DEFINITION of Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) is a United States law passed in 1977 that prohibits U.S. firms and individuals from paying bribes to foreign officials in furtherance of a business deal. The FCPA places no minimum amount for a punishment of a bribery payment. The Foreign Corrupt Practices Act also outlines required accounting transparency guidelines.

BREAKING DOWN Foreign Corrupt Practices Act

The act applies to actions that occur worldwide and is intended to deter corruption and abuses of power. The FCPA’s authority includes oversight of the actions of publicly traded companies as well as their directors, officers, shareholders, agents, and employees. This includes working through third parties such as consultants and partners in a joint venture with the company. That means the use of proxies to execute a bribe will not shield the company or individual from culpability.

Accurate record keeping of assets is required by the FCPA to ensure that only properly authorized transactions are taken under the purview of company management. Internal controls must also be put in place to assure regulators that these transactions will be accounted for in a proper fashion. 

Regulators Who Enforce the Foreign Corrupt Practices Act

The Securities and Exchange Commission along with the Department of Justice hold joint responsibility to enforce the FCPA. For its part, the SEC created a special unit within its enforcement division to focus on handling matters that fall under the auspices of the FCPA.

Violators of the act can face substantial sanctions and penalties. Punishments allowed under the act include fines of up to double the amount of the benefit expected to be received from the bribery. Corporate entities found guilty of breaching the FCPA may be forced to accept the oversight of an independent party to ensure future compliance. In addition, individuals involved in breaking this law can face imprisonment for up to five years.

A civil action may be sought by the SEC against the responsible actors, which for companies can include employees, stockholders, officers, directors, and third parties who engaged in the bribery. Violations of the accounting rules mandated under the FCPA can also lead to legal action.

The SEC publishes some examples of penalties paid in response to violations of the FCPA. In 2018, Panasonic agreed to pay more than $143 million for charges stemming from violations of the act. According to the SEC, Panasonic offered a well-paying position to a government official with a state-owned airline in exchange for assistance securing business with the airline. Though Panasonic is headquartered in Japan, the offer was made to benefit a U.S.-based subsidiary of the company.

Communications provider Telia agreed in 2017 to pay $965 million as part of a worldwide settlement stemming from actions it took in violation of the FCPA to procure business in Uzbekistan.