Foreign Corrupt Practices Act (FCPA): Congressional ...

1 Foreign Corrupt Practices Act (FCPA): Congressional Interest and Executive Enforcement, In Brief Michael V. Seitzinger Legislative Attorney March 15, 2016 Congressional Research Service 7-5700 R41466 Foreign Corrupt Practices Act (FCPA): Congressional Interest and Executive Enforcement Congressional Research Service Summary The Foreign Corrupt Practices Act of 1977 (FCPA) was enacted principally to prevent corporate bribery of Foreign officials. This act had three major parts: (1) it required the keeping by corporations of accurate books, records, and accounts; (2) it required issuers registered with the Securities and Exchange Commission to maintain a responsible internal accounting control system; and (3) it prohibited bribery by American corporations of Foreign officials.

2 For a number of years after passage of the act, Congress debated amending it in response to numerous criticisms. On August 23, 1988, the President signed into law the Omnibus Trade and Competitiveness Act of 1988, of which Title V is known as the Foreign Corrupt Practices Act Amendments of 1988. The amendments maintained the three major parts of the 1977 Act, but significant changes were made. One of these changes enacted a knowing standard in order to find violations of the act. This standard was intended to encompass conscious disregard and willful blindness. The amendments provided certain defenses against finding violations of the act, such as that the gift is lawful under the laws of the Foreign country and that the gift is a bona fide and reasonable expenditure or for the performance or execution of a contract with the Foreign government.

3 In 1998 the act was further amended in order to implement the Organization of Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. These amendments expanded the scope of coverage to include some Foreign persons and extended jurisdiction beyond the borders of the United States. Criticisms of the act have continued. There have been, for example, suggestions that businesses convicted of violating the FCPA should be debarred from receiving federal government contracts. Bills specifically amending the FCPA were introduced in the 111th and 112th Congresses. In the 113th and 114th Congresses, there appear to be bills only tangentially mentioning the act. For example, 616, 114th Congress, would provide that the FCPA shall apply to any immigrant visa application under Section 203(b)(5) of the Immigration and Nationality Act.

4 The executive branch has brought actions for alleged violations of the Act. The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) share enforcement authority DOJ, primarily enforcement of criminal provisions; SEC, civil provisions. There have been a number of settlements and indictments, resulting in both successes and losses for the federal government. It has been reported that DOJ is intensifying its efforts to prosecute violators of the FCPA. Foreign Corrupt Practices Act (FCPA): Congressional Interest and Executive Enforcement Congressional Research Service Contents Introduction .. 1 Foreign Corrupt Practices Act of 1977 .. 1 Criticisms of the Foreign Corrupt Practices Act of 1977 .. 2 Foreign Corrupt Practices Act Amendments of 1988.

5 3 Foreign Corrupt Practices Act Amendments of 1998 .. 5 Continuing Congressional Concerns .. 5 Executive Branch Enforcement .. 6 Contacts Author Contact Information .. 8 Foreign Corrupt Practices Act (FCPA): Congressional Interest and Executive Enforcement Congressional Research Service 1 Introduction During the mid-1970s investigations and administrative and legal actions against numerous domestic corporations revealed that the practice of making questionable or illegal payments by United States corporations to Foreign government officials existed to some extent within the American business The legal and regulatory mechanisms for dealing with these payments had involved actions by the Securities and Exchange Commission (SEC) against public corporations for concealing from required public disclosure substantial payments made by the firm, including to Foreign government officials.

6 There was also the potential for an antitrust action for restraints of trade or fraud prosecutions by the Department of Justice (DOJ). Government officials and administrators contended that more direct prohibitions on Foreign bribery and more detailed requirements concerning corporate recordkeeping and accountability were needed to deal effectively with the problem. The revelations of slush funds and secret payments by American corporations were stated to have affected adversely American Foreign policy, damaged abroad the image of American democracy, and impaired public confidence in the financial integrity of American corporations. Foreign Corrupt Practices Act of 1977 Congress responded with the passage of the Foreign Corrupt Practices Act (FCPA) of The principal purpose of the 1977 Act was to prevent corporate bribery of Foreign officials.

7 It had three major provisions to attempt to accomplish this purpose. The first major provision amended Section 13(b)3 of the Securities Exchange Act of 19344 to require issuers which must register their securities with the SEC to keep detailed books, records, and accounts which accurately record corporate payments and transactions. The second major provision required SEC registered issuers to institute and maintain an internal accounting control system to assure management s control, authority, and responsibility over the firm s The third major provision of the original 1977 Foreign Corrupt Practices Act prohibited domestic corporations, whether or not registered with the SEC, from corruptly bribing a Foreign official, a Foreign political party, party official, or candidate for the purpose of obtaining or maintaining business.

8 Two provisions of the 1977 Act6 made it a crime for any American business to use the mails or interstate commerce to offer or pay money or anything of value to a Foreign official or to a Foreign political party, party official, or candidate for Foreign political office in order to influence the person in his decision making or to use his influence to assist the firm in obtaining or retaining business. 1 S. REPT. 95-114, at 3 (1977); see also Sen. Comm. on Banking, Housing, and Urban Affairs, Report of the Securities and Exchange Commission: Report on Questionable and Illegal Payments and Practices , 94th Cong., 2d Sess. (1976) (Comm. Print). 2 95-213, Title I; 91 Stat. 1494 (1977). 3 15 78m(b). 4 15 78a et seq.

9 5 15 78m(b)(2)(B). 6 15 78dd-1 and 78dd-2. Foreign Corrupt Practices Act (FCPA): Congressional Interest and Executive Enforcement Congressional Research Service 2 The 1977 Act also prohibited the payment of money to any person by a business if the business knew or had reason to know that the payment was to be used to bribe a Foreign official for his influence in obtaining or retaining business. Congressional intent appeared to place an affirmative responsibility on the corporation to exercise control over its officers, directors, and employees, and to take steps to assure that its Foreign agents did not use corporate assets or payments make other payments to bribe Foreign Under the 1977 Act not all payments to employees of Foreign governments were intended by Congress to be considered illegal bribes.

10 For example, the definition of Foreign official excluded employees of a Foreign government whose duties are essentially ministerial or clerical. Also, the legislative history of the act specifically stated that it was not intended to cover grease payments to Foreign officials, explained as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of The legislative history also suggested that extortions of money by Foreign officials might be used as a defense against bribery charges by a business if its property or lives of its employees were threatened. An example used to illustrate acceptable payments was the payment to a Foreign official to prevent the dynamiting of an oil Criticisms of the Foreign Corrupt Practices Act of 1977 Almost since passage of the 1977 Act, frequent criticism of the operation of the act Opponents argued that the act had a chilling effect upon United States export trade and that many companies ceased Foreign operations rather than face the uncertainties and the burdens of the act.