International Judicial Monitor
Published by the International Judicial Academy, Washington, D.C., with assistance from the
American Society of International Law

Summer 2013 Issue

Justice Sector Assessment


The United States’ Foreign Corrupt Practices Act

Tyler ChurchBy: Tyler Church, Legal Intern, International Judicial Academy

Corruption is a central problem for many nations, and is especially problematic in developing countries where government resources are scarce. As explained by the United States Department of Justice (USDOJ), “[c]orruption impedes economic growth by diverting public resources from important priorities such as health, education, and infrastructure. It undermines democratic values and public accountability and weakens the rule of law.” Efforts to combat international (or transnational) corruption are governed by both domestic law (such as the Foreign Corrupt Practices Act in the United States) and international agreements, such as the United Nations Convention on Corruption (ratified by 158 nations).

In the United States, the Foreign Corrupt Practices Act (FCPA) was enacted in 1977 in response to growing concerns that companies within the United States were gaining favorable contracts abroad through unethical business practices. Foreign corruption in business transactions became a concern of the American government in the 1970s, and investigations at that time revealed that American companies had paid hundreds of millions of dollars in bribes and other compensation to foreign officials and government employees in order to secure business overseas.  For example, a House Report of September 28, 1977 stated that more than 400 corporations had admitted to making questionable or illegal payments. Even more disturbing was the range of companies actively engaging in these corrupt business practice.  Over 117 of companies that admitted to paying government officials were ranked in the Fortune 500.  American companies would often hide these actions through falsifying their corporate financial records.  In response to these reports, American lawmakers called for a change in how companies that trade within its borders conduct business on foreign soil. President Carter signed the FCPA into law in December 1977.

The FCPA contains two primary provisions to combat foreign corruption in business transactions involving American companies. The first provision makes it unlawful for a corporation or person to compensate a foreign official in order to assist in gaining or retaining business opportunities. The Act defines the actor as “national[s] of the United States …, or any corporation, partnership, association… unincorporated organization or sole proprietorship organized under the laws of the United States.” The FCPA also includes actions by “any person” when in the furtherance of the prohibited offense while inside the United States. This provision also defines a “foreign official” as any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of any such government or department.” The FCPA’s anti-bribery provision, which contains criminal penalties, is enforced by the USDOJ with the cooperation and assistance of many other agencies and through self-reporting, whistleblowers, as well as other companies that notice irregularities.  The second provision in the Act requires that companies maintain the accounting transparency requirements that were set forth in the Securities Exchange Act of 1934.  This provision enforces accounting transparency through civil penalties and falls under the United States Securities and Exchange Commission’s (SEC) jurisdiction.

In 1988, Congress amended the FCPA to add two affirmative defenses to allow American businesses more leeway to host or visit a foreign official for legitimate purposes without fear of criminal or civil charges.  The FCPA was again amended in 1998 to incorporate certain aspects of the anti-bribery conventions of the Organization for Economic Co-Operation and Development (OECD).  For example, the 1998 amendments expanded the scope of the FCPA (1) to include payments made to secure “any improper advantage”; (2) to reach certain foreign persons who commit an act in furtherance of a foreign bribe while in the United States; (3) to cover public international organizations in the definition of “foreign official”; (4) to add an alternative basis for jurisdiction based on nationality; and (5) to apply criminal penalties to foreign nationals employed by or acting as agents of U.S. companies. The 1998 amendment greatly expanded the scope and reach of the FCPA as it pertained to both parties, who could commit the offense as well as what foreign officials were within the Act. 

Since the FCPA’s enactment in 1977 there have been over 200 cases that have involved 80 countries worldwide. However, despite the large number of cases that have been brought by the SEC and USDOJ, many never see a courtroom. This is because many individuals and corporations choose not to fight the allegations instead settling for sometimes significant sums of money and sanctions. The USDOJ and SEC regularly practice such actions through three different options for settlement.

The first option is a plea where the company enters in a guilty plea for the bribery violations. Some of the largest settlements have resulted through this form including the Kellogg Brown & Root LLC case that ended in the company paying $402 million in 2009. Siemens AG also plead guilty in 2008 and was required to pay $450 million because of their involvement in what the Director of the SEC’s Division of Enforcement called “unprecedented in scale and geographical reach.” The company involved “more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.” In total, Siemens AG will “pay a combined total of more than $1.6 billion in fines, penalties and disgorgement of profits, including $800 million to United States authorities.” The combined monetary penalties are the largest ever imposed in an FCPA case. 


