Andy Reinke – First things first – Happy New Year!
I realize this next topic is less than festive, however considering the attention this topic has commanded over the past few years and its importance for exporting firms to grasp, I think it’s time for discussion. I’m talking about the Foreign Corrupt Practices Act of 1977 (FCPA), 15 U.S.C., §§ 78dd-1, et seq., which prohibits US nationals and firms from engaging in payments to foreign officials for purposes of securing or retaining business in foreign markets. It is one of few if any US laws that govern how US citizens interact with companies and officials outside our borders.
The US Department of Justice (DOJ) is the chief enforcer of the FCPA and has significantly ramped up efforts to crack down on bribery and corruption over the past three years with the added assistance now of the SEC, and has brought to court more cases in six months than formerly required 10 years back in the 90’s. Part of this is greater, more aggressive enforcement by the Justice Department and the SEC while another key element has been greater cooperation with foreign officials and governments increasingly intent on curbing corruption in their homelands. If your firm is exporting product, technology or service, strict and accurate adherence to the FCPA is paramount, and in this blog post we’ll explore the provisions of the FCPA in terms of what the DOJ looks for when enforcing the FCPA, some helpful tips on how to best comply with the law and who to contact if you have questions or concerns. This post is to be informative but should not substitute for legal counsel.
There are five elements the Justice Department looks for to determine if FCPA has been violated. These elements are themselves explained on the DOJ website.
- Who – As stated above, any US citizen, business or individual acting on behalf of another or firm who orders, authorizes or assists in engaging or conspiring to engage in bribing foreign officials to secure or keep business.
- Corrupt Intent – The person or firm making the payment or conspiring to do so must have a corrupt intent, with the end objective of securing or keeping business in foreign markets by encouraging the foreign official to misuse their decision making power in favor of the payer. Again, just the promise to make the fraudulent payment is enough to run counter to the FCPA law.
- Payment – A form of payment (money, gifts, anything of value) must be made, offered or promised.
- Recipient–The fraudulent payment or promise to pay must be made to a foreign official which includes anyone in a decision making position in the foreign firm, government, political party, candidate or others who have influence in direction of the business in question.
- Business Purpose Test – Understanding that the FCPA prohibits payments made, or offer to pay to secure or retain business, the Dept. of Justice broadly interprets the term ‘business purpose’ beyond the single act of an order or contract award.
Should you have questions about FCPA compliance, please let your ISBDC office know and we’ll help you get you the answers you need to make an informed decision. It’s also good to know that within 30 days of receiving all pertinent information, the DOJ will render an opinion on any specific proposed business conduct to help US companies or nationals remain in compliance with the FCPA.
Offered below are a few key considerations I’ve found helpful over the years to assist firms in remaining FCPA compliant:
- Review how quotes for foreign markets are developed with all associated personnel having input or a role in pricing and export sales brought into discussion. Translucency and proper record keeping on how pricing was arrived at is strongly suggested.
- If using foreign representatives in your export markets, have few if not one consistent commission rates for all territories, and have consistency in your pricing approach. Understandably commission rates may change in accordance with the size of the project, but that too should have a level of consistency.
- Make certain your foreign sales reps and partners understand, have a copy of and agree to the terms of the FCPA. I advise putting adherence to the FCPA on all proformas/quotes.
- If using a third party (foreign representative, individual or partner) to represent you or your firm’s interest in the foreign market, make sure that partner has a reasonable level of competency in the field in which the proposed project is involved.
Passage and enactment of the FCPA was propelled by US business itself, aggravated by the barrage of uncomfortable situations in which US businessmen and citizens found themselves courting foreign markets, often being asked for indirect fees and dubious payments to secure foreign business. Enforcement of FCPA by our nation, and similar laws now passed in 33 governments worldwide, levels the playing field for all participants and makes planning for export development a more financially translucent and understood process, which is good for all in the end. Will fraud and bribery continue, of course, but it’s gotten far more difficult and is no longer considered the norm for overseas business.
Andy Reinke is the President of Foreign Targets, Inc. (FTI) an export management company creating and managing proactive export programs for small and medium sized manufacturing firms. This is achieved by utilizing a proven methodology: FTI’s Core-8 Steps to Export Management. Read more about export in the ISBDC’s Exporting Your Products and Services FAQ Page.