FCPA
Q1: What is the meaning of the abbreviation “FCPA”?
A: Foreign Corrupt Practices Act.
Q2: What are the elements of an FCPA violation?
A: 1. “covered” person / entity
2. To offer, pay, promise to pay or authorize to give anything of “value”
3. To any foreign official, foreign political party or official or any candidate for foreign political office or any person who knows such thing of value will be given or promised to such officials or candidates.
4. To “obtain or retain business”
5. Securing improper advantage; influencing any act or decision of such officials or candidates in his capacity or using his influence to affect or influence any act or decision of the government or instrumentality.
Q3: What is the coverage of FCPA?
A: 1. Issuers registered in US.
2. US nationals and entities set up in US.
3. Foreign individuals and entities which take corrupt actions or use mails or interstate commerce in US territory
4. Officers directors, employees and agents of the above entities.
Q4: What department/authority should be the supervising bodies?
A: 1. DOJ in charge of the enforcement of the anti bribery provisions of FCPA
2. SEC in charge of the enforcement of the accounting provisions of FCPA
3. Both have authorities to seek permanent injunctions against present and future violations.
Q5: Are there any exceptions for the application of the FCPA?
A: Yes. It is not applicable to facilitation payments, including: obtaining permits, license, or other official documents, processing governmental papers, scheduling inspections, providing police protection, mail pick-up and delivery, phone, power or water service and loading and unloading cargo.
Q6: What kinds of defenses could be attributed to be affirmative?
A: 1. Such payment is lawful under local legal system
2. Such payment is a reasonable and bona fide expenditure incurred by the promotion, demonstration, or explanation of products or services or the execution or performance of a contract with a foreign government or agency.
Q7: Are there any possibilities that the US government could address violations of the FCPA by foreign corporate subsidiaries or their officials?
A: Yes. Four possible ways exist:
1. Through the direct liability of the subsidiary if it is an issuer
2. Through corrupt actions or use of the mails or interstate commerce in US territory.
3. Through corrupt actions of the subsidiary’s officials if they are US nationals
4. By holding either the parent or its officials or both liable for the actions of the subsidiary because of the contacts necessarily made in the process of contribution capital or consolidating financial information.
Q8: Any cases in relation to the topic?
A: SEC found in 2005 that DPC Tianjin authorized cash payments to laboratory personnel and physicians employed by government hospitals in return of its products and services. These “commissions” were recorded as “selling expenses” by the subsidiary and submitted to DPC for roll up into its financial statements. As a result, DPC was also required to accept responsibility for inaccurate books and records as well as failure to maintain effective internal accounting controls.
The DOJ asserted jurisdiction on the premise that it was an agent of its parent, who is an issuer under the Exchange Act, and it utilized the means and instrumentalities of US interstate commerce.
The Chinese subsidiary separately pled guilty and agreed to pay a criminal penalty of USD 2,000,000.
Q9: What are the detailed provisions in respect of Accounting?
A: 1. The issuer shall make and keep books, records, and accounts, which, in reasonable details, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.
2. The issuer shall devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances.
3. The issuer shall be responsible to its subsidiaries’ accounting control system if it holds 50 % or more of the voting power.
Q10: What the sanction will be if a company is in violation of the FCPA?
A: 1. DOJ criminal penalties and charges for “knowing” violations.
Up to $2 million criminal fine per violation, or twice the amount of pecuniary gain or loss
Up to $25 million for willful and knowing books and records or internal control violations
2. SEC civil injunctive actions, civil penalties, disgorgement and independent consultants
3. Collateral Consequences:
a. Harm to public relations and reputation
b. Inability to partake in U.S. government procurement or receive export licenses
c. Unlawful FCPA payments are not tax deductible as business expense, but are taxable items
Q11: What the sanction will be if an individual is in violation of the FCPA?
A: 1. Criminal Sanctions
Up to $100K criminal fine per violation, or twice the amount of pecuniary gain or loss
Up to 5 years’ imprisonment per violation
Up to $5M or 20 years in prison for willful and knowing books and records or internal control violations.
2. Civil Sanctions
Up to $11K civil fine per violation
In some circumstances, up to $130K civil penalty, or the gross amount of pecuniary gain or loss, for books and records or internal control violations
Disgorgement of any ill-gotten gains
3. Collateral Consequences
Fines are NOT reimbursable by the company
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