The Foreign Corrupt Practices Act (FCPA) was enacted to counter the rampant bribery of foreign officials – bribery that was common practice in international business circles for years. Although the FCPA was established in 1977, the 2010 addition of the Dodd-Frank Wall Street Reform and Consumer Protection Act strengthened the United States’ efforts to stop corruption by offering both protection and a potential monetary reward to individuals who report suspected violations to the Securities & Exchange Commission (SEC) and the U.S. Department of Justice (DOJ).
As a result, more individuals are coming forward to report fraud and many of these individuals are seeking the help of Baron & Budd to represent them in these matters. In addition to assistance in representing one’s facts to the SEC, having an attorney represent you affords a whistleblower greater anonymity, often allowing the whistleblower to stay in his or her job while the investigation proceeds. It is illegal for an employer to retaliate against a whistleblower for reporting the information to the SEC, and the law allows a whistleblower to sue an employer who does.
The FCPA prohibits U.S. companies and citizens, as well as foreign companies listed on U.S. stock exchanges, from bribing a foreign official with cash or non-cash items to obtain or retain business. Under the FCPA, violations are not limited to the stereotypical scenario of handing a suitcase full of cash to a foreign government official in exchange for a government contract. Although, that certainly does still happen, a bribe could be anything considered of value, such as a promise of future employment, a free vacation, or even a personal favor; and a foreign official could be a government official, or a military officer or even an employee of a state owned or operated entity such as a or hospital or investment fund.
The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations to:
- make and keep books and records that accurately and fairly reflect the transactions of the corporation, and
- devise and maintain an adequate system of internal accounting controls.
In other words, it is not only a violation for the company to offer bribes, but it is also a violation if those bribes are deducted as “expenses” – costs of doing business – on the company’s financial statements and if the company had no internal mechanisms to prevent such fraud.
The SEC and DOJ jointly enforce the FCPA. Recent years have seen a marked increase in FCPA enforcement. Whereas the DOJ and SEC combined brought only five enforcement actions in 2004 and 12 in 2008, the agencies brought a combined 33 enforcement actions in 2008 and 40 in 2009.
Penalties for violation of the FCPA can be substantial. For instance, in December 2008, Siemens AG pled guilty to violations of the FCPA’s anti-bribery provisions and for breaching the internal controls and books and records provisions. The company agreed to pay a $448.5 million criminal fine and a $350 million civil penalty for disgorgement of profits.
And rewards to the whistleblower can be substantial as well. For example, a qualified whistleblower who provides information to the SEC that results in monetary sanctions greater than $1 million is entitled to a reward of at least ten percent and up to 30 percent of any resulting fines.
Given the substantial rewards available to FCPA whistleblowers, as well as the protections afforded them by the Act, the new law is likely to significantly increase the number of government investigations into violations of the FCPA.