authorize, and provide a payment (monetary or otherwise) to any foreign official for the purposes of furthering its business interests.
That means that a company will be sanctioned under the FCPA for direct and indirect (e.g. using a proxy) attempts of foreign bribery.
The penalties for violating the FCPA’s anti-bribery provisions differ depending on whether the perpetrator is a company or individual.
Companies face fines of up to $2 million per violation of the FCPA’s anti-bribery provisions. They can also face other penalties in the form of civil fines, debarment from government business, or revocation of export privileges.
Individuals risk hefty criminal and civil fines that can cost $100,000 per violation. They also face jail time for up to five years per count for criminal acts.
The penalties for companies and individuals can potentially exceed their respective limits to up to double either the benefit illegally obtained or losses caused.
Books, Records, and Internal Control Provisions
The books, records, and internal control provisions refer to accounting rules that bolster the anti-bribery provisions. The FCPA’s reporting requirements promote accounting transparency among companies who have assets listed in the U.S. and deter those who might want to make any corrupt transactions.
Corporations must create and enforce their own internal controls to demonstrate that they have properly accounted for all their business transactions.
DOJ and SEC Rulings in the FCPA
The DOJ and SEC have charged a number of major corporations for violations of the FCPA. While unfortunate that alleged infringements appear to occur quite often, the investigations and enforcement of the law are definitely a good sign.
We have compiled a few of the high profile cases below:
According to a 2019 press release, Ericsson, a Stockholm-based multinational telecom corporation, paid over $1 billion to the SEC and DOJ to resolve charges that it had violated the FCPA.
The SEC alleged that “from 2011 through 2017, Ericsson subsidiaries obtained business valued at approximately $427 million by using third parties to bribe officials in Saudi Arabia, China, and Djibouti. As alleged, Ericsson also had third parties pay for lavish trips and entertainment for government officials or their family members. In exchange for the bribes, Ericsson received lucrative contracts from state-owned telecommunications entities in these countries. The complaint alleges that Ericsson’s subsidiaries further violated the FCPA in Vietnam, Indonesia and Kuwait, by maintaining slush funds, using code names, and creating sham transactions and invoices.”
A leading investment bank and financial services company, Goldman Sachs agreed to pay over $2.9 billion to criminal and civil authorities.
The 2020 DOJ press release states that Goldman Sachs “admitted to conspiring to violate the Foreign Corrupt Practices Act (FCPA) inconnection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs, including its role in underwriting approximately $6.5 billion in three bond deals for 1Malaysia Development Bhd. (1MDB), for which the bank earned hundreds of millions in fees.”
The SEC announced its charges against and settlement with the former Goldman Sachs executive allegedly responsible for a part of the above violations: “…former Goldman Sachs Group Inc. executive Tim Leissner [engaged] in a corruption scheme, by which he obtained millions of dollars by paying unlawful bribes to various government officials to secure lucrative contracts for Goldman Sachs. Leissner has agreed to a settlement of the alleged violations of the Foreign Corrupt Practices Act (FCPA) that includes a permanent bar from the securities industry.”
In January 2021, the DOJ issued a press release announcing that multinational German banking institution Deutsche Bank had agreed to pay over $130 million to “resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme.”
The press release goes on to state that “The charges [arose] out of a scheme to conceal corrupt payments and bribes made to third-party intermediaries by falsely recording them on Deutsche Bank’s books and records, as well as related internal accounting control violations, and a separate scheme to engage in fraudulent and manipulative commodities trading practices involving publicly-traded precious metals futures contracts.”
Is the FCPA Enough?
The DOJ and SEC appear to be enforcing the FCPA well, penalizing those who have allegedly violated its provisions. Nevertheless, the sheer number of cases emerging annually proves deeply concerning.
Corporations and individuals who try to bribe foreign officials are gaining undue and illegal advantages over other businesses around the globe. While some would use the misnomer ‘crony capitalism’ to describe such behavior, in reality bribery has little to do with capitalism or any other economic system.
It’s simply rigged. And it’s about time we did something about it.
The Zero Theft Movement provides a platform where you and your fellow citizens work together to investigate and debate potentially rigged areas across the economy. You decide whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas are and start working on addressing them systematically.
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.