Introduction
The Foreign Corrupt Practices Act (FCPA) was adopted in 1977 to outlaw bribery of foreign authorities by US citizens and corporations. The Securities and Exchange Commission (SEC) aggressively investigates violators of the FCPA, which may include conduct with little US connection. This article examines the enforcement of the FCPA, including average fines and expenditures for violating corporations. The article discusses the history and revenue collections of the FCPA, US anti-corruption and bribery statutes, interstate study of the FCPA, distinctions in criminal culpability across countries, firms punished for unlawful dealings, FCPA investigative expenses, and conclusions. This article aims to enlighten financial professionals in international trade about potential pitfalls that might result in FCPA breaches.
History and Revenue Collections
Nearly 43 years ago, the FCPA was adopted to prevent international corruption and bribery. Anti-bribery measures implemented by the Department of Justice and accounting regulations enforced by the SEC are the FCPA’s principal weapons in this fight. The objective of the FCPA is to establish efficient and ethical marketplaces, although it has been criticized for its severe implementation and faults.
Early objections centered on corrupt areas of competition in the United States, but subsequent attacks highlighted inadequacies in the FCPA legislation, whose implementation is dependent on the individual nations. Following numerous blogs and trackers that offer information on who is receiving FCPA work is a practical means of keeping up with FCPA activity. As international politics is state-centric in the lack of supranational methods, implementing the FCPA and comparable laws relies on adopting and enforcing each country’s legislation.
Revenue Collections
In 2020, US officials collected $2.78 billion in fines and penalties from US individuals and corporations for breaches of the FCPA. Foreign authorities also received billions of dollars for pursuing illegal payments made by American businesses. US regulators collect fines, disgorgements, reparations, and penalties to fund the government, law enforcement, and victim payouts. The DOJ, SEC, and 32 FCPA enforcement agencies collectively enforce the FCPA and have power over FCPA violators.
The possible penalties for FCPA violations vary from fines to jail, and the DOJ may settle criminal charges without a trial via negotiated settlements. Fines and penalties are put into the Department of Justice’s Asset Forfeiture Fund (AFF), the Treasury’s Treasury Forfeiture Fund (TFF), or accounts in the Treasury’s General Fund. From January 2009 through December 2015, the SEC imposed $10.3 million in fines, $13.6 million in disgorgements, and $3.3 million in interest for FCPA breaches. The United States continues to dominate the globe in anti-corruption enforcement, with regulators and prosecutors from other nations issuing fines totaling between $6.31 billion and $9.10 billion in 2020.
U.S. Anti-Corruption and Bribery Laws
Allocation Approach
Even if they do not know about bribes, the FCPA’s wide constructive knowledge rule holds citizens and noncitizens accountable for bribery. Government employees and companies may break anti-bribery legislation by failing to implement anti-corruption enforcement measures or disregarding warning signs. Most FCPA compliance cases are based on third-party payments, and businesses may be held accountable for the conduct of their distributors or subsidiaries. The allocation strategy is frequently used by states, which might result in retaliatory measures since residents and nonresidents are not treated equally in the legal system. The US federal government considers the likelihood of criminal prosecutions, which may be influenced by violations of trustee duty and misinterpretations of protection laws by corporate entity executives.
Methods Used to Avoid Domestic and International FCPA Violations
Entities in the private sector use preventive training and proactive monitoring to avoid FCPA infractions. In corporate enterprises, this is the responsibility of the board of directors. Businesses utilize monitoring, internal controls, and sporadic evaluations of FCPA concerns to discover early warning signs. Training on FCPA rules is required, and staff need clear direction on handling particular FCPA-related situations. Employees operating in regions where local business norms do not align with the FCPA should be provided with a separate compliance strategy.
Interstate Analysis
Interstate Comparison
Under the FCPA, US states must provide political protection for public officials and may be held accountable under federal law for sales of information used for extortion or bribery. The SWAMP Index examines the fifty states and the District of Columbia’s legislation about the basis and scope of moral office practices for public officials. The index scores range from 0% to 100%, with a value of 100% representing perfection. North Dakota has a voter-approved Independent Ethics Commission despite its score of 0 on the most current index scores. Anti-corruption practice violations are unrelated to federal, international, or global norms.
Intercountry Differences in Ascribing Criminal Responsibility
Bribe-Paying and Bribe-Accepting Officials
The conditions and possible advantages for the receiver determine whether someone will provide or take a bribe. Public authorities could decline to carry out committed measures or want more compensation before committing to their obligations. Public officials may ask for or accept bribes if there is minimal risk of being caught.
One illustration of this is the situation of Anthony Guzzone, a former director of worldwide construction at Bloomberg LLC. Guzzone was given a 38-month jail term and a restitution order after being accused of avoiding taxes on $1.45 million he obtained via unlawful payments. Guzzone engaged in several unlawful actions, including fabricating work orders and inflating subcontractor bids.
Organization for Economic Cooperation and Development (OCED)
The OECD was founded in 1948 to assist in the administration of the Marshall Plan, and it has subsequently defined standards and regulations that member nations have embraced. The United States and 31 other nations joined the OECD Convention on Combating Bribery of Foreign Public Authorities in 1997. The OECD’s anti-bribery agreements and cooperation with nations have experienced political obstacles, although it has taken steps to conform to the FCPA’s approach.
