Taking Your Small Business International? Read This First
Foreign Corrupt Practices FCPA: The Abridged Version
At its core, the FCPA is about prohibition. Prohibition of what exactly? That’s a great question.
Generally, the FCPA states that a business entity, or registered participant within, cannot give anything of monetary value to foreign officials, foreign political parties or candidates, or anyone who would give the thing of monetary value to those listed above, for the purposes of influencing a business decision, currying favor or getting that person or party to use their influence to within a foreign government. The tricky part is that the agent of an agent of an agent, that a US company may know nothing about, could provide a brive that gets a US company in trouble.
The language of the bill says it seeks to prohibit:
“influencing any act or decision of such foreign official, political party, party official, or candidate in his or its official capacity, (ii) inducing such foreign official, political party, party official, or candidate to do or omit to do any act in violation of the lawful duty of such foreign official, political party, party official, or candidate, or (iii) securing any improper advantage; or
“inducing such foreign official, political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person.”
Further, the FCPA states:
It shall be unlawful for any issuer which has a class of securities registered pursuant to section 78l of this title or which is required to file reports under section 78o(d) of this title, or for any officer, director, employee, or agent of such issuer or any stockholder thereof acting on behalf of such issuer, to make use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to—
(1) any foreign official
(2) any foreign political party or official thereof or any candidate for foreign political office
(3) any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office.
Like most legislation, in laying out the prohibitions, the FCPA also outlines exceptions, standards for Attorney General (AG) guidelines, and AG opinions.
Point is, it's complicated.
A Historical Perspective: FCPA
In the 1970s, bribing foreign governments was a rampant and unethical business practice. In fact, the U.S. Securities and Exchange Commission (SEC) investigated more than 400 cases where businesses admitted to using the questionable practices in excess of $300 million dollars.
The types of bribes ran the gamut, but one notable scandal fell at the door of a government contractor, Lockheed. It was reported by the Washington Post in 1977 that the company paid over $38 million in bribes to foreign entities. Thanks to the internet, the article is still available in the Post’s archive.
Legal Enforcement of FCPA
Companies have paid millions of dollars in fines due to enforcement by the SEC and the Department of Justice over the years. Trends suggest that the government is even more closely scrutinizing businesses, as a report shows a record number of penalties issued in 2016.
Even a small misstep can be costly. Take the case of Mondelez, formerly known as Kraft. Its subsidiary Cadbury paid less than $100,000 to their agent in India over several years to get licenses needed to build a chocolate factory. That decision cost $13 million dollars in fines when the SEC deemed that the company didn’t exercise due diligence by failing to monitor its agent’s activities with the money.
At the end of the day, it’s the responsibility of the business to operate in accordance with FCPA code. Large businesses with robust legal teams may fall into non-compliance, resulting in fines regularly. However, for a small business, it’s critical to enter the international space prudently while being ensuring compliance under the advisement of a competent legal team.
For more information on how Lynch Law can assist you with this transition, click here.