United States regulators have been ramping up enforcement efforts to crack down on corrupt business activities. The Foreign Corrupt Practices Act, or FCPA, is a United States federal law enacted in 1977. It prohibits U.S. citizens and businesses from bribing foreign officials. U.S. enforcement authorities have charged and prosecuted many companies for bribing foreign government officials.

To prevent violations of the FCPA, multinational companies should have robust compliance programs in place. Companies must be able to efficiently recognize red flags and suspicious circumstances that could risk classification as foreign bribery.

Scope of the FCPA

The FCPA includes two key components: anti-bribery provisions and accounting requirements. The anti-bribery provisions prohibit companies and their individual officers from influencing foreign officials through money or gifts to obtain or retain business.

The FCPA’s accounting requirements prevent the use of accounting methods designed to disguise corrupt payments. Companies must establish good recordkeeping practices and internal accounting controls.

The FCPA also implicates foreign companies or foreign nationals who engage in corrupt payments while in the U.S. The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have increased their focus on the activities of foreign companies within the U.S. Several foreign corporations have faced investigations and fines for bribing non-U.S. officials.

In order to bring a successful FCPA case, the government must prove the existence of five elements:

• Paying or promising to pay money, gifts, or something of value.
• The involvement of a foreign government official.
• A corrupt motive.
• For the purpose of influencing, inducing, or securing an improper advantage.
• Helping to obtain or retain business.

The FCPA complements laws that address other types of corrupt activities. These activities include racketeering, mail fraud, conspiracy, wire fraud, and money laundering.

Penalties for FCPA Violations

The anti-bribery provisions of FCPA impose significant penalties for unlawful activities. FCPA violations can result in fines of up to $2 million per violation for businesses and up to $100,000 per violation for individuals. Individuals can also face up to 5 years in prison.

For certain willful violations, the penalties can increase up to $25 million per violation for businesses and up to $5 million per violation for individuals. Individuals can also face up to 20 years in prison for willful violations.

Red Flags

Certain types of conduct signal the possibility of corrupt practices. Businesses and individuals should be vigilant to spot red flags as the FPCA prohibits even the smallest bribes.

Violators of the FCPA can face criminal sanctions. Actual knowledge of the payment of bribes is not required. Payments to foreign officials with a reckless disregard for the surrounding circumstances that point to corrupt motives can suffice.

Some examples of red flags include:

• A request for abnormally high compensation or commissions.
• A lack of transparency in expense reports or accounting records.
• A foreign business partner’s attempt to negotiate anti-corruption provisions out of a contract.
• Pressure by a government official to use a specific third party.

As a result, many companies have formal corporate compliance initiatives in place. Such compliance programs are particularly useful for avoiding FCPA violations. This is especially helpful when conducting business activities in countries with a history of corruption.

Exemptions and Defenses

The “grease payment” exception allows payments to foreign government officials to facilitate or expedite payments for performing routine governmental functions. Such routine, non-discretionary government functions include scheduling inspections for product shipments, issuing routine licenses, and providing water or power service.

Another category of exceptions to the FCPA are “reasonable and bona fide” expenses. These expenses include reasonable travel and lodging expenses related to explaining products or services. However, such travel expenditures do not cover luxury travel intended to influence the decisions of government officials.

Examples of FCPA Violations

In 2017, Rolls-Royce Plc, a United Kingdom-based business, was forced to pay the United States a $170 million criminal penalty to resolve its FCPA case. The investigation found that Rolls Royce had paid bribes to secure foreign government contracts and to gain a competitive edge in countries around the world. The foreign bribery scheme took place over more than a decade. U.S., U.K., and Brazilian regulators collaborated on the investigation to uncover evidence of the luxury car manufacturer’s FCPA violations.

In 2016, Amsterdam-based VimpelCom Limited (now called VEON) was charged an even greater penalty. VimpelCom paid nearly $800 million to the SEC, the DOJ, and the Public Prosecution Service of the Netherlands for violating the FCPA and similar Dutch laws. The telecommunications provider had paid bribes to government officials in Uzbekistan to secure advantages in its telecommunications market. The company disguised some of the bribes as charitable donations to charities affiliated with a particular Uzbek official.

Finally, in 2012, the SEC and DOJ charged Swiss company Tyco International (which has a class of securities that trades on the New York Stock Exchange) with violating the FCPA for making illicit payments in bribery schemes across several countries. These countries included China, France, Germany, Thailand, and Turkey.