Foreign Corrupt Practices Act

What do you do when you discover that an officer, director, employee or agent of your firm has offered to make or has made payments to foreign officials to obtain, retain or direct business?

US companies operating in a foreign territory are required to comply with the Foreign Corrupt Practices Act of 1977, as amended in 1988 (FCPA). The FCPA makes it unlawful to bribe foreign government officials to obtain or retain business. The FCPA has had an enormous impact on the way American firms do business overseas. Several firms that paid bribes to foreign officials have been subject to criminal and civil enforcement actions, resulting in large fines and imprisonment.

For instance In the year 2002, BellSouth Corporation, a company engaged in the telecommunications business, agreed with the Securities and Exchange Commission to pay a civil penalty of $150,000 based on violations of the FCPA’s accounting provisions in two of their Latin American subsidiaries.¹ In a more recent case filed in 2003, several individuals including President and CEO of Owl Securities and Investments, Ltd. (OSI), a company based in Kansas City, and one of OSI’s largest investors were sentenced to thirty months imprisonment and fined $60,000. The later case involves an FBI investigation around the dealings of OSI’s employees and contributors who attempted to raise funds from investors through OSI for a project in Limon, Costa Rica involving a large land and port development. The focus of the investigation concerned the planned payment of a $1 million bribe to senior Costa Rican officials and political parties to obtain concessions for the land on which the new development was to be built.²

The Department of Justice is the enforcement agency with a coordinated effort by the Securities and Exchange Commission. The following criminal and civil penalties may be imposed for violations of the FCPA's antibribery provisions:

• corporations and other business entities are subject to a fine of up to $2,000,000; officers, directors, stockholders, employees, and agents are subject to a fine of up to $100,000 and imprisonment for up to five years.
• the Attorney General or the SEC, as appropriate, may bring a civil action for a fine of up to $10,000 against any firm as well as any officer, director, employee, or agent of a firm, or stockholder acting on behalf of the firm, who violates the antibribery provisions.³

To avoid these criminal and civil penalties many firms have implemented detailed compliance programs intended to prevent and to detect any improper payments by officers, directors, employees or agents of the firm. It is essential to understand that the FCPA does not prohibit all payments to foreign officials; it prohibits payments which are defined in the act as bribery. Our notion of what constitutes a bribe may fall short or exceed the payments prohibited by the act; therefore it is important to get correct legal advice whenever such issues arise. For more information regarding the FCPA, please contact Conan Grames (cgrames@kmclaw.com) or Carlos Gabriel Sanchez (csanchez@kmclaw.com) at 801-328-3600.

¹Roger Witten, “Bellsouth Consents to Civil Penalty and SEC Cease-and-Desist Order Charging Violations of the Foreign Corrupt Practices Act,” http://www.webportinc.com/post/news_items/FCPA021302.pdf

²U.S. v. King 351 F.3d 859

³The Foreign Corrupt Practices Act § 78 dd-3(e)(1)(2).