October 2019 Foodman CPAss & Advisors

The Foreign Corrupt Practices Act (FCPA) prohibits payment of bribes to foreign officials to assist with obtaining or retaining business.  It also requires companies whose securities are listed in the US to make and keep books and records that accurately and fairly reflect their transactions as well as to devise and maintain an adequate system of internal accounting controls. 

Individuals can be prosecuted for violating the FCPA

Title 15 § 78dd of the US Code (COMMERCE AND TRADE) states that it is unlawful for any officer, director, employee, or agent of a US Person of a US Company or Foreign Nationals to:

  1. make use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to:
  • any foreign official influencing any act or decision of such foreign official
  • any foreign political party influencing any act or decision of such party, official, or candidate in its or his official capacity
  • any person influencing any act or decision of such foreign official, political party, party official, or candidate in his or its official capacity

2. to corruptly do any act outside the United States in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any of the persons or entities.

Besides its Anti-Bribery provisions, the FCPA includes an accurate books and records component, and a robust internal controls component

The FCPA Resource Guide states that: In the past, “corporate bribery has been concealed by the falsification of corporate books and records” and the accounting provisions “remove this avenue of coverup.” 

Bribes, both foreign and domestic, are often mischaracterized in companies’ books and records as:

  • Commissions or Royalties
  • Consulting Fees
  • Sales and Marketing Expenses
  • Scientific Incentives or Studies
  • Travel and Entertainment Expenses
  • Rebates or Discounts
  • After Sales Service Fees
  • Miscellaneous Expenses
  • Petty Cash Withdrawals
  • Free Goods
  • Intercompany Accounts
  • Supplier / Vendor Payments
  • Write-offs
  • “Customs Intervention” Payments

Payment of bribes often occurs in companies that have weak internal control environments

The internal controls provision of the FCPA requires entities to maintain a system of internal accounting controls to provide reasonable assurances that: 

  • transactions are executed in accordance with management’s general or specific authorization;
  • transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets;
  • access to assets is permitted only in accordance with management’s general or specific authorization;
  • the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any difference

Individuals acting on behalf of an Entity can have Civil and Criminal Liability under the FCPA

Individuals can face up to a $100,000 criminal fine ($10,000 for Civil) for an Anti-Bribery Violation and five years of prison.  For a Book & Records Reporting violation, an Individual can face up to a $5,000,000 criminal fine and twenty years of prison time (15 U.S.C. §§ 78).  An Individual’s fines may NOT be paid by his or her employer. 

The Prosecution of Individuals is a Priority for the US Department of Justice (DOJ)

From the “Yates Memo” to the US DOJ FCPA Pilot Program, to the current FCPA Enforcement Policy, the message is clear:  the DOJ wants to encourage companies to voluntarily self-disclose potential violations and identify the individuals who engaged in wrongdoing. 

Don’t be a Victim and Protect Yourself

Individuals face mounting risks of liability under the FCPA.  Individuals ought to prevent FCPA violations by ensuring that there is a comprehensive compliance program in place and knowing “who they are doing business with”.  Senior Level Executives need to question if the comprehensive compliance programs outlay the right internal accounting controls as opposed to “unspoken” environments that could permit “circumventing the controls”.