Global Shippers, Inc Case File Discussion

Comparing the US Foreign Corrupt Practices Act and the UK Bribery Act of 2010

The United States goes to great lengths to prevent bribery both within and outside its borders. Bribery originated as a common law criminal offense, although today many states have legislated bribery and commercial bribery statutes, so that bribing a public official is illegal as well as using a bribe to gain a commercial or business advantage. The federal government has also taken steps to prevent bribery through legislating statutes prohibiting bribery of US public officials, legislating statutes prohibiting bribery of foreign public officials, and by entering international treaties aimed at curbing corruption and bribery.

The US Foreign Corrupt Practices Act of 1977 (FCPA) is a US federal statute aimed at preventing bribery of foreign public officials, political candidates, and political parties. For more than 30 years, the FCPA was the most forceful extraterritorial bribery statute in the world. However, in 2010 the United Kingdom promulgated its new Bribery Act, thereby creating an even stricter and more comprehensive extraterritorial bribery statute. Global businesses now have an entangled web of compliance issues arising from both US and UK laws. Although the two laws share many commonalities, differences do exist between them. The overarching commonality between the FCPA and the Bribery Act is the shared aim of preventing global corruption by extending bribery laws beyond national borders.

The FCPA prohibits certain payments or otherwise providing or promising to provide anything of value to foreign officials, a legal term broadly defined to include officers and employees of foreign governments, officers and employees of public international organizations, and anyone acting on behalf of foreign governments or public international organizations. The FCPA also prohibits such payments and promises to pay to political parties, political candidates, and anyone else when the payment or promise to pay is intended to directly or indirectly benefit foreign officials, political parties, or political candidates.

The FCPA prohibits these payments or promises to provide anything of value when they are made for the purpose of: (1) "influencing any act or decision of such party, official, or candidate in its or his official capacity"; (2) "inducing such party, official, or candidate to do or omit to do an act in violation of the lawful duty of such party, official, or candidate"; (3) "securing any improper advantage"; or (4) "inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist...in obtaining or retaining business for or with, or directing business to, any person" (FCPA, 15 U.S.C. 78dd-2). The violation of these FCPA provisions can result in both civil and criminal penalties.

The FCPA does have a very narrow exception for "grease" or "facilitation" payments, when the payment is made "to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official" (FCPA, 15 U.S.C. 78dd-2). Thus, although paying for an expensive vacation for a foreign official is prohibited under the FCPA, making a minor payment to a customs official in order to expedite entry of legal goods through customs may be permitted. However, under the Bribery Act, facilitation payments are not permitted and are considered to be illegal bribes. The Bribery Act does, however, allow payment of required administrative fees and fast-track fees that may be available from some government agencies. The Bribery Act changes the traditional wisdom regarding permissible payments in the international arena. That is, if a global company is familiar with FCPA requirements, but not the Bribery Act requirements, it may proceed to pay facilitation payments, but may then be prosecuted in the United Kingdom despite compliance with US laws.

The differences between the FCPA and the Bribery Act go far beyond facilitation payments. The United Kingdom's definition of "foreign public official" is a bit narrower than the FCPA definition, but the Bribery Act prohibits private-to-private bribery. In other words, the Bribery Act prohibits bribes to or from private persons as well as public officials. Moreover, the Bribery Act prohibits both the offering and accepting of a bribe, whereas the FCPA just prohibits the offering of a bribe. Sometimes the offering of a bribe is called "active bribery" and the taking of a bribe called "passive bribery." Under the Bribery Act, certain companies may also be held strictly liable for failing to prevent bribes by anyone who performs services for it, whereas the FCPA imposes vicarious liability for the acts of certain agents or employees. Finally, violations of the Bribery Act may result in longer prison sentences for individuals and larger fines for individuals and companies than under the FCPA. In addition to these key differences between the US and UK laws, other nuances regarding their differing application and scope also exist. A global manager must continuously keep abreast of changes to international bribery regimes.

