The consequences of an investigation into bribery allegations can be tricky for any manufacturing company, so it's important to understand the U.S. anti-bribery provisions. As discussed in our Foreign Corrupt Practices Act ("FCPA") overview, manufacturers participating in international business must be mindful of this federal law. Though many are aware of the FCPA, some do not understand its breadth and depth. Below is a bare-bones breakdown of the FCPA's scope. While the below outline will help readers understand future posts about FCPA defenses, penalties, and compliance, the FCPA contains many nuances, so you should consult legal counsel to analyze specific facts and circumstances.
Who is Subject to the FCPA?
Generally speaking, the FCPA applies to "domestic concerns" and "issuers." "Issuers" generally refers to "public companies." If a domestic or foreign company is either (1) traded on a national stock exchange or (2) traded on the over-the-counter market and required to file periodic reports with the SEC, that company is an "issuer" within the meaning of the FCPA.
"Domestic concerns" can be individuals or business entities. For individuals, a domestic concern is any U.S. resident, national, or citizen. For companies, a domestic concern is one (1) organized under the laws of the United States or one of its states, territories, possessions, or commonwealths or (2) maintaining its principal place of business in the United States.
Anti-Bribery Provisions
The FCPA contains two main thrusts—anti-bribery provisions and accounting provisions. The former prohibits willful and corrupt bribes to "foreign officials" made for "obtaining or retaining business." Not surprisingly, courts interpret that language broadly.
To violate the FCPA's anti-bribery provisions, a domestic concern or issuer must directly or indirectly pay or offer to pay anything of value to a foreign official to obtain or retain business. Also, any person or entity that violates the FCPA on United States' soil may be prosecuted under the FCPA.
- Anything of value essentially means what it sounds like. It goes well beyond a suitcase full of cash. Examples include, but are not limited to, cash, gifts, payment of expenses, services, entertainment, payment for medical treatment, loans, or jobs for third-parties.
- Foreign officials include government representatives, governmental departments, political parties, officials of political parties, and candidates for political office. Moreover, a bribe made to a third person may violate the FCPA if the person making the payment knows, or disregards red flags, that the payment, or part of the payment, is given to a foreign official.
Books and Records and Internal Control Provisions
To supplement the anti-bribery provisions, the FCPA also imposes financial reporting requirements on issuers. In particular, the FCPA requires issuers to maintain accurate books and records that reflect in reasonable detail, accurately and completely, transactions and asset dispositions. The FCPA also requires that the "issuer" establish effective systems of internal controls that provide "reasonable assurance" of the following:
- Transactions are authorized by management;
- Transactions are recorded properly;
- Assets are accessed with authorization by management; and,
- Recorded assets are compared with existing assets at reasonable intervals.
No specific internal controls are required, which provides some flexibility. However, an effective FCPA compliance program is a critical component of "effective" systems of internal controls.
This post covers the basics of the FCPA's scope. Stay tuned for more on defenses, exceptions, penalties, and keys to complying with the FCPA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.