DOJ & SEC Guidelines to Clarify FCPA Regulations

DOJ & SEC Guidelines to Clarify FCPA Regulations

In the past few years there has been an increase in the enforcement of Foreign Corrupt Practices Act violations resulting in billions of dollars worth of civil judgments in addition to criminal convictions. The government has faced much criticism regarding its lack of comprehensive guidance on how the FCPA is interpreted and enforced. On November 14, 2012, the Department of Justice in conjunction with the Securities and Exchange Commission issued a set of guidelines regarding FCPA. This resource is titled A Resource Guide to the U.S. Foreign Corrupt Practices Act and is intended to clarify FCPA regulations and requirements as well as its methods of enforcement and penalties associated with violations. The guidelines are explicit in saying that they do not constitute any new rules or regulations, but rather are intended to provide information to help corporations and individuals abide by the law, detect and prevent FCPA violations, and implement effective compliance programs.

The Resource Guide is broken into the following ten chapters:

  1. Introduction into the historical background of the FCPA and the costs of corruption
  2. Explanation of the FCPA Anti-Bribery provisions, what is covered, and clarifications of key issues and triggers in corruption cases
  3. Summary of what is covered by FCPA Accounting Provisions
  4. Overview of other U.S. laws related to the FCPA
  5. Discussion of guiding principles of FCPA enforcement including self-reporting, cooperation, and effective compliance programs
  6. Explanation of FCPA penalties, sanctions, and remedies
  7. Overview of different types of resolutions with DOJ and SEC
  8. Summary of whistleblower provisions and protections
  9. Explanation of DOJ opinion procedure
  10. Conclusion and final thoughts

In the introduction to the Guidelines, DOJ explains that the FCPA attempts to address the problem of international corruption in two ways. The first way is through anti-bribery provisions which attempt to stop businesses from bribing foreign officials in order to retain business. The second method is through account provisions which impose record keeping and internal control requirements in an attempt to prevent individuals and corporations from falsifying account books and records or failing to maintain the required internal controls.

The first few chapters of the Guidelines discuss legal issues that surround the FCPA such as who is covered by the law, what companies can be considered “issuers,” and jurisdictional triggers. In these chapters there are summaries of recent cases as well as hypothetical scenarios which help to clarify these key issues. The second chapter of the Guidelines clarifies what would be classified as an improper gift through discussions of real cases as well as bulleted examples, one of which is a $12,000 birthday trip for a government decision-maker from Mexico that included visits to wineries and dinners. Later in the chapter the Guidelines outline suggested questions to consider when making charitable payments in a foreign country which can also result in FCPA violations.

Later chapters of the Guidelines focus more on FCPA enforcement and actions taken by the DOJ and SEC. They stress the importance of having effective corporate compliance programs to prevent violations, as well as an appropriate level of transparency in the event a violation does occur. The internal controls provisions are intended to help companies provide a reasonable assurance that their financial reporting is reliable and accurate. The Guidelines make note of Section13(b)(2)(B) of the Exchange Act regarding internal controls which require issuers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that several criteria are met. These criteria include (but are not limited to) the assurance that transactions are executed in accordance with management’s authorization, that transactions are recorded appropriately, and that access to company assets is only permitted with management’s authorization.

The final chapters of the Guidelines discuss the potential consequences for violations of the FCPA. The Guidelines specify that for each violation of anti-bribery provisions, corporations and other business entities can face fines up to $2 million and individuals can face fines up to $100,000 and imprisonment for up to 5 years. Appropriate penalties are carefully calculated by taking into account the severity of the crime and case facts as well as the level of cooperation, acceptance of guilt, and the pre-existing compliance program in place (if a business entity). In addition to criminal penalties, FCPA violations can lead to civil penalties and collateral consequences. Chapter 7 of the guidelines discusses different types of resolutions with DOJ and the SEC and gives numerous examples of cases with a variety of these outcomes.

In writing these Guidelines, the DOJ and SEC make it clear that they are not changing the current FCPA regulations and procedures but rather attempting to make the policies clearer and provide greater transparency into what the government considers an FCPA violation, how these violations are enforced, and the potential consequences. While these Guidelines may not solve all of the current outstanding issues of this act that was written over 30 years ago, it is a helpful resource and a good place to start.

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