Chapter 1 presents a list of the top ten Foreign Corrupt Practices Act cases. Pick one of these, research it, and present a synopsis of the case and describe implications of the FCPA for your classmates and colleagues.
FOREIGN CORRUPT PRACTICES ACT Following investigations by the SEC as a result of the Watergate scandal, over 400 businesses were found to have paid over $300 million in bribes coming from slush funds to foreign governmental officials and politicians. As a result of these discoveries by the SEC, the Foreign Corrupt Practices Act (FCPA) was enacted as a federal law in 1977. The FCPA prohibits companies from paying corrupt bribes to foreign government officials and political figures for the purpose of obtaining or retaining business. The purpose of the FCPA is to combat corrupt business practices such as bribes and kickbacks. Thus, for more than 35 years these foreign bribery laws in the United States have restricted all U.S. employees, regardless of where the business is conducted. FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business, or directing business to anyone. These laws apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. Companies whose securities are listed in the United States must meet FCPA. Also, FCPA prohibits corrupt payments through intermediaries. There are two provisions to the Foreign Corrupt Practices Act: (1) the anti-bribery provision that is enforced by the Department of Justice, and (2) the accounting provisions that are enforced by the Securities and Exchange Commission (SEC). The FCPA prohibits any U.S. citizen, U.S. business, foreign corporations trading securities in the U.S., or foreign persons or entities currently in the U.S. to make corrupt payments to foreign governmental officials directly or through an agent in an effort to obtain or retain business. A government official can be any government employee and may even extend to employees of state owned businesses. A payment can consist of anything of value, but such payment must have corrupt intent to improperly influence the governmental official. Under the books and records provision, issuers of U.S. securities are required to make and keep books, records, and accounts that accurately reflect the issuer’s transactions and disposition of assets. Under the internal controls provision, issuers must devise and maintain a system of internal controls sufficient to assure managements control and responsibility of the firm’s assets. These two provisions do not only apply to bribe-related violations. Often bribes are concealed under accounts such as consulting fees or traveling expenses. In instances in which all the elements of the anti-bribery provision cannot be proven, often the companies are still liable under the accounting provisions. The FCPA covers both issuers and domestic concerns. Issuers includes any U.S. or foreign corporation that has a class of securities registered in the U.S, or that is required to file reports under the Securities and Exchange Act of 1934. Domestic concerns refers to any individual who is a citizen, national, or resident of the United States and any corporation and other business entity organized under the laws of the United States or of any individual U.S. State, or having its principal place of business in the United States. During 2010 alone, the Securities and Exchange Commission and Justice Department reached settlements with 23 companies for alleged violations of the law, collecting a total of $1.8 billion in financial penalties. For more detail, see A Resource Guide to the U.S. Foreign Corrupt Practices Act, by the Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission. Listen to http://www.justice.gov/criminal/fraud/fcpa/guide.pdf. Oracle Corporation was charged by the SEC with violating the FCPA by failing to prevent their Indian subsidiary firm from secretly setting aside money off their books that was then used to make unauthorized payments to phony Indian vendors. 100 An Oracle Corporation subsidiary, Oracle India, sold software licenses and services to the government of India through local distributors. Over a dozen times between the years of 2005 and 2007, Oracle India structured payments with the Indian government in a way that allowed Oracle India’s distributors to keep approximately $2.2 million in unauthorized funds off Oracle India’s books. The distributors were told to keep excess funds for “marketing development purposes.” The distributors were then instructed to make payments ranging from $110,000 to $396,000 to various third party vendors that provided no actual service to Oracle India and were not on Oracle’s approved vendor list. The third party payments created the risk that the money could be used for illicit purposes such as bribery or embezzlement. Oracle agreed to pay $2 million in order to settle the charges with the SEC. The settlement took into account the fact that Oracle voluntarily disclosed the conduct in India and cooperated fully with the SEC investigation. Oracle also fired all employees associated with the misconduct and made significant enhancements to its FCPA compliance program