In 2016, OECD Convention members reaffirmed their commitment to combating and prosecuting bribery and corruption. The Siemens AG bribery case exemplifies how the OECD scrutinizes the business activities of corporate leaders. Siemens AG paid over $1 billion in fines and penalties for improperly giving out perks and failing to monitor its executives and agents.
Regulation-centric Approach and Problem-centric Approach
The Payoff Act of 2010 was enacted to combat corruption in the United Kingdom, although the existing rules are outdated and ineffectual. In addition to exposing and prosecuting perpetrators, it is essential to reduce recidivism. Compliance with the FCPA cannot be assured, but efforts may be made to reduce the likelihood of noncompliance. The 2011 OECD Convention embraced the notion of “functional equivalence” rather than pushing nations to establish similar legislation. This implies that signatories are bound to adopt steps that satisfy the convention’s criteria, not necessarily the specific wording.
Corporations Prosecuted for Illicit Deals and Associated Laws
In 2020, the DOJ and SEC prosecuted 12 companies for illicit deals and imposed penalties of $6.4 billion. Goldman Sachs Group and Airbus Industries were the top two companies penalized, with payments of $3.3 billion and $2.09 billion, respectively. Petrobras, which paid $1.78 billion in fines in 2018, ranks third on the FCPA Blog’s Top Ten list. Other blogs list different penalty amounts, but generally, these companies are among the top ones penalized.
Goldman Sachs
Goldman Sachs violated anti-bribery laws by using a third-party intermediary to bribe government officials in Malaysia and the Emirate of Abu Dhabi, resulting in at least $1.6 billion of bribes. The company signed a deferred prosecution agreement with the DOJ, resulting in a $2.3 billion criminal penalty, and was fined by regulatory bodies in the UK, Singapore, and Hong Kong. The SEC also imposed a civil and disgorgement penalty requiring payment of ill-gotten gains. The criminal fine was reduced under the DOJ’s deferred prosecution agreement, assuming payment to the other regulatory bodies.
Gunvor Group
Gunvor Group is an international commodity-trading company based in Switzerland with sales offices worldwide. A former employee, Raymond Kohut, pleaded guilty to orchestrating an eight-year-long bribery scheme where he bribed an Ecuadorian government official of the state-owned oil company PetroEcuador with $22 million. This highlights the issue of many large international companies experiencing misconduct within their chain of command and the need for stricter laws to deter such actions.
Airbus
Airbus was required to pay $4 billion to settle allegations of global business and bribery with authorities in France, the UK, and the US. The company paid $2.3 billion to authorities in France, signed a three-year deferred prosecution agreement with the UK’s Serious Fraud Office, paid $1.09 billion to resolve bribery allegations, and paid a total of $582.4 million to the US Ministry of Justice to resolve allegations of collusion under the FCPA and ITAR. During the civil recovery process, Airbus also forfeited $55 million in bonds to the DOJ.
Petrobras
Petrobras, a Brazilian state-owned energy company, was involved in a massive bribery and laundering scheme known as “Operation Car Wash.” Executive Paulo Roberto Costa and other members of the Board of Directors overpaid various vendors who then put a share of the overpayments into secret slush funds. These funds were then used to give politicians and political parties money to keep them in power. In 2018, Petrobras agreed to pay $853.2 million in penalties to resolve FCPA violations and settled a US securities class action lawsuit for $2.95 billion.
Odebrecht and Braskem
Odebrecht and its subsidiary Braskem were found guilty of paying hundreds of millions in bribes to government officials in multiple countries. They were fined $3.5 billion, which was reduced due to Odebrecht’s financial difficulties. The companies used a hidden department to disguise the sources and disbursements of the bribe payments through shell companies. Two Austrian citizens were indicted for their roles in the laundering scheme, and Odebrecht terminated 51 individuals and suspended 26 people. The former CEO of Braskem was sentenced to 20 months in prison in October 2021.
Bombardier
A Russian employee of Bombardier in Sweden, Evgeny Pavlov, was accused of bribing a government official in Azerbaijan to obtain a contract for a new train signal system worth $340 million. Bombardier was suspected of bribing unidentified Azerbaijani officials with millions of dollars through a shadow company registered in the UK. Multiserv Overseas Ltd was identified as the intermediary, but it was determined to be false. Bombardier sold the equipment directly to Azerbaijan instead of going through Multiserv, which made a profit of $85.8 million in transactions, and the funds were sent to an offshore account. Bombardier said they take the allegations seriously and do not reflect their values or high standards.
FCPA Investigation Costs
The Department of Justice and the Securities and Exchange Commission
An FCPA investigation looks into potential violations by a company or its affiliates. Various US authorities conduct these investigations, which can be costly and time-consuming. In 2020, there was a focus on shortening investigation time and decreasing the average time it takes to complete investigations. Costs associated with investigations range from third-party fees to large-scale audits of company policies and procedures.
Walmart paid an estimated $900 million for FCPA-related investigations and compliance enhancements. FCPA violations do not have a materiality threshold, and compliance with SOX does not equal compliance with FCPA. The average monthly cost of an FCPA-related investigation is around $1,792,640, which does not include possible fines and penalties.
Conclusion
The Foreign Corrupt Practices Act aims to prevent bribery of government officials, both domestically and abroad. This article discusses how US state governments are working to prevent corruption and how violators of the Act can avoid or reduce fines and penalties. Businesses can avoid violations by implementing preventative measures, training, and discreetly incentivizing their chain of command. It is essential to learn from recent cases and penalties and to invest in preventative practices and technology. The effectiveness and efficiency of the FCPA may need to be reviewed.