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Interpreting the Foreign Corrupt Practices Act

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Yesterday, the staffs of the Securities and Exchange Commission and the Department of Justice published a 130-page guide about the Foreign Corrupt Practices Act, an anti-bribery statute. The fact that it takes so many pages to explain to companies how to comply with the complicated statute is troubling enough. Even with the lengthy "non-binding, informal, and summary" guide, however, a lot of compliance questions remain.
One example is the question of who constitutes a foreign official for purposes of the statute. The FCPA's reach is not limited to payments made to government officials working at government agencies. The guide includes a list of eleven "non-exclusive factors" for consideration in determining whether a company is a government instrumentality under the statute and thus whether its employees are considered to be foreign officials. Depending on how these factors are applied, normal business practices with a seemingly non-governmental business partner could end up constituting FCPA violations. A company might be considered a government instrumentality even if the government is only a minority shareholder.
The FCPA has generated large settlements for the government and is likely to be an area of continued focus by the SEC and DOJ. Many FCPA cases are not based on bribes, but rather on a failure to maintain proper books and records or internal controls. Even immaterial reporting errors are enough to trigger the FCPA. Some companies find themselves in trouble after they acquire another company that has committed FCPA violations in the past.
The FCPA has become a trap for the unwary. Perhaps this staff guidance will help well-intentioned companies in their compliance efforts, but enforcement actions rooted in the FCPA's many gray areas could be distracting government agencies from pursuing violations of greater societal concern.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.