Dealing with corruption when expanding your business overseas is (thankfully) becoming a thing of the past. While some countries, such as Singapore, have long been renowned for their corruption-free bureaucracies, others have more recently taken a stand against corruption through their signing of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the ‘OECD Anti-Bribery Convention’).
In this article, we explain the most internationally influential piece of anti-bribery legislation, the United States Foreign Corrupt Practices Act 1977 (FCPA), and explain the key things you need to know to comply with the FCPA through your global expansion.
What Is the FCPA?
The FCPA prohibits and attempts to restrict bribery of foreign officials through two key sets of provisions:
- The anti-bribery provisions which prohibit the bribing of foreign officials, and
- The accounting provisions which relate to the books, records, internal controls, and accounting practices that must be maintained in order to comply with the FCPA.
While the precise language used in the anti-bribery provisions in title 15 of the U.S. Code § 78dd–3 (the title which incorporates the FCPA), is complicated, it essentially boils down to whether there were:
- wilful actions in furtherance of an offer, payment, promise, payment, or authorization to any person;
- where there was knowledge that the payment will go to a foreign official in his or her official capacity;
- in order to influence them, or induce them to violate their lawful duty, or to secure an improper advantage.
Breaching the requirements of the FCPA can lead to significant civil and criminal penalties, including the risk of imprisonment.
Who Does the FCPA apply to?
The FCPA is of extremely wide scope. The anti-bribery provisions apply to:
- All US citizens and residents;
- US-domiciled companies;
- Any company that has its ‘principal place of business’ in the US;
- All issuers of securities registered on US stock exchanges;
- Any foreign person or firms who cause, either directly or via agents, commit an act in furtherance of a corrupt payment in the United States;
The accounting provisions only apply to entities, and those acting on behalf of entities, that are listed on US stock exchanges.
Are There Overseas Equivalents to the FCPA?
There are a range of overseas laws (often modeled on the FCPA) that prohibit the bribing of foreign officials. These are usually consistent with the OECD Anti-Bribery Convention which has 44 Signatories, including all the OECD countries and 7 non-OECD countries. Examples include:
- Section 6 of the United Kingdom’s Bribery Act 2010 which provides that it is a criminal offense to offer a financial or other advantage to a foreign public official, either directly or through a third party, where it is not legitimately due. Unlike the US law and the OECD convention, there is no requirement that the foreign official actually do anything wrong. Note also, that under section 7 of that Act it is an offense for corporations to fail to prevent a bribery occurring;
- In Australia, there are similar legal provisions in Division 70 of the Criminal Code Act 1995, which provide that it is an offense to provide or offer to provide a promise that is not legitimately due to another person with the intention of influencing them for business advantage. It applies to Australian citizens, residents and companies incorporated in Australia.
What Does The FCPA Mean For International Expansion?
Overall, anti-bribery and anti-corruption laws such as the FCPA benefit companies interested in global expansion. This is because it reduces the pressure to ‘pay off’ foreign officials to compete with other less scrupulous businesses. So, overall, the costs of expansion are reduced.
However, in getting set up in the new country, companies need to be extremely careful that their behavior cannot be reasonably interpreted as bribing a foreign official. In particular, international enterprises should consider:
- Whether the broad application of FCPA and similar laws means that your business will be covered by the law even if it is not domiciled in the United States. For example, is there enough of a presence in the US that you are captured by this requirement (examine especially carefully whether you have a ‘permanent establishment‘ in the United States)?
- That you can still be liable if you facilitate bribery through a third party, such as an agent or via a joint venture. You need to be especially careful in setting up in a new country that you don’t engage or act with other parties who bribe on your behalf. You may find yourself in a sticky situation even if you didn’t explicitly direct that bribery;
- If your company is an issuer of securities in the US, you need to be particularly careful with the accounting and bookkeeping in your international expansion. You need to make and keep accurate records and have a system of internal controls to flag potential bribery.
The FCPA and similar laws around the world benefit companies interested in international expansion. By disincentivizing corruption, they level the playing field and, ultimately, reduce the cost of expanding into a new territory (as bribes do not need to be paid).
However, the complexity of international expansion means that you may not be able to completely eliminate the risk of FCPA non-compliance on your own. By working with an established local partner such as Horizons, you can ensure that your international expansion is in full global compliance with the FCPA and other similar laws.