Unravelling the legacy of FCPA – then and now!

Lincoln StatueThe Foreign Corrupt Practices Act, popularly known as FCPA, has become a synonym for anti-bribery and anti-corruption regulation in today’s world. To understand any legislation, it is important to understand the history and reason behind the statute. What exactly is FCPA? What is the history of this landmark statute enacted by the government of United States of America and where does it stand today?

It all began in mid-1970s, when a series of problems of payments to foreign and local government officials came into light through the work of Office of Watergate Special Prosecutor and investigations by Securities Exchange Commission (SEC) and Senator Frank Church’s Subcommittee on Multinational Corporations (Church Committee). Investigations revealed instances of US Corporations illegally sponsoring the election campaigns of local /foreign political parties and failing to report these payments to their shareholders by falsifying these payments and manipulating books and records.

In 1975, the Church Committee, formed in the aftermath of Watergate Scandal, held separate hearings with corporations subject to allegations of such questionable payments. In the concluding remarks, Senator Church stated:

“In short, we cannot close our eyes to this problem. It is no longer sufficient to simply sigh and say that is the way business is done. It is time to treat the issue for what it is: a serious foreign policy problem.”

On May 12, 1976, the Committee on Banking, Housing and Urban Affairs of United States Senate, received a report from SEC on “Questionable and Illegal Corporate Payments and Practices”. The report summarized the SEC’s enforcement activities and findings involving misuse of corporate funds and instances of undisclosed questionable payments.

“Foreign Corrupt Practices Act – Anti-bribery Provisions,” a brochure published by the U.S. Department of Justice, stated that as a result of the SEC investigations over 400 corporations admitted to making over $300 million questionable payments to foreign government officials, political parties and politicians.

As a result of these investigations and multiple hearings/deliberations by the United States Senate, the “Foreign Corrupt Practices Act of 1977” was enacted on December 19, 1977. The Act attempted to address following three major concerns:

  1. Making it unlawful for “Issuers” or “Domestic Concerns” to pay, promise to pay or offer to pay anything of value to a foreign government official, political party or its official in “obtaining or retaining business”
  2. Making it mandatory for Issuers to make and keep books, records and accounts to accurately and fairly reflect the transactions and disposition of assets of the issuer.
  3. Making it mandatory for Issuers to devise and maintain a system of internal accounting controls sufficient to assure management’s control, authority, and responsibility over the firm’s assets

In 37 years, after over 200 cases of prosecution of corporations and individuals and over $5 billion in penalties and disgorgement, FCPA has come a long way with new developments with every case of prosecution.

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