Defenses Under the Foreign Corrupt Practices Act

Several defenses are available to defendants that are prosecuted for violating the bribery provisions of the FCPA. These defenses include the local law defense, the promotional expense defense, the facilitation payment defense, and the statute of limitations.

The FCPA was amended in 1988 to add the local law defense and the promotional expense defense. Both are affirmative defenses, meaning that, if the facts underlying their allegation are proven by the defendant, then either defense could exculpate a defendant from liability. The local law defense requires the defendant to prove that the payment or promise to pay was permitted by the local laws where the the purported violation occurred, at the time of the purported violation. This defense requires not just an absence of laws prohibiting such payments, but actual affirmative and written laws that permit such payments. As such, it rarely is available because most countries do not have laws allowing corrupt payments. The promotional expense defense allows companies to provide reasonable and bona fide travel and lodging expenses for foreign officials. The defendant must prove that such travel and lodging were directly related to demonstration, promotion, or explanation of services or product or a legitimate contract with a foreign government. The inaccurate reporting of such expenses could be used as evidence of corrupt intent and could violate certain accounting requirements of the FCPA.

According to the Department of Justice's FCPA Guidance (2012), the facilitation payment defense is a narrow defense that "applies only when a payment is made to further 'routine governmental action' that involves non discretionary acts. Examples of 'routine governmental action' include processing visas, providing police protection or mail service, and supplying utilities like phone service, power, and water. Routine governmental action does not include a decision to award new business or to continue business with a particular party. Nor does it include acts that are within an official's discretion or that would constitute misuse of an official's office. Thus, paying an official a small amount to have the power turned on at a factory might be a facilitating payment; paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not be a facilitating payment." Defining facilitation payments leaves a lot of gray area, so global managers should always err on the side of caution, keeping in mind the intended narrow construal of this defense.

Finally, the FCPA generally limits both civil and criminal violations of the bribery prohibitions by a five-year statute of limitations. In other words, in most cases, proceedings seeking civil penalties or criminal sanctions for violating the bribery provisions of the FCPA cannot be initiated more than five years after the act occurred. However, certain equitable remedies still may be sought for violations of the act beyond five years, such as injunctions or disgorgement of ill-gotten profits, and certain exceptions (e.g., an ongoing criminal conspiracy) may allow cases to be initiated more than five years after the initial prohibited act.

Penalties Under the Foreign Corrupt Practices Act

Violations of the FCPA bribery provisions may result in both civil and criminal penalties for both individuals and companies. For individuals, the criminal penalties may include up to $250,000 in fines per violation and up to 5 years in prison and civil penalties of up to $16,000 per violation. For companies, the criminal penalties may include a fine up to $2 million per violation and civil penalties up to $16,000 per violation. Moreover, employers are not permitted to pay the fines of their employees or agents. Although these are the baseline fines, the Alternative Fines Act allows for fines up to twice the amount of any benefit obtained by a defendant by making a corrupt payment, and the Federal Sentencing Guidelines are utilized to decipher appropriate fine amounts. Companies found liable under the FCPA may also be suspended or permanently prevented from contracting with the federal government and, in certain qualifying cases, could lose their export privileges. Although the FCPA provides for severe penalties, the UK Bribery Act is even more severe. It allows an individual to be imprisoned for 10 years for a violation and does not cap fines, thus permitting both companies and individuals the possibility of facing unlimited fines for violating its provisions. A global manager should be aware of the risks and potential consequences of bribery.

References

U.S. Department of Justice, Criminal Division, and U.S. Securities and Exchange Commission, Enforcement Division. (2012). A resource guide to the FCPA U.S. Foreign Corrupt Practices Act, Retrieved from: https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf

Foreign Corrupt Practices Act of 1977, Pub. L. 95-213, 91 Stat. 1494, codified as amended at 15 U.S.C. §§78dd-1 et seq. Retrieved from: https://www.gpo.gov/fdsys/pkg/STATUTE-91/pdf/STATUTE-91-Pg1494.pdf