Vu Le Vu
LGLS 3562
Michael Valenza
December 7th, 2017
Foreign Corrupt Practices Act (FCPA)
FCPA Background
The U.S. Foreign Corrupt Practices Act (the “FCPA” or the “Act”) is one of the primary statutes in the U.S. for fighting against corruption around the world. After the Watergate scandals and revelation of widespread corruption and bribery all over the globe by U.S companies, the FCPA was established in 1977 by Congress [1].
Before passing the FCPA, the government found that more than 400 companies had paid millions of dollars in briberies to foreign government officials to secure businesses overseas. It has been reported that firms have secretly used the money to illegally contribute to the United States and make illegal payments to
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The FCPA addresses three categories of persons and entities; issuers, domestic concerns and other people (including foreign persons or their agents) that violate the law while on the territory of the U.S. [1]. "Issuer" means any company whose class of securities are listed on a national securities exchange in the United States. Alternatively, any company whose class of securities are quoted on the free market in the United States and requires submission of periodic reports to the SEC is an issuer. Therefore, the company does not need to be a US company to be a publishing company. Foreign companies with US custody receipts listed on a US trading floor are also issuers. As of December 31, 2011, 965 foreign companies were registered with the SEC [2]. Speaking of domestic concerns, they could be any individual who is a citizen, national or resident of the United States. They could also be any company, association, partnership, joint stock company, business trust, or a proprietary organization formed under the laws of the United States or its states, territories, properties or communities, or whose headquarter of business is in the United States [2]. Moreover, the FCPA applies to the officers, directors, employees, agents, and shareholders of the issuers and domestic concerns.
The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) share the power to
In today’s ever changing and competitive modern world of business, it is critical for the companies to have activities internationally. In order to prohibit frauds and illegal activities, several acts and documents have been elaborated. One of the documents is Foreign Corrupt Practices Act that has been enacted in the 1970’s, as a result of SEC investigation of several U.S. companies that made illegal payments to foreign governmental officials, politicians, and political parties (Barnes 73). The FCPA had a critical impact on the way U.S. firms do business. Companies that did not comply with FCPA have been subject of criminal and civil enforcement actions that later resulted in huge fines and sentences for
The US Securities and Exchange Commission (SEC) is the US federal agency that holds the primary mandate to enforce federal securities laws and regulations to control the securities industry and the country’s stock exchange and regulation of all activities and organizations including the US electronic securities market. The SEC is committed to promoting a market environment that yields public trust characterized by integrity to attain its mission of protecting investors through maintenance of fair and efficient markets through facilitation of capital information (Basagne, 2010). The SEC financing is a major area of focus since there has been major concern regarding the SEC agency financing and whether they utilize the
When the U.S. stood completely alone in its legislative quest to curtail foreign bribery, the catastrophic scenario did not materialize. “As the Government Accountability Office (GAO) noted four years after the implementation of the FCPA in a study called the Impact of the Foreign Corrupt Practices Act on U.S. Business; claims that U.S. companies have lost sales…are difficult, if not impossible, to substantiate and quantify” (Graham, 1984). Further, a paper published in the Journal of International Business used published data to test the competitive disadvantage theory and found that “the FCPA had not negatively affected the competitive position of American industry in the world marketplace” (Graham, 1984). Even then, when the American industry was the only one worldwide facing these kinds of restrictions, anti-bribery laws did not negatively impact their export performance or market share.
The Securities and Exchange Commission has the mission of protecting investors by maintaining fair, orderly and efficient markets. The SEC does this in a number of ways, and firms need to pay attention to these ways in order to ensure SEC compliance. The SEC has enforcement authority over a number of areas related to the nation's capital markets, including insider trading, accounting fraud, and providing false information. The SEC's jurisdiction extends to all securities that are traded publicly. Privately-held companies do not need to register with the SEC (SEC.gov, 2012).
