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FinancialQuick GuidesRegulatory & Compliance

Understanding the Foreign Corrupt Practices Act (FCPA)

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What is the Foreign Corrupt Practices Act (FCPA)?

The Foreign Corrupt Practices Act (FCPA) is a United States federal law enacted in 1977 aimed at preventing the bribery of foreign government officials by American businesses and ensuring ethical business practices. The law includes two main provisions: the anti-bribery provisions, which prohibit the direct or indirect payment of bribes to foreign officials, and the accounting provisions, which require publicly traded companies to maintain accurate books and records and have appropriate internal controls.

Why was the FCPA created?

The FCPA was established in response to revelations of widespread bribery of foreign officials by U.S. companies in the 1970s. These disclosures led to a drop in public confidence in American business integrity. The law was designed to halt corrupt practices abroad, restore public trust, and level the playing field for honest businesses that refuse to use bribery as a business tool.

Who has to comply with the FCPA?

Compliance with the FCPA is required for:

  • All U.S. persons, including businesses and individuals.
  • Certain foreign issuers of securities.
  • Foreign firms and persons who take any act in furtherance of such a corrupt payment while within the territory of the United States.

How will the regulation affect businesses?

The FCPA significantly impacts businesses, particularly those with international operations, by:

  • Mandating higher standards of financial accounting and corporate governance.
  • Requiring stringent record-keeping practices that deter corruption and bribery.
  • Imposing ethical obligations that affect decision-making processes and business operations abroad.

What are the penalties for noncompliance with the FCPA?

Noncompliance with the FCPA can result in severe penalties, including:

  • Criminal fines for companies up to $2 million per violation.
  • Criminal fines for individuals up to $250,000 per violation and imprisonment for up to five years.
  • Civil penalties up to $16,000 per violation for both entities and individuals.
  • Disgorgement of profits gained from the bribery.
  • Additional sanctions, such as loss of export privileges or exclusion from federal procurement contracting.

How do you comply with the FCPA?

Compliance with the FCPA involves:

  • Implementing robust anti-bribery compliance programs.
  • Conducting thorough due diligence on foreign partners and third-party intermediaries.
  • Training employees on FCPA standards and procedures.
  • Establishing strong internal controls and regular auditing mechanisms to monitor compliance.

How do you prepare for the FCPA?

Preparation for FCPA compliance includes:

  • Assessing exposure to foreign markets and understanding the specific risks associated with each geographical area.
  • Developing and enforcing a detailed FCPA compliance policy.
  • Regularly training staff and management on FCPA compliance and ethical practices.
  • Engaging in continuous improvement of compliance measures based on ongoing risk assessments and audits.

Action Plan for Complying with the FCPA

1. Develop Comprehensive Compliance Policies:

  • Draft clear, detailed policies that define prohibited conduct under the FCPA’s anti-bribery and accounting provisions.
  • Ensure these policies are integrated into the company’s broader code of conduct.

2. Implement Rigorous Due Diligence Procedures:

  • Conduct thorough due diligence on all third parties and during any mergers and acquisitions to assess and mitigate potential FCPA risks.

3. Establish a Robust Training Program:

  • Provide regular, mandatory training for all employees, with specific emphasis on those in roles vulnerable to FCPA exposure, using practical scenarios to highlight risks and responses.

4. Strengthen Internal Controls and Monitoring:

  • Enhance financial controls to ensure accurate record-keeping and implement continuous monitoring systems to detect and address potential FCPA violations proactively.

5. Effective Reporting and Response Mechanisms:

  • Develop secure, anonymous channels for reporting suspected violations and a clear, actionable plan for investigating and addressing breaches when they occur.

How can Craft help?

Craft’s supplier risk management solutions are designed to streamline compliance and enhance reporting. With our platform:

  • Identify risky suppliers with in-depth company profiles and easily scalable due diligence
  • Continuously monitor your supplier network for changes and potential violations
  • Document your efforts for proof of compliance
  • Collaborate and share information across teams for faster risk mitigation

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Related Regulations

  • UK Bribery Act: Expands on the FCPA by outlawing bribery in the private sector, not just public officials.
  • Sarbanes-Oxley Act (SOX): Enhances corporate governance and financial disclosures, intersecting with FCPA’s accounting provisions.
  • Anti-Money Laundering (AML) laws: Complement FCPA’s objectives by preventing the laundering of money gained through corrupt practices.

Conclusion

The FCPA is a pivotal regulation for U.S. businesses operating internationally, establishing a legal framework that deters corruption and promotes a culture of integrity and transparency. By adhering to the FCPA, businesses not only comply with U.S. law but also enhance their international reputation and operational stability. With the right tools and strategies, such as those provided by Craft, companies can effectively navigate FCPA requirements and uphold high ethical standards in global commerce.

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In this article

  • What is the Foreign Corrupt Practices Act (FCPA)?

  • Why was the FCPA created?

  • Who has to comply with the FCPA?

  • How will the regulation affect businesses?

  • What are the penalties for noncompliance with the FCPA?

  • How do you comply with the FCPA?

  • How do you prepare for the FCPA?

  • Action Plan for Complying with the FCPA

  • How can Craft help?

  • Related Regulations

  • Conclusion

  • Risk and Compliance Solutions

    Get the visibility and insights you need to identify and mitigate risk and build a more resilient supply chain.

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