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FCPA: What does it really mean?

The Foreign Corrupt Practices Act (FCPA) aims to end those corrupt practices transpired to deal with foreign business deals and to  create a levelplaying field for honest businesses. 

FCPA houses two main provisions:

- Anti-bribery

- Accounting

A violation of the FCPA consists of five main elements that are shown in the image below.

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Anti-Bribery Provision

Anti Bribery law prohibits the following individuals/companies from making corrupt payments to foreign officials to obtain or retain business:

  • U.S. persons and businesses (domestic concerns), 
  • U.S. and foreign public companies listed on stock exchanges Firms that are required to file periodic reports with the Securities and Exchange Commission (issuers), 
  • certain foreign persons and businesses acting while in the territory of the United States (territorial jurisdiction)

Accounting Provision

The accounting provisions require 

- issuers to make and keep accurate books and records 

- devise and maintain an adequate system of internal accounting controls

- prohibit individuals and businesses from knowingly falsifying books and records or knowingly circumventing or failing to implement a system of internal con

Example actions

So, what counts under FCPA act? Here are few examples of actions taken to give you an idea. 

  • Influence the decision for procurement or approvals
  • Win new business contracts 
  • Continue the Business transactions
  • By pass or obtain exceptions to the mandates and rules around imports/exports 
  • Gain access to confidential tender or bid information 
  • Evade taxes or penalties
  • Influence the judgements of lawsuits 

Let's test your understanding so far, watch the video!


Based on the video, do you think EuroCo is subject to the FCPA’s territorial jurisdiction provision based on their conduct while in the United States?

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Must know basics (copy)

Bribe: Provisions & Penalties

Anti Bribery Provisions

  • A payment or offer to pay money
  • Providing or offering to provide gifts of any value
  • Providing or offering entertainment beyond what would ordinarily be provided to a customer
  • Providing or offering personal discounts on products or services not available to the public generally
  • Providing or offering company stock 
  • Providing or offering employment or consulting positions
  • Providing payments for bogus "services"
  •  Providing free access to company or company-employee property when such access is not normally provided for free (for example, the company president's vacation home) 
  • Making charitable contributions at the request or on behalf of a government official
  • Paying foreign officials to obtain construction permits and other similar regulatory approvals
  •  Paying foreign officials to change business regulations or to expedite payment of a tax rebate, even when there is a legal right to the rebate

What are acceptable?

Facilitating payments that are commonly made but involve discretionary action are not covered by this exemption.These so-called "grease" payments are permitted for routine governmental actions. 

Examples

  • obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country
  •  processing governmental papers such as visas and work orders
  • providing police protection, mail pickup and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country 
  • providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration

DoJ Quick Guidelines

The Department of Justice (DoJ) acknowledges that “a small gift or token of esteem or gratitude is often an appropriate way for business people to display respect for each other.” It suggests few guidelines as follows:

Travel

  • Let the foreign government decide who will travel 
  • Minimize expenditures by reimbursing only for economy class airfare
  • Limit travel to the officials, not their family members
  • Avoid side trips and other non-business entertainment
  • Reimburse only modest expenses, and only with receipts
  • Provide souvenirs of nominal value, preferably with the company logo
  • Spend money only on legitimate training

Entertainment 

  • Make certain that the entertainment expenses are permitted by local law and custom, and, of course, by company policy. 
  • The expenditure must be appropriately documented. 
  • And above all, the company should be certain that there is no quid pro quo involved. 
  • Any time the entertainment is intended as a specific inducement to obtain or retain business or to influence a decision of the recipient.

Gifts

  • Given openly and transparently
  • Properly recorded in the giver’s books and records
  • Provided only to show gratitude or esteem
  • Permitted under local law

Auditing and Accounts

Specifically, the FCPA requires public companies to make and keep books, records, and accounts that accurately reflect the company's transactions and disposition of assets, and to maintain accounting controls to ensure that 

  • transactions are executed in accordance with management's authorization;
  • transactions are properly recorded;o access to assets is permitted only in accordance with management's authorization; 
  • accounting records are checked against existing assets at reasonable intervals,and appropriate action is taken to resolve any discrepancies.

Expenses: Travel and Entertainment

The FCPA violations do not necessarily halt travel or ban gifts but the disguise of either as tokens of appreciation is uncalled for. Large payments in any form of gifts clearly fall in the realm of FCPA violations.

Permissible:

Reasonable travel or lodging expenses, incurred by or on behalf of a foreign official and directly related to  the promotion, demonstration, or explanation of products or services, or?? the execution or performance of a contract with a foreign government..

Which of the following expenses will be considered violations?

  • A $12,000 birthday trip for a decision-maker that included dinners and visits to wineries
  • Spending $1000 on phone services, food, travel and other essentials
  • Spending $10,000 on a lavish dinner party for a visting foreign official with little-known family ties to potential customers of yours
  • Arranging for that same foreign official to spend a holiday weeken with your family at an exclusive island resort
  • An all-expenses-paid sightseeing trip to the Swiss Alps for a visiting foreign delegation that includes $2,000 as “pocket money” for each official.
  • Retaining a sales representative to market your company's products in a foreign country and to providing sales support such as human resources, office facilities, transport.
  • A chauffeured junket around London for a government official and their family.

Untitled multiple choice question

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Resources (copy)

FCPA Expenses-Approval Matrix

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Question

Your company is a major manufacturer of home-entertainment equipment, and you are planning a business trip to China to negotiate a contract with a major potential customer. During your visit, you plan to host an event to demo your latest product range to the company's senior management team and members of their families. During the event, you will also present each attendee with a voucher for significant discounts on the top 10 best-selling items being demoed.

Indicate which of the roles below would be involved in determining whether the entertainment and gifts are legal, and whether any of the expenses are reimbursable. You may check more than one box, one box, or no boxes.

  • Vice President, Risk Management
  • Head of Legal
  • Finance Manager

Jargon Buster



Download our handy guide as an app to clarify several key legal terms.

Here’s a sample of our comprehensive guide:

FCPA Key terms glossary

Companies that participate in the government's compliance program

Company_List

If you know of any other firm that needs to be added to this list, feel free to write to the legal department using the form

Fields:

  • Company Name
  • Location
  • Type of business

Cheat-sheet checklist

Here's a "cheat-seat checklist" that will help you make determinations about the wisdom, and the legality, of a whole range of expense categories.

FCPA Approval Form

FCPA_forms

PoC in your region

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