According to Benston (1977) an unaware public pays for government-required accounting disclosure. Sunstein (1999) claims that disclosure of information allows the federal government to control public and private conduct. Foreign Corrupt Practices Act Over the decades accounting regulations have come from various sources. The Securities and Exchange Commission as well as the Internal Revenue Service and Interstate Commerce Commission are examples of regulatory bodies that promulgate accounting regulations. A more recent example occurred during the 1970s. During the Watergate era there were a number of investigations, some of which affected American business. One of the investigations, conducted by the Securities and Exchange Commission (SEC) in 1975, revealed that 19 publiclyheld corporations had made illegal campaign contributions and that these contributions were made from cash accounts that had not been recorded on the corporation’s books. (Heldack, 1977) This prompted the SEC to launch an investigation into what were considered ―questionable payments.‖ What came out of the investigation was that many U.S. multinational corporations were making hundreds of millions of dollars in ―questionable payments‖ to foreign officials to obtain business. As a result, the Foreign Corrupt Practices Act (FCPA) was unanimously adopted by Congress in 1977. Bribery of foreign officials to obtain business for the corporation
Evidence of bribery or erroneous accounting is enough proof for the government to file a case against an individual or company regardless of intent, under the FCPA laws (Clayton, 2011). There are three types of improper violations for the anti-bribery provision and they include: the issuer, domestic concern, the foreign national and businesses. The issuers are the ones that are registered in the US or are required to file Security and Exchange Commission. Domestic concern is any person or business that has their place of business in the US or is under the US law. Lastly, the foreign nationals and business in which deals with corrupt payments that are made in the United States, there are also the third parties and agents that are as well included and have the same conditions apply to them as they do to the issuer, domestic concern, and the foreign national and businesses. The second provision that is involved with the FCPA is the Accounting provision and that consist of contracts enforcing Securities and Exchange Commission. The SEC enforces the Foreign Corrupt Practices Act (FCPA) by bringing the civil actions against the issuers and their officers, directors, employees, and agents. FCPA has two accounting requirements that are recordkeeping and internal controls. The recordkeeping is there to ensure that the books, records, and accounts are held at the standards of what the company should be at. This is designed to cover business
The Securities and Exchange Commission (SEC) would only have influence over Smackey Dog Foods, Inc. if they are a publicly listed company or if they register to become a publicly traded company. The SEC assists investors by providing reliable information to investors so they can make informed investment decisions. If Smackey Dog Foods, Inc. becomes a public company, they would need to provide financial statements along with an opinion about the financial statements by an independent public accountant along with the registration statement and subsequent financial reports (Arens, Elder, and Beasley, 2010).
Bribery weakens competition and diminishes free trade which can affect companies, shareholders, and stakeholders. Jacob Franklin knowingly extended bribes to governments and contractors while knowing it was against company policy. Jacob engaged in bribery even though he knew it was wrong because he was advised that it was common practice at Richard Drilling. “In 1977, President Carter signed the Foreign Corrupt Practices Act (FCPA). The law made it illegal to bribe foreign officials. The maximum punishments for violators were set at $100,000 and 5 years in jail. Companies can be fined millions” (Bredeson, 2012, p.301). Not only was extending the bribe against company policy, it was against law and could cost Jacob and Richardson Drilling money and freedom.
The FPCA was enacted to make it illegal for certain classes of people and entities to make payments to foreign government officials to help assists businesses (The United States Department of Justice, 2015). Many U.S. companies were caught by Securities and Exchange Commission (SEC) bribing foreign officials to keep businesses with them (McGraw & Rufe, 2014). It was something that was inexcusable and the U.S. government wanted to keep it from happening again, so they signed in this Act.
Many companies are trying to expand economically in the market by doing business with an individual or another company in foreign countries. These businesses are engaging in into using improper ways of payments that are leading to secret bribes to the foreign public officials. Foreign countries are not always in compliance with the laws and they tend not to follow them. Having these problems with the US and all the millions of dollars that have been passed they wanted to take a more affirmative approach and be able to correct the problem. That is when congress decided to introduce the Foreign Corrupt Practices Act to prosecute foreign companies for corrupt payments within the United States. The Foreign Corrupt Practices Act is a federal
Since 1977, the anti-bribery provisions of the FCPA have applied to all U.S. persons and certain foreign issuers of securities. With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.
Author Scott Nette clearly explains that in July 2007, Anthony Tesvich, Melissa Tesvich, James P. Robinson and Ronald K. Jonston was Investigated, charged and convicted on the Foreign Corrupt Act. “The Foreign Corrupt Act States that it is illegal for an US person, entity and certain applicable foreign entity to make and/or accept bribes or offer any inducement for the purpose of obtaining or retaining business with an US firm.” – Scott Nette
Although only required to discuss two associations this writer thought it was important to discuss the SEC as they are directly connected to FINRA in that they take litigation cases, and fraud cases from FINRA and follows up on whether any security laws or criminal laws were broken. Once they investigate the wrong doing they proceed with the corrective action that best suits the offense not excluding criminal prosecution and jail time. According to the Securities and Exchange Commission (2014) website the mission of the SEC is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”. The SEC was created to ensure that all investors big or small have a fair and unbiased account of a
Yes, I think that the payments outlined on pages 12 and 13 should be considered corrupt practices because of the way they were registered in the company’s books -it was in compliance with the FCPA because of the anti-bribery provision and the books and records provision.
More specifically, in 1988 Congress amended the law to add two affirmative defenses, “the local law defense and the reasonable and bona fide promotional expense defense” (“A Resource Guide to the FCPA…”, 2012, p.3). This makes it okay for businessmen or businesswomen to get money to travel for promotion of products or services and make corrupt bribes prosecutable under local law. The addition also requested that the President negotiate a international treaty to prohibit bribery in international business transactions (“A Resource Guide to the FCPA…”, 2012, p.3-4). The FCPA was later amended in 1998 again, and expanded the law to include payments made to secure “any improper advantage”, create a definition for “foreign official” and made penalties