The Foreign Corrupt Practices Act: How to Ensure You’re in Compliance
By Susan Osborn, Director Advisory Services, Americas
The federal government’s years-long crackdown on bribery of foreign officials by American businesses snagged another high-profile target this month with the $1.6 million in penalties levied on Ralph Lauren for gifts and payments given to Argentinean officials between 2005 and 2009. The lesson of this latest enforcement is clear: Cooperate with the federal government.
While $1.6 million is nothing to scoff at, the company could have potentially faced more severe consequences if its internal auditors hadn’t discovered the bribes and promptly reported them to federal authorities, who agreed to the settlement in lieu of prosecution. “When you do all the right things in terms of investigating, self-reporting, cooperating and taking appropriate remedial measures, both the S.E.C. and Department of Justice are willing to reward that behavior,” a lawyer for the clothing retailer told The New York Times.
The broader lesson of the ongoing crackdown is also clear: Full compliance within the spirit and letter of the Foreign Corrupt Practices Act is the one assured way to ensure that your business is safe from seven-figure penalties, criminal prosecution, and serious reputational damage. The law has two main components: One imposes certain recordkeeping requirements on companies that are traded on a U.S. stock exchange. The other, which applies to all American businesses, forbids those businesses from bribing foreign officials. All parts of that latter dictate are interpreted broadly: What constitutes an action by your business, what constitutes a bribe, and who constitutes a foreign official.
Your business could potentially be liable if a local contractor or subcontractor passes the bribe or the bribe. It can also be liable if the bribe is passed through an intermediary if you believed, or should reasonably have believed, that some or all of your payments to that intermediary would be used for a bribe.
You do not have to get caught in flagrante delicto exchanging a suitcase full of cash for that hard-to-obtain permit to be liable under the statute. It could apply whether or not you ever receive any advantage in exchange for the bribe. In fact, it could possibly apply even before bribery takes place, as soon as any act is taken “in furtherance” of making or offering a bribe. And it applies to gifts as well as cash.
A Foreign Official
For the purposes of the law, the designation “foreign official” extends beyond bureaucrats and elected officeholders. It can apply to a consultant working on behalf of a foreign government or candidate for office, among other categories of agents. Many violations of the act occur when payments are made to employees of state-controlled businesses, whose status can be difficult to discern in many countries.
And remember, the Dodd-Frank Act now provides significant financial incentives for internal whistleblowers to come forward to the government, whether or not they’ve gone through your internal reporting channels first.
Basically, you will have a hard time finding loopholes. Anything that is not above board or does not appear legitimate should be avoided. That can be difficult to control in a large organization with local subsidiaries and contractors. Instituting internal FCPA compliance training — both to avoid finding the company in hot water and to provide an affirmative defense if you do — is often a good idea.