Ch. 20: The Foreign Corrupt Practices Act (FCPA)

Accounting Provisions Books & Records

All companies reporting to the SEC must keep reasonably detailed records which "accurately and fairly" reflect the company's financial activities. Purpose: To identify... illegal transactions (not recorded) falsification of records "disguised" transactions

Penalties for Money Laundering

Civil Fines: the greater of $10,000 OR the value of the criminally-derived property Criminal Prison: up to 20 years Fines: the greater of $500,000 OR 2x amount laundered Forfeiture of the criminally-derived property

Penalties for Violating Accounting Provisions

Civil forfeit illicit gains Criminal Individuals: $5,000,000 and/or 20 years in jail Businesses: the greater of $25,000,000 or 2x the benefit sought

Amendments to Accounting Provisions

Clarified "reasonable detail" and "reasonable assurances" "Good faith" standard is applied to U.S. companies that own 50% or less of a foreign firm.

Money Laundering

Defined: the process by which one conceals illegal income and disguises that income to make it appear legitimate. Usually associated with dangerous criminal activities (drug smuggling, terrorism, human trafficking, racketeering) as well as tax evasion.

Penalties for Bribery Civil

Individuals: $10,000/violation Businesses: $10,000/violation

Penalties for Bribery Criminal

Individuals: the greater of $250,000 per violation OR 2x the benefit sought and/or up to 5 years in jail Businesses: the greater of $2,000,000 per violation OR 2x the benefit sought

Rule 13b2-2 (1934 Act)

Prohibits companies from lying to their auditors. (Note: This is also a violation of SOX.)

International Anti-Bribery and Fair Competition Act (1998)

Prohibits paying bribes to gain "any improper advantage" Prohibits payments to officials of public international organizations Eliminated U.S. jurisdictional requirement

Accounting Provisions Internal Controls

Public companies must devise and maintain a system of internal accounting controls. Purpose: To provide reasonable assurance that... all transactions are authorized financial records are accurate assets are handled properly book value of assets are correct

The Bank Secrecy Act (1970) Financial institutions must:

Report cash transactions > $10k I.D. the person conducting the transaction Maintain a record of these transactions

***Important Note for Auditors:

The 1934 Act, FCPA, and Money Laundering Control Act require external auditors to report clients who are engaged in paying bribes or money laundering.

Original Anti-Bribery Provisions

U.S. companies (and their officers, directors, shareholders, agents, etc.) are prohibited from offering "any thing of value" to: -foreign public officials -foreign political parties -foreign political candidates ...in order to "obtain or retain business."

"Knowing" Standard Violation of the anti-bribery provisions requires either:

actual knowledge OR substantial certainty

The Bank Secrecy Act (1970) Why put this burden on banks?

because banks are the ones that are actually there seeing the money come in

Is lying accidental?

can be? look in book

What does "substantial certainty" mean?

have to know that this is probably a bribe don't have to have tons of intent but know we probably shouldn't do it "probably wrong"

Purpose of the FCPA Post-Watergate response to:

illegal foreign bribes paid by U.S. companies inaccurate records/procedures Note: SOX has resulted in a dramatic spike in FCPA claims.

Bribery Exceptions

legal payments - defined in the statutory law of the foreign country. "grease" payments - intended to facilitate (not obtain) business. reasonable and bona fide expenses - depends on the situation.

What has to be done in "good faith"?

make sure that the other company is complying, good faith that the other company is complying with FCPA

Money Laundering Control Act (1986) Prohibits transporting criminally-derived $ into/out of the U.S. with intent to:

promote illegal activity hide the money avoid reporting requirements

Money Laundering Control Act (1986) Prohibits financial transactions that:

promote unlawful activity conceal unlawful activity attempt to evade taxes attempt to avoid reporting requirements

Accounting Provisions Internal Controls It is not a "one size fits all" approach. Factors that are considered:

the role of the board of directors communication of corporate policies who has authority/responsibility competence of personnel compliance with policies/procedures objectivity of internal audit

Do these changes broaden (or narrow) the anti-bribery provisions?

took vague language and made it more vague...