The Foreign Corrupt Practices Act: Minefield for Directors

Abstract

Increased international commerce between the United States and faster growing economies such as The People’s Republic of China (PRC), as well as third world economies rich in natural resources but poor in infrastructure like Nigeria, have created the potential for significant exposure to international corruption and demands that U.S. directors understand the basic foundation for doing business without running afoul of the FCPA. With an increasing demand for United States citizens to sit on boards dealing with significant exposure to emerging economies and Chinese developments, the FCPA has become an area that directors of both public and private companies alike cannot ignore. With the increase in business operations around the globe by U.S. companies, the risk associated with anti-bribery laws increases. Any attempt to assess corporate risk for an FCPA violation requires an understanding of how the statute operates and is enforced.

The FCPA primarily addresses two distinct activities: bribery and improper record-keeping. The statute, in relevant part, prohibits payments of anything of value to foreign officials 'in order to assist [the payor] in obtaining or retaining business for or with, or directing business to, any person;' and failing to keep records and books 'which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.' 'When the FCPA is read as a whole, its core of criminality is seen to be bribery of a foreign official to induce him to perform an official duty in a corrupt manner.'

Criminal penalties under the anti-bribery provisions of the statute include a fine of up to $2 million for the company involved or fines of up to $100,000 and imprisonment up to five years for any officer, director, shareholder, employee, or agent involved. Civil penalties include fines of up to $10,000 against either the company or individuals involved; disgorgement of the pecuniary gain; and specified dollar fines ranging from $5,000 to $100,000 for individuals and $50,000 to $500,000 for companies. Importantly, fines for individuals cannot be paid by the company. Other criminal statutes may provide for alternative fines of up to $250,000 as well. Additionally, companies that are indicted under the FPCA, even if a conviction does not result, may be barred from doing business with the U.S. government.

A willful violation of the books and records provisions of the statute by an individual is subject to criminal penalties of a fine of up to $5 million and up to 20 years imprisonment. A business may be criminally fined up to $25 million under the statute. Executives who knowingly issue false certifications are subject to a $1 million fine and up to 10 years in prison. Those who willfully do so are subject to a $5 million fine and 20 years in prison.

As the world continues to grow smaller and the economic and business importance of countries like China continue to grow, corporate officers and directors must necessarily become experts in the Foreign Corrupt Practices Act. Failure to do so puts their companies and themselves at grave risk for getting caught in the deep quagmire of heightened FCPA enforcement. FCPA expertise and compliance, on the other hand, puts them and their companies on the forefront of modern business ethics and operations.

Keywords: anti-bribery, bribery, China, corporate boards, corporate directors, corporate governance, corruption, criminal penalties, directors, duty of care, enforcement, facilitating payments, FCPA, foreign corrupt practices act, OECD convention on combating bribery, SEC, SEC enforcement

JEL Classification: F10, F15, G15, G18, G38, K1, K22, K33, K42, L14, L21, M14, N7, O17, O38, O39, P16, P21, P31, P52