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Foreign Corrupt Practices Act

Definition

The Foreign Corrupt Practices Act (FCPA) is a US federal law passed in 1977 that prohibits companies from bribing foreign officials to obtain or retain business. Furthermore, the act requires companies to maintain accurate accounting records and establish adequate internal controls. It applies to all US companies and their subsidiaries, foreign firms listed on a US stock exchange, and any individual or business within the jurisdiction of the United States.

Phonetic

The phonetics for the keyword “Foreign Corrupt Practices Act” would be:Fawr-in kuh-ruhpt prak-tuhs-iz akt

Key Takeaways

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  1. The Foreign Corrupt Practices Act, or FCPA, is a U.S. federal law that prohibits companies from bribing foreign government officials or political figures in order to gain or retain business. It also requires such companies to maintain accurate books and records.
  2. The FCPA applies to all U.S. persons and certain foreign issuers of securities. It also applies to foreign firms and persons who commit an act of bribery within the territorial jurisdiction of the United States.
  3. Violations of the FCPA can result in hefty fines for both individuals and corporations, and may also result in prison time for individuals. Hence, it’s important for businesses to have robust compliance programs in place to avoid breaching this law.

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Importance

The Foreign Corrupt Practices Act (FCPA) is crucial in the realm of business/finance as it sets ethical standards to prevent corruption and promote transparency in international business transactions. This U.S. law, enacted in 1977, prohibits U.S companies and their representatives from bribing foreign officials to secure or maintain business opportunities. As such, it is not just a legal obligation, but a measure towards maintaining corporate integrity and reputation. Violations of FCPA can lead to severe penalties, including substantial fines and imprisonment, potentially causing reputational damage and financial loss for businesses. Therefore, understanding and compliance with the FCPA are critical to any company operating in the international sphere.

Explanation

The Foreign Corrupt Practices Act (FCPA) is a critical piece of legislation enacted by the United States in 1977, aiming to prevent corruption and ensure ethical business practices in the global business environment. The FCPA primarily targets bribery of foreign officials, political figures, or parties by US individuals, businesses, and even enterprises overseas, where there is a connection to the US. The purpose of the FCPA is to promote transparency, honesty, and systematic ethics in international trade and business transactions, helping to uphold the integrity of free-market systems.The FCPA is applied not only for detecting and preventing corrupt practices but also for fostering fair and competitive business ecosystems worldwide. It is employed as an instrument of the United States law enforcement agencies like the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to hold accountable those who bypass the global standards for a fair trade system by engaging in corrupt practices. In essence, it’s used to promote good governance, fair economic competition, and consequently, global economic stability. Through this act, businesses and corporations are prevented from gaining unjust advantages in the business markets, making the economic battle fair for all.

Examples

1. Siemens AG: One of the biggest and famous examples of a violation of the Foreign Corrupt Practices Act (FCPA) is of the German corporation Siemens. Between 2001 and 2007, Siemens paid around $1.8 billion in bribes to government officials around the world to secure lucrative government contracts. This was discovered during an internal audit, and in 2008, Siemens had to pay a combined fine of $1.6 billion to U.S. and German authorities. It was the biggest fine ever imposed under the FCPA until that time.2. Alcatel-Lucent: The French company Alcatel-Lucent was fined $137 million in 2010 by the U.S. Department of Justice and the Securities and Exchange Commission for making improper payments to officials in multiple countries, including Costa Rica, Honduras, Taiwan, and Malaysia. These bribes were made to secure business advantages.3. Telia Company AB: Swedish telecommunications company Telia and its Uzbek subsidiary settled bribery charges in 2017, agreeing to pay a total of $965 million in penalties to US, Dutch and Swedish authorities. It was found that they had paid $114 million in bribes to an Uzbek official to secure telecom licenses and contracts in Uzbekistan. These cases all demonstrate the scope of the FCPA and the types of activities it prohibits. The Act’s enforcement can also extend beyond American companies to any foreign company that conducts businesses in the U.S., or that makes use of the U.S. financial system to carry out fraudulent activities.

Frequently Asked Questions(FAQ)

What is the Foreign Corrupt Practices Act (FCPA)?

The Foreign Corrupt Practices Act (FCPA) is a U.S. law that was passed in 1977 which prohibits U.S. individuals and businesses from bribing foreign officials to secure a business deal.

Who does the FCPA apply to?

The FCPA applies to any U.S. individual, business entity or organization. This also includes foreign companies or persons taking action while in the United States.

What are the main provisions of the FCPA?

The FCPA consists of two main provisions: the anti-bribery provision, which prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business, and the accounting provision, that requires corporations to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.

What are the penalties for violating the FCPA?

Violations of the FCPA can result in severe penalties, including fines, imprisonment, and disbarment from government contracting. The amount of fine varies depending on different factors including the nature and severity of the violation.

How does FCPA impact international business?

FCPA ensures that all businesses operate on a level playing field when they are competing internationally. It discourages unethical business behaviors like bribery and promotes good corporate governance.

What role do internal controls play in compliance with the FCPA?

Internal controls are necessary to ensure compliance with the FCPA’s accounting provisions. They can help detect and prevent potential FCPA violations such as bribery and other forms of corruption.

Can a company be held liable for the actions of its subsidiaries under the FCPA?

Yes. The FCPA has broad application and a parent company can be held liable for the actions of its subsidiaries, as well as the actions of its employees and agents.

Where can I find more information about FCPA?

You can find more information about FCPA on the U.S. Department of Justice’s website. There, you will find a detailed guide to the Act, along with recent enforcement actions and other related information.

Related Finance Terms

  • Bribes
  • Accounting Transparency
  • Whistleblower Protection
  • International Trade Regulation
  • Corporate Ethics

Sources for More Information

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