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Home » Resources » What is the Foreign Corrupt Practices Act?

Estimated reading time: 3 minutes

What is the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act (FCPA) is a long-standing regulation that exists in order to reduce corruption and bribery around business procedures, deals, and acquisitions in the United States.

Governed equally by the DOJ and SEC, it aims to regulate the public markets, prevent the bribery of any foreign official and increase the amount of available information for the public to make well-informed investment decisions.

History of corporate bribery in the US

Corporate bribery was once commonplace as Americans vied in the contest to win foreign business deals. Without being able to compete with developing countries in price, brokers would instead offer large sums of money to individual consultants in order to secure business arrangements. This would then be written off by the receiver on the other end.

However, in 1977, the US passed new legislation in order to put an end to anti money laundering (AML) and extortion in business altogether. The focus of these regulations stretched across global business deals involving those with securities in the US markets.

It is now enforced in equal parts by the Department of Justice and the Securities and Exchange Commission, both of which have the authority to perform government investigations. 

Features of the FCPA

There are two overarching purposes of the FCPA legislation:

  1. Prevent corporate bribery
  2. Increase transparency in corporate accounting

1. Prevention of corporate bribery

As previously mentioned, the FCPA was specifically designed to reduce the occurrence of international extortion and corruption in business. In particular, the features of FCPA that directly tackle this measure are the governing rights of the regulators inside of corporate structures.

For example, investigators from the DOJ and SEC are both entitled to access corporate structures, such as for improper payment, and perform an internal investigation. Likewise, they can govern through policy creation.

This anti-bribery provision also extends to third parties and consultants that are within the realm of the industry, too. In particular, this part of the legislation goes hand-in-hand with anti-money laundering regulation (AMLA).

2. Transparency of corporate accounting

The second branch of FCPA compliance is a corporate accounting provision directed towards increased visibility and access. This part of the legislation requires companies to perform their corporate accounting within a specified system. The internal controls of the system itself are designed to make it almost impossible to hide corrupt deals. 

This legislation works in tandem with the FINRA anti corruption law in order to create a more open finance platform and help the public make informed decisions about their investments. 

Moreover, this section of the regulation enforces internal control rights for the regulators. This means that both the DOJ and SEC have FCPA investigation privileges to investigate corporations with auditors at any time. Those who do not comply with the best practices specified in the anti corruption law (even if there is no bribery in existence), will receive penalties.

Who must comply with the Foreign Corrupt Practices Act?

The FCPA extends to any publicly-traded company with securities traded on US markets. This means that financial institutions, as well as any other corporation that has undergone an initial public offering, are subject to the regulations required under the anti bribery law.

Furthermore, FCPA enforcement extends to any foreign government official, such as an attorney general, that may be involved with brokering business deals. Anti-corruption due diligence is required at a minimum.

The penalties for FCPA violation and non-compliance can be severe. Both economic sanctions and civil criminal charges exist as punishments for companies and individuals who violate the regulations.

Significantly, another enforcement action involves the publishing of violations online. This can severely affect stock price and share value as violations, such as a corrupt payment, do not align with the ethics of good business management in the eyes of the public. This penalty, therefore, exists in order to encourage deterrence. 


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