Article Prepared by Mark E. Peterson
Many businesses, especially small- or medium-sized businesses are not aware of the Foreign Corrupt Practices Act (“FCPA”) or they do not believe that the law can apply to them. Below are five basic facts that surprise many businesses who are not experienced in dealing with the FCPA.
The FCPA has two main components: anti-bribery provisions, which apply universally to all “issuers,” “domestic concerns” and other persons, and record keeping and internal control provisions, which apply only to companies whose securities are registered in the U.S. and companies that file reports with the SEC. For the purposes of the anti-bribery provisions, issuers are essentially defined as public companies. Domestic concern means any individual who is a citizen, a national or resident of the U.S., as well as any entity (corporation, LLC, partnership, sole proprietorship, etc.) that is organized under the laws of any state or territory, or that has its principal place of business in the U.S.
It surprises many small business owners that they don’t actually have to pay a bribe to violate the FCPA. Like the federal securities laws, it is enough that someone offers to pay a bribe or promises to make such a payment or give something of value to a government official.
The FCPA applies to actions by any officer, director, employee, or agent of a domestic concern. This means that if you hire a third-party intermediary to act on your behalf and you authorize the payment or “know” that such a payment (or promise of payment) would be made. The courts will deem that a company has such knowledge if it disregards a high probability of the illegal action. That means that companies that do any international business must be very careful to include FCPA provisions in any international agreements and actively monitor for improper behavior.
There is no provision in the FCPA that sets a minimum level for a bribe to be in violation of the FCPA. Thus, even the offer to pay a small amount is a violation of the FCPA. In fact, the Department of Justice does aggressively pursue actions even in cases where the amounts involved are small.
If you are planning on expanding into a new market by partnership with another company, or by acquiring or merging with a company in a foreign market, be aware that actions by that company in the past may pass on to you. For example, artificially high contract payments that are really disguised bribes that continue after the merger or partnership may be a violation of the FCPA.
The best way to avoid problems is to be aware of the possibility and to take adequate steps to prevent such payments. Prior to entering into any contract with an international partner, be sure to have someone knowledgeable about the FCPA review the contract. If you expand into an international market, or if you are already there, you should have an effective compliance policy in place to prevent or minimize problems.
For more information on the FCPA, please contact Mark E. Peterson at firstname.lastname@example.org or by phone at 916-492-5000.
Download a copy of this article here.