The Foreign Corrupt Practices Act (FCPA), passed in 1977, makes it unlawful for U.S. citizens, residents or companies, and certain foreign companies, to corruptly provide anything of value to a foreign government official to obtain or retain business. The FCPA also requires publicly traded companies to maintain accurate books and records and to implement adequate accounting controls.
Q: What does it mean to corruptly obtain or retain business?
A: “Obtaining or retaining business” has been interpreted broadly to cover nearly any business purpose. If money is paid to win or to keep a contract, that is obviously “obtaining or retaining business.” But the FCPA also considers other actions to be “obtaining or retaining business,” such as paying money so that a permit will be issued, goods will be cleared through customs, or taxes will be reduced.
Payments made for the purpose of obtaining or retaining business must be made “corruptly” (with intent to wrongfully influence) to fall under the FCPA’s authority. In other words, the person providing the “thing of value” to the foreign official must do so with the intention of receiving a benefit from the foreign official’s misuse of his or her position.
Q: What does “anything of value” mean?
A: A cash payment, although sufficient, is not necessary to trigger the FCPA. The statute covers any benefit that is corruptly provided to a foreign official, including travel perks (such as upgraded airfare or hotels, or side trips provided in connection with a legitimate business purpose), gifts, hiring of an official's relatives, or even charitable contributions. Moreover, even if payments are made by a third party (such as a freight forwarded or in-country agent), if they are made on your behalf, you can be prosecuted. Improper payments are often disguised as “consulting fees” or “commissions,” but regardless of how they are characterized, these types of payments are unlawful if they are made with the intention of influencing the foreign official.
Q: Who is a foreign official?
A: A foreign official may include an employee of a foreign government, political candidate or political party. An employee of a state-owned company may also be considered a “foreign official,” even if the company operates like a privately owned company. In many foreign countries, companies may appear to be privately owned, but are in fact owned in whole or in part by the government. Common examples of this are public infrastructure companies, such as telephone companies, oil and gas companies, or banks. Employees of these or similar companies could be considered foreign officials. Determination of who is a foreign official often depends on the facts of each situation.
Q: What are the potential penalties for violating the FCPA?
A: For individuals, the maximum criminal fine is $250,000 or twice the amount of the benefit obtained, whichever is higher. Individuals may also be sentenced to a maximum five years’ imprisonment per violation. Higher criminal penalties exist for corporations that have violated the statute, and civil penalties may be levied against both individuals and corporations. Individuals are often prosecuted for FCPA violations, even if they committed the violations in their roles as employees for a large corporation.
Q: I conduct business overseas. What can I do to avoid an FCPA violation?
A: Make sure your expenditures are reasonable and bona fide. While you may make many of these determinations on a case-by-case basis, the following tips may help.
• Pay travel vendors directly, and do not advance or reimburse foreign officials with cash.
• Ensure that any gifts are modest, no designed to influence, given openly, and permitted under your company's policy and local law.
• Make sure any travel expenses for a foreign official are directly related to the need for travel and do not include unnecessary or unreasonable expenses, such as sightseeing or rest and relaxation time.
• Check out (by conducting appropriate “due diligence”) any agents or distributors retained to assist you in a foreign country, particularly if an agent is operating in high-risk area such as the Middle East, Africa, Russia or Asia.
• Do not make cash payments to foreign officials, and obtain itemized receipts for any payments made to a foreign government, including customs fees, licenses or tax payments.
• Make sure any payments made to or on behalf of a foreign official are accurately recorded in your company’s books.
Remember, merely “doing your job” is not a defense to an FCPA violation.
This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Matthew Ridings, an attorney in the Cleveland office of Thompson Hine LLP.