Compliance Risks

Foreign Corrupt Practices Act Compliance

What is the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act (FCPA) prohibits payments to officials of foreign governments for the purpose of influencing decisions or causing them to act unlawfully. While this anti-bribery legislation was enacted by the United States Congress, the FCPA contains provisions extending the law’s reach to international actors that conduct business within the borders of the United States.

Due to the expansive nature of and serious penalties associated with the FCPA, ensuring compliance has become a critical part of risk management for businesses. Companies aren’t just interested in preventing violations within their own organizations – they also want to avoid the headaches caused by their suppliers failing to comply with FCPA.

FCPA Provisions

The FCPA seeks to stamp out corruption by enforcing rules in two categories:

FCPA Enforcement

The Securities and Exchange Commission (SEC) is tasked with enforcing FCPA compliance and can file civil charges against businesses or individuals. The Department of Justice can bring both civil and criminal charges to court.

Who needs to be concerned with FCPA compliance? The SEC identifies three parties subject to enforcement:

  1. Issuers: Generally speaking, these are publicly traded companies that are required to file SEC reports.
  2. Domestic Concerns: Any individual or company doing business within the United States.
  3. Foreign Nationals & Entities: Regardless of nationality, people or businesses engaging in bribery within the borders of the United States. (That foreigners can be charged with FCPA violations effectively gives this US law international relevance.)

To summarize: Any individual working for or on behalf of a company doing business in the United States must comply with FCPA regulations.

It’s important to note that employees or contractors can face charges based upon actions they’ve undertaken for the benefit of the company – a corporate structure doesn’t shield people from liability.

Penalties for FCPA Violations

The government can inflict substantial civil and criminal penalties on businesses and individuals found guilty of violating the Foreign Corrupt Practices Act, including:

Criminal Penalties for Bribery

Business are subject to fines of up to $2 million for each violation. Individuals can be fined up to $250,000 and jailed for no more than five years.

Civil Penalties for Bribery

Businesses and individuals can be fined up to $16,000 per violation.

Criminal Penalties for Accounting Violations

Businesses are subject to fines of up to $25 million per violation. Individuals can be fined up to $5 million and face up to 20 years in jail.

Civil Penalties for Accounting Violations

Businesses and individuals convicted of accounting violations can be fined the amount of their perceived financial gain from the scheme or in accordance with specific dollar limitations prescribed by law.

There are a variety of other penalties that can be applied to businesses and individuals found guilty of FCPA violations. Among the most onerous is suspension or debarment, which prevents businesses from working on federal contracts. This prohibition also applies to subcontracting on deals valued at $30,000 or more.

FCPA Risk Exposure

Businesses that adhere to FCPA regulations can still face risks from non-compliant suppliers. A vendor fighting civil or criminal penalties may not be in a position to fulfill orders in a timely manner, putting customers in a perilous situation. Furthermore, businesses must be sure that subcontractors aren’t subject to debarment before hiring them to work on federally funded projects.

Many procurement professionals use compliance software to perform due diligence on other businesses. These applications can help identify companies or individuals who have run afoul of a variety of regulations, including the FCPA. Screening potential business partners is essential to avoiding disruptions brought about by non-compliance.

The Foreign Corrupt Practices Act has far-reaching implications for businesses of all sizes. A better understanding of its provisions and penalties is essential to staying on the right side of the law.

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