The second and third option used by the United States government is prosecution agreements. The most common of these agreements is a deferred prosecution agreement (DPA). One example of a DPA being used was in 2012 with Data Systems & Solutions LLC (DS&S). In this case the government came to an agreement with DS&S where the company would pay $8.82 million and be subject to periodic reports to the USDOJ for a two year period. Another tool the USDOJ and SEC uses to resolve FCPA enforcement actions is a non-prosecution agreement (NPA). An example of an NPA being used was in 2011 with Armor Holdings Inc. a body armor company that paid a commission to a third party knowing that part of the commission was being passed to a UN official. In this case the government chose to us a NPA and issued a $10.2 million criminal penalty in addition to the implementation of rigorous internal controls. The use of DPAs and NPAs has increased as the government and companies are looking to solve some of the corruption going on in foreign transactions but the guidelines for one of these options is not easy. Former Assistant Attorney General Lanny Breuer made the comment that “a company agreeing to a DPA or NPA must “almost always . . . acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement.” Throughout the enforcement history, prosecution agreements and guilty pleas have been the most common tools used in the fight against corruption. However, using these settlement techniques has lead to fewer court cases and in turn fewer judicial interpretations of the Act.

With the limited judicial interpretation and guidance from the courts, there have been a number of cases that have lasted years. One of the most discussed cases in relation to FCPA enforcement has been US v. Kay. United States v. Kay, 513 F.3d 432 (5th Cir. 2007). This highly publicized and contested case ended in 2008 when the United States Supreme Court denied a petition to hear the Kay case. This case dealt with an American Rice company that exported to Haiti. In order to reduce the Haitian taxes on their products the defendants had to pay various government officials. The company learned of these payments and self-reported the violation where Mr. Kay and Mr. Murphy (defendants) were then indicted on over a dozen counts including violating the FCPA. In this case the defendants argued that the language was ambiguous and that enforcement against them would violate due process (US v. Kay, 513 F.3d 432, 440-46 (5th Cir. 2007). However the court held that a “man of common intelligence would have understood that in bribing foreign officials [they were] treading close to a reasonably-defined line of illegality.” The court stated that the “defendants took this risk, and splitting hairs as to the illegality of one type of action under the business nexus test does not allow them to argue successfully that the FCPA’s standards were vague.” The two defendants in this case both received jail time as well as fines.

Another case that has caused some noise in regards to FCPA enforcement was SEC v. Sharef, 11 CIV. 9073 SAS, 2013 WL 603135 (S.D.N.Y. Feb. 19, 2013). In this case the government’s claim against a foreign executive was dismissed based on lack of personal jurisdiction; this was the first time in FCPA history that a court ruled that there was a lack of personal jurisdiction over a foreign executive. Though there have not been many cases that have gone to trial, there have been an increasing number of companies that have chosen this path instead of taking the hefty penalties imposed under the plea or prosecution agreements.

In addition to litigation involving the FCPA, American businesses have also sought guidance from the USDOJ on the scope of the enforcement provisions.  For example, the United States Chamber of Commerce, an association of business people to promote commercial and industrial interests in the community, stated that the FCPA “hampers American business because of how broadly it can be applied.” To ease these problems, the USDOJ recently released a Resource Guide in an effort to clarify some of the long standing questions by business leaders and members of the international community as to the application of the FCPA.  Though the Resource Guide addressed some of the issues, there are still some areas that remain a concern for American business interests.  For example, pharmaceutical companies are concerned about the FCPA implications of providing gifts or other incentives to foreign doctors (often government employees) to use their branded medications rather than generic drugs, even though this practice is common in the United States. Though the release of the Resource Guide has helped in some areas that were once confusing, there are still a number of questions that have not been answered through the government’s explanation.

Beyond the FCPA, the growing concern by many other countries regarding corruption and bribery to facilitate business transactions has led to the development of many conventions and treaties that deal directly with corruption and bribery. In 1997, the Organization for Economic Co-operation and Development (OECD) developed the Anti-Bribery Convention, which has garnered the support of 37 countries from around the world, including the United States, Russia, Japan, Brazil, and South Africa. The Anti-Bribery Convention entered into force on February, 15, 1999 after being signed into law by President Clinton on November 10, 1998. Two key components of the OECD’s Convention are the provision that require parties to criminalize bribery of foreign public officials in international business transactions and the implementation through peer monitoring and reporting.  In addition to the OECD Convention, the United Nations Convention on Corruption entered into force in 2005.  Like the OECD Anti-Bribery Convention, the UN Corruption Convention requires criminalization of domestic and foreign bribery as well as peer monitoring.  To comply with these international obligations to combat bribery and corruption, many countries are also enacting domestic laws regarding bribery and corruption that occur outside their territorial boundaries.  For example, Canada recently passed their version of a foreign corrupt practices law in February 2013.


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with assistance from the American Society of International Law.

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