Top Ten Management on The Foreign Corrupt Practices Act: An Overview of The Delicate Art Gift of Giving For American Firms Doing Business Abroad

by William Hamon (aka Ewns)

Top Ten Management on The Foreign Corrupt Practices Act: An Overview of The Delicate Art Gift of Giving For American Firms Doing Business Abroad

Introduction

There are plenty of American executives participating in international trade, although after the Foreign Corrupt Practices Act (FCPA) was passed, it became more difficult to "seal the deal" with business people and public officials in foreign countries.  Gift giving is important and sometimes essential as part of foreign countries cultures when doing business, they will often want money, cars or anything of value in return for business.  Some executives instruct their agents to "behave accordingly" in these countries in order to gain their business.  However, most of these agents do not know or want to accept that bribery of government officials in foreign countries is prohibited in the United States, and "gift giving" typically could be classified as a bribe.       

The Idea in a Nutshell

The Foreign Corrupt Practices Act (FCPA) was passed by Congress in 1977.  Its primary purpose was to prevent corruption of foreign governments by United States multinational corporations. This law makes is illegal to bribe a foreign government official in order to obtain or maintain business over which that foreign official has authority.  Also this law requires any company participating in trade to keep records containing enough detail to determine if a violation of the Act has occurred.  Unfortunately in many countries where corruption is present, there is not a law or Act to prevent bribery or any other corrupt actions.  This has made it extremely difficult for the United States companies to compete in other foreign countries.  Executives in the United States are always arguing against the Act, but FCPA is a very clear law.

The Top Ten Things You Need to Know About the Foreign Corrupt Practices Act

Some people do not realize how serious this situation is, for example, official statistics show that 400 American firms have collectively paid 0 million in bribes and other questionable payments.  These payments were made to foreign governments, political parties and also directly deposited to the accounts of government officials. The Global Fact Gathering is an investigation resource which has tracked every reported bribe received by FCPA.  "Nigeria comes in first with 11 cases followed by a tie for second between China and Iraq with 10 cases" (Mintz, 2009).

3.            Recent cases reveal the riskiest corporate practices are paying for the airline   tickets, hotel and meal expenses of traveling foreign officials; wiring payments to accounts in offshore tax havens, and hiring agents recommended by government officials to perform "consulting" services.  A classic example of this is KBR landing the Bonny Island natural gas facility deal in Nigeria.  KBR admitted before the award was given a consulting company in Gibraltar received 2 million and a Tokyo trading firm received million, according the Justice news release.

4.            The Act allows facilitating or expediting payments, known as "grease payments", if the purpose is to expedite or to secure the performance of a routine governmental action.  For example, payments made to speed up the issuance of permits or license, process paperwork, or just get vegetables off the dock and on their way to market.

5.            The longest sentence ever given to an individual for violating the FCPA was to a man in Virginia on April 19, 2010.  The sentencing was for eighty seven months in prison, three years of supervised release, and a ,000 fine.  Officials noted in the press release the seriousness of the crime and how they are going to be cracking down on violators of FCPA.

6.            "The FCPA provides several affirmative defenses for those charged with violating the Act. The first defense is that the payment was lawful under the written laws and regulations of the foreign official's country.Another affirmative defense for those charged under the FCPA is to assert that the payment was a reasonable and bona fide expense related to the promotion, demonstration, or explanation of products or services; or related to the execution or performance of a contract with a foreign government" (Chase & Revels, 2010).

7.            Some pretty harsh criminal penalties are enforced for violating the FCPA.  There are fines up to ,000,000 for those directly related to the charge and up to 0,000 in fines and five years in prison for employees, stockholders, and others involved with a bribery offense.  The foreign executives who violate the FCPA have similar provisions, if the violation took place in the United States. 

8.            "The FCPA does not require the bribe to succeed or even to be completed. An offer or promise of a corrupt payment is enough to constitute a violation" (Chase & Revels, 2010).  Basically thinking about, talking about, or writing about making a bribe will violate the Act even if it was never followed through. 

9.            "The 1998 amendments expanded the FCPA to assert territorial jurisdiction over foreign nationals or foreign corporations who cause an act in furtherance of a corrupt payment to take place within the United States" (Chase & Revels, 2010).  This also applies to any mail that comes in contact with the United States territory. 

10.            "Payments to officers, employees or agents of public international organizations are also prohibited. Public international organizations include: the Asian Development Bank, the International Committee of the Red Cross, the United Nations, the World Trade Organization, the International Monetary Fund and similar groups" (Chase & Revels, 2010).

The Video Lounge

"President Jimmy Carter and others recall the hot politics surrounding the first anti-bribery legislation and those who opposed it.  The clip is part of an ongoing FRONTLINE and FRONTLINE/World project examining the global impact of bribery and increased international efforts to police corruption, called "The Business of Bribes"" (History of the FCPA).

http://www.youtube.com/watch?v=g1n0kat_i4s

My Take

            This concept is still very relevant in today's business practices.  Each corporation is required to maintain detailed records of all financial matters which take place in the United States.  This is extremely necessary because if firms were not forced to keep books and records of cash flow then the FCPA would have nothing to determine if there is any bribery going on within the company.  Also, without bribery being outlawed the foreign government officials could get way more easy money out of the United States than they already do.  I believe this Act is a very important part of our legal system and business world.

References

Chase, Brian; Revels, Christina (2010 April). Business People Should be Aware of the Foreign Corrupt Practices Act and the Consequences for Violating it.

 http://www.spottsfain.com/CM/RecentDevelopments/FCPA_2010_article.asp

Global World Check. FCPA- Foreign Corrupt Practices Act. Retrieved from http://www.fcpa.us/

History of the FCPA (2009 March 13). Frontline/World.  PBS.

http://www.youtube.com/watch?v=g1n0kat_i4s

Mintz, James (June 2009). Global Fact Gathering. http://www.mintzgroup.com/pdf/GFG-Issue4.pdf

Stackhouse, Dale (1993 April 21). The Foreign Corrupt Practices Act: Bribery, Corruption, Record Keeping and More. http://www.icemiller.com/publication_detail/id/45/index.aspx

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Contact Info: To contact the author of "Top Ten Management on Foreign Corrupt Exchange Act," please email Brenda Brown at Brenda.Brown-4@selu.edu.

BIOGRAPHY

David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of his student's publications regarding management concepts (http://toptenmanagement.blogspot.com/), book reviews (http://wyld-about-books.blogspot.com/) and international foods (http://wyld-about-food.blogspot.com/).                

Written by David Wyld
Professor of Management, Southeastern Louisiana University

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