FCPA Essentials (Compliance Course)

The FCPA Essentials course introduces the key rules and regulations governing foreign transactions that US companies engage in with businesses and other entities abroad. The course is packed with a wealth of useful information on the Foreign Corrupt Practices Act, the jurisprudence on it, and the regulatory framework that helps give it effect.

FCPA at a Glance

FCPA: what does it really mean?

The Foreign Corrupt Practices Act (FCPA) aims to end corrupt practices in dealings with foreign businesses, and to create a level playing field for all businesses. 

The provisions in the FCPA cover two main areas:

- anti-bribery

- prevention of fraudulent practices in accounting

Violations of the FCPA fall into five categories, which are explained briefly in the image below. 

The context

Under the FCPA, a corrupt payment is defined as any payment designed to induce the recipient to misuse their official position by making a business decision favorable to the individual or company making the payment. 

In other words, the gift, offer, or promise is meant to influence the decision in question improperly. 

Example 

A company gives an expensive travel package as a gift to a foreign official, who is in charge of deciding on a certain business contract. In gifting the official, the company has tried to convince the official to improperly direct business to it.

Anti-bribery provisions

The anti-bribery provisions of the FCPA prohibit the following individuals and companies from making corrupt payments to foreign officials for the purpose of securing or retaining business:

  • US persons and businesses (domestic concerns)
  • US and foreign public companies listed on US stock exchanges
  • any firm that required to file periodic reports with the Securities and Exchange Commission 
  • other foreign persons and organisations conducting business within the territory of the US

Accounting provisions

The accounting provisions require accountants to:

- make and keep accurate books and records 

- devise and maintain an adequate system of internal accounting controls

They also prohibit individuals and businesses from falsifying books and records, or knowingly circumventing or failing to implement a system of internal controls.

Test your understanding

Let's test your understanding so far. Take a look at this short video.

Based on the video, do you think EuroCo is subject to the FCPA’s territorial-jurisdiction provisions, in view of its conduct while in the United States?

  • Yes
  • No

Must-know basics

Bribes and bribery: definitions and penalties

What are bribes and bribery?

Definitions of bribes and bribery in the context of the FCPA include the following:

  • a payment made or offered to in exchange for the illegal granting or promise of favorable terms or outcomes
  • providing, or offering to provide, gifts of any value
  • providing or offering entertainment beyond what would ordinarily be offered to a customer as a courtesy
  • 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
  • making payments for bogus services
  • providing free access to company or company-employee property (such as the vacation home of the company president), where such access is not normally provided free of charge 
  • making charitable contributions at the request of, or on behalf of, a government official
  • paying foreign officials to obtain construction permits or other 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 kinds of payment may be acceptable?

Facilitating or making payments that are commonly made but that involve discretionary action may be allowed. These so-called "grease" payments are permitted for routine government actions. 

Examples of acceptable ("grease" payments)

Payments made for the following purposes are among those that are commonly allowed: 

  • to obtain permits, licenses, or other official documents to qualify the holder to do business in a foreign country
  • to cover the processing of government papers such as visas and work orders
  • to secure police protection, arrange for mail pick-up and delivery services, or schedule inspections associated with the performance of a contract or the transit of goods across the country in question
  • to cover phone service, the supply of power and water, the loading and unloading of cargo, or the protection of perishable products

Department of Justice 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 the following guidelines:

Travel

The DoJ recommends whichever of the following steps are applicable:

  • Let the foreign government decide who will travel.
  • Minimize expenditures by reimbursing only economy-class airfare.
  • Limit travel to officials (TIP: family members are not officials)
  • Avoid expenditures on side trips and excursions whose primary purpose is pleasure
  • Seek reimbursement only for reasonable expenses genuinely related to the purpose of the trip, and always keep receipts

Entertainment

The DoJ's advice for entertainment is just as clear:

  • Make certain that any entertainment expenses are permitted by local law and custom, and, of course, by company policy. 
  • Document any expenses you plan on claiming back.
  • Make sure that any entertainment you offer customers or business associates cannot be misconstrued as an inducement to award or renew a contract without the appropriate due diligence.

Gifts

And the DoJ stipulates that all gifts you offer must be:

  • given openly and transparently
  • properly recorded
  • given only to show gratitude or esteem
  • permitted under local law

Auditing and accounts

The FCPA requires public companies to make and keep books, records, and accounts that accurately reflect their transactions and the disposition of their assets, and to maintain accounting controls to ensure that:

  • transactions are executed in accordance with management authorization
  • transactions are properly recorded
  • access to assets is permitted only with management 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 does not necessarily prohibit travel or ban gifts, but it does proscribe the false presentation of either of these as tokens of appreciation. Any large payment that is made as a gift (in return for which no services or goods are provided) is almost certain to be regarded as a serious and flagrant violation of the relevant FCPA provisions.

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 $1,000 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 providing sales support such as human resources, office facilities, and transport.
  • A chauffeured junket around London for a government official and their family.

Resources

Approvals matrix

 FCPA Expense Approval Matrix

For any type of expense pertinent to foreign transactions, it is mandatory to seek consent from few personnel. Depending on the type and amount of expense, the number of people to approve the transaction might change. Please take a look at the matrix below to get an idea of who must sign off on what kinds of gifts.

Who should sign off?

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 to FCPA-speak. It's free!

Here’s a sample of what you'll find:

FCPA Key terms glossary

Companies particpating in the FCPA's new screening program

List of screening-program participants

Check this list to be sure you're doing business with reputable firms. 

Company_List

Decision-maker checklist

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

Approval form

FCPA_forms

Point of contact in your region

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