A common misperception about the Foreign Corrupt Practices Act (FCPA) is that it only applies to public companies and not private companies.
However, this is false under FCPA anti-bribery provisions. Passed in 1977 and amended in 1998, the anti-bribery provisions of the FCPA apply to “domestic concerns.” That is, FCPA applies to any corporation, partnership, association, trust, unincorporated organization, or sole proprietorship with its principal place of business in the United States, or organized under U.S. law.
The FCPA prohibits public and private U.S. companies and individuals from making “corrupt payments,” i.e., paying bribes to foreign officials in exchange for a business deal. The FCPA also requires companies whose securities are listed on a U.S. stock exchange or that have to file periodic reports with the U.S. Securities and Exchange Commission (SEC) meet its accounting provisions.
Another false perception is that the FCPA applies only when companies attempt to obtain or retain business with foreign government customers. Rather, U.S. case law has held that making improper payments to foreign officials to reduce custom duties or taxes violates the FCPA’s anti-bribery provisions. This is because doing so gives an unfair advantage to the companies or individuals making the payments over their competitors.
An FCPA violation can also occur where payments are made to non-government third parties acting for or on behalf of any foreign government agency.
The SEC and the U.S. Department of Justice (DOJ) are jointly responsible for FCPA enforcement actions. The SEC brings civil charges for FCPA violations of the anti-bribery and accounting provisions, while the DOJ brings criminal and civil charges for violations of the anti-bribery and books and records provisions.
Federal law enforcement policies strongly encourage companies to have effective compliance programs in place that address FCPA risks. In 2012, the SEC and the DOJ released an FCPA resource guide that offered the key components that companies should include in their compliance programs.
In November 2017, the DOJ issued an FCPA Corporate Enforcement Policy (expanded in 2019) that provides additional guidance for companies regarding their FCPA compliance programs.
Although the FCPA is the most widely enforced anti-corruption law, to date, the SEC and the DOJ have never brought an enforcement action against a Chinese company. However, in recent years, the agencies have brought approximately 83 FCPA cases involving China—more than any other country. However, those cases all involved multinational corporations operating in China.
For example, the SEC in 2015 charged New York-based pharmaceutical company Bristol-Myers Squibb with violating the FCPA when employees of its China-based joint venture made improper payments to obtain sales. The company agreed to pay over $14 million to settle those charges.
But now, U.S. authorities may be looking to target companies headquartered in China for FCPA enforcement.
In November 2018, the DOJ announced a new China initiative that “reflects the department’s strategic priority of countering Chinese national security threats and reinforces the president’s overall national security strategy.” One of the ten goals for that initiative is to identify FCPA cases that involve Chinese companies that compete with American businesses.