Defense of The Foreign Corrupt Practices Act Violations


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Defense of The Foreign Corrupt Practices Act Violations

Defense of The Foreign Corrupt Practices Act Violations

Defense of the Foreign Corrupt Practices Act

What is The Foreign Corrupt Practices Act?

The The Foreign Corrupt Practices Act is a law that was passed during the Carter Administration in 1977 in 1977 in response to revelations of widespread bribery of foreign officials by U.S. companies in order to win overseas business contracts.

Both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), which share enforcement authority for the FCPA, investigate, and prosecute these crimes.

Compared to decades past, in the last 10 years, the bringing of charges for violations of this Act have dramatically increased.  There are more criminal filings under this act in one month than there used to be in entire years in the 2000s, 1990s, and prior years.

The FCPA contains two main components: the anti-bribery provisions, which prohibit payments to foreign officials to obtain or retain business, and the accounting provisions that require issuers to make and keep accurate books and records and to maintain an adequate system of internal accounting controls. The accounting provisions also prohibit individuals and businesses from knowingly falsifying books and records or knowingly failing to implement internal controls.

Where is The Foreign Corrupt Practices Act in the law and codes?

The law is contained in the United States Code, at 15 U.S.C. § 78dd.  It is split into subsections 1, 2, and 3.

Why was The Foreign Corrupt Practices Act enacted?

Discovery of a problem involving foreign corporate payments problem in the mid-1970s resulted from a combination of work by, of all places, the Office of the Watergate Special Prosecutor.

That, in turn, included related follow-up work and investigations by the Securities and Exchange Commission (SEC) and Senator Frank Church’s Subcommittee on Multinational Corporations (Church Committee).

The Report of the Securities and Exchange Commission on Questionable and Illegal Corporate Payments and Practices (SEC Report) stated as follows:

The staff discovered falsifications of corporate financial records, designed to disguise or conceal the source and application of corporate funds misused for illegal purposes, as well as the existence of secret “slush funds” disbursed outside the normal financial accountability system. These secret funds were used for a number of purposes, including in some instances, questionable or illegal foreign payments. These practices cast doubt on the integrity and reliability of the corporate books and records which are the very foundation of the disclosure system established by the federal securities laws.

What started out as a problem with tracing political campaign money ended up as an accounting problem, and then an effort to fight corruption and bribery.  The Act was controversial upon passing because it sought to criminalize what were mainly actions in other countries, outside of the United States of America.

Who can be charged withThe Foreign Corrupt Practices Act?

Any corporation, or individual, that is subject to the FCPA, is defined as a  “domestic concern,” which means U.S. persons and businesses. “Issuers,” which are U.S. and foreign public companies listed on U.S. stock exchanges or which are required to file periodic reports with the SEC, also are subject to the FCPA. In addition, certain foreign persons and businesses acting while in the territory of the United States may be subject to the FCPA.

How can a Defense of The Foreign Corrupt Practices Act Violations be possible?

As with any crime, a defense exists that the conduct did not meet the elements of the crime.  The law here is wide ranging, however, and could theoretically meet a number of different potential problems that could look to be violations, but actually aren’t.

The law recognizes at least three major affirmative defenses:

  1. The Facilitating Payments Exception: This exception  attempts to distinguish between payments made to expedite an inevitable process, on the one hand, and payments to influence a decision, on the other hand. But this exception has been interpreted so stringently by prosecutors that it has almost disappeared in practice.  Though not technically facilitating payments, payments made to foreign officials to prevent harm to employees have been acknowledged under this exception.
  2. The Written Local Law Affirmative Defense: If a payment, gift, or promise to pay something of value was “lawful under the written laws and regulations of the foreign official’s” country, then such a payment does not violate the FCPA. For example, the payment of a registration fee, mandated by a municipality’s written regulations, would not violate the FCPA.  No matter how universally routine a payment is, if it is not in the foreign country’s written laws or regulations, this exception will not exculpate a company or individual from FCPA liability. Thus, to avoid FCPA liability under the written local law defense, be sure to request or locate written authority requiring any “mandatory” payment.
  3. The Reasonable and Bona Fide Expenditures Affirmative Defense: Under this exception, “reasonable and bona fide” expenditures do not violate the FCPA anti-bribery provisions if they are directly related to either of the following:
  • The promotion, demonstration, or explanation of products or services or
  • The negotiation, execution, or performance of a contract with a foreign government or agency.

Examples include travel and expenses paid for government officials to visit company facilities, receive training, or attend meetings. However, companies should not attempt to use this exception as a way to provide lavish experiences or gifts to influence government officials’ decisions. Instead, this exception exists so companies can facilitate appropriate business relationships with foreign officials in the course of conducting business.

Why hire a defense lawyer for Defense of The Foreign Corrupt Practices Act Violations?

A lawyer can help you navigate this complicated Act and make sure violations do not occur in normal company policy.  A lawyer can also defend any allegations of violations under this Act.

Contact us for Defense of The Foreign Corrupt Practices Act Violations

Our law firm, in conjunction with other Orange County Federal Defense lawyers, can help you be informed and craft a defense plan for any alleged violations of the Foreign Corrupt Practices Act.  Contact us today